Worst-performing groups -- first half of 2009 (using common indices):
- Airlines: -27%
- Banks: -12%
- Water Utilities: -12%
- Insurance: -11%
- REITs: -7%
- Defense: -4%
- Drugs: -3%
- Telecom: -3%
- Transportation: -3%
- Oil: -3%
- Utilities: -1%
Banks are the real kicker on this list because of all the recovery hype. Their six-month performance shows they're still critically injured, with a "guarded" outlook into year's end.
Position: nm
The QQQQ is trading up this morning from 36.38 to 36.60 at the time of this writing... We have had two gap up days this week and the market responded differently each time... On Monday the gap up was met with selling from the open and yesterday the gap up was met with buying... We also saw a 180 degree change in trading from Monday to Tuesday... Monday we dropped 40 cents then popped... Yesterday we popped 30 cents then dropped... Anything can happen today, and due to the holiday shortened week, will be low and slow... MYGN is down on lowering revenue expectations but can recover nicely.... AMAG is up on an FDA approval for Feraheme to treat iron deficiency in adult chronic kidney disease patients..
Position: NM
929 = 93.35 S
925 = 92.95 S
922.25 = 92.65 M
917.25 = 92.15 W
913.75 = 91.80 M
910 = 91.45 M
908 = 91.25 S
Position: none
Yesterday, I mentioned the possibility that the bears might pull the rug out from under the bulls...for those wondering what a rug pull looks like, please see yesterday's 1 min SPY chart. In early morning trading we are back above 920 and not that far from where we started the day yesterday. Basically, traders have no clue if they want to buy 'em or sell'em...they are more concerned with their holiday weekend plans. Trading volumes will continue thin out throughout today and tomorrow...so trade accordingly and don't force trades.
The bulls need to hold the emini above weak support at 917.25 and target moderate resistance at 922.25. Momentum begins to build between 922.25 and strong resistance at 925, but only above 925 will bears begin to retreat and bulls press. Assuming the bulls can sustain a trade above 925, traders will likely remain bullish and target strong resistance at 929.
The bears unleashed an impressive one-two combo on the bulls yesterday, but then they ran out of energy and the markets just drift a bit higher throughout the afternoon. If traders want this market lower, they need to push the emini through weak support at 917.25 and target moderate support at 913.75 and 910. The bears gain a slight edge with the emini back under 913.75, but it will take a trade through 910 and strong support at 908 to put the bulls on the run.
Position: none
The South African rand has been the strongest currency this year. The rand has appreciated every day since June 23rd, until today.
Off by a little more than 0.5%, the ostensible cause of the modest profit taking is disappointment with the purchasing managers index.
The rand has been bolstered, more by international considerations, like relatively high yields and its commodity producer status, than by domestic factors. The sell-off in government bonds today, suggests global investors may very well be taking profits.
It is too early to have much confidence that the rand has topped out. A move above yesterday's dollar high near ZAR7.84 would be the first "real" sign that a bottom may have been reached and suggesting near-term potential toward ZAR8.00.
Position: None
Acorda Therapeutics (ACOR) shares are down this morning despite what looks like a strong partnership deal for the company's multiple sclerosis drug signed with Biogen Idec (BIIB).
My best guess here is that investors are disappointed that Acorda was not acquired outright.
Position: none
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Howard Simons
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| Thoughts On Thin Holiday Conditions |
7/1/2009 10:25 AM EDT
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Most of us link market thinness to the conditions such as we have seen all this week and fear what something such as the employment situation report can do intraday.
I look at it differently: Most of us are willing to dismiss market moves of significance if they occur in weeks such as this. I think back one year ago when the energy stocks in general and the exploration and production group in particular started to dive. The energy commodities peaked within two weeks and did not stop collapsing until year's end.
Every day is real. If the buyers have been showing up today and the sellers have not, then we know there is underlying strength until notified otherwise. Once we start making special cases and conditional excuses, we create nothing but confusion for ourselves.
I can recall a number of large moves at or around holiday times. Nearly all of them were significant in the direction established during thin conditions.
Position: Do these conditions make my portfolio look fat?
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Tim Melvin
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| New EU President Wants Reduction in Stimulus Spending |
7/1/2009 10:31 AM EDT
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The incoming President of the European Union is no green shooter to say the least. Swedish Prime Minister Fredrik Reinfeldt assumed the six-month rotation today. He says in the morning Financial Times that he does not think the crisis is over and it is time to cut back on stimulus spending among the 27 nations that make up the EU.
He is worried there are large losses facing the continents financial institutions in the future and he is not sure they have the capital to face the situation. He also said that the EU nations need to get spending and debt back in line with pre-crisis levels to face upcoming pressure from the social welfare system.
The fact that Europe is preaching fiscal discipline and reigning in spending while we attempt to print our way to recovery strikes me as ironic.
Position: none
I have exited my recent Ultra Real Estate ProShares (URE) trade today with approximately a 10% profit in a little more than a week. My reasons for exiting include a significant profit in a short time frame, expected seasonal weakness in the market after the 4th of July and my perception that the overall market is in more of trading range with limited upside at these levels. I am not really bearish or bullish, but more neutral.
As a hedge against holding a lot of cash, I do have a significant position in gold via ProShares Gold Double Long (DGP). This is not really a trade, but I would exit the position if it hit certain price targets.
Position: DGP
Here are some stories and videos from our flagship site that you may have missed:
Position: n/a
China announced it wants to talk about reform of the international monetary order at next week's G8 meeting. The dollar has been hit in a knee-jerk reaction to the news but we are skeptical of the merits.
China is not a member of the G8 and is hardly in a position to determine the agenda.
China's views have been well known since the April G20 meeting.
What reform takes place will be a multiyear process.
We are struck by the gap between China's declaratory policy -- what the government says -- and its operational policy -- what it does.
Any changes in the international monetary order requires U.S. approval.
The G8 is not the key forum for this kind of discussion. The IMF is. Moreover, central bankers do not attend G8 meetings and that alone may limit such discussions.
The dollar has been under pressure today and we expect additional near-term dollar weakness. However, the China story appears to be an excuse to do what many were inclined to do in the first place.
Position: None
Shares of Spartan Motors (SPAR) are getting crushed today, down nearly 30%. The companies they had expected to do subcontract work on army vehicles lost out to Oshkosh (OSK). Spartan had contracts with General Dynamics (GD) and Force Protection (FPRT) as well as Boeing (BA) and was counting on one of the three them winning the contract. Apparently the market expected the contract would be rewarded to one of the chassis-maker's contractors as well. The contract was potentially worth more than a billion dollars and involves assembling all terrain vehicles for use in Afghanistan.
Yet another reason I choose to invest based on absolute values and not expectations.
Position: none
Marc, I keep wondering if China is so scared about the dollar going down the tubes, why do they persist in pegging the yuan thereto? The yuan has had a 0.7% up/0.42% down range against the dollar since mid-July 2008.
If the Chinese raise the issue, they weaken their own currency. In addition, they keep underscoring the simple reality there's no alternative to the dollar right now. The SDR is 44% USD, which sort of limits its diversifying power. And anyone who has been keeping score over the past sixty years has to question the ability of the IMF to manage a global reserve unit.
If China is worried, let them allow the yuan to float freely. That would increase their purchasing power against U.S. dollar-denominated assets, Treasuries included, and remove some of the forward risk associated with holding those assets.
Position: None
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Doug Kass
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| Consequences of Crude? |
7/1/2009 1:32 PM EDT
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For the second day in a row, the price of crude oil has reversed lower in a dramatic fashion.
After being up close to $2 a barrel, crude is now down by over a dollar.
Any contributors think there is an investment consequence? A market tell?
Position: None
Doug, the August contract has been under selling pressure since June 11. Technically, it is threatening to break down out of a flagging formation; the last two days have seen significant time-selling pressure. In my taxonomy, it is in an unstable transitional structure awaiting longer-term resolution.
The various oil-related groups have been in negative trends for about two weeks. The refiners have been the weakest followed by the exploration and production, service and equipment and the integrateds. Just as the stocks led the commodities lower last year around this time, the same phenomenon seems to be taking place now.
I still have to like crude oil over the long term; they aren't making anymore and we aren't using less. Of course, I said the same thing about Japanese real estate in 1989 and I'm still waiting for the first uptick.
Position: None
From a trading standpoint, a close under $68 would likely send the commodity back to $60. Today's selling is probably due to this morning's Department of Energy report showing a smaller drawdown in crude supplies and a larger build in gasoline supplies than last night's API report.
Position: none
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Doug Kass
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| RE: Howard and Bob |
7/1/2009 2:14 PM EDT
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Thanks guys -- helpful!
Position: None
Looking at the private side of commercial real estate and equipment leasing programs, I am seeing a different side of this "bottoming" market. Many of the private REITs that I dealt with when I was on the advising side of the ledger are telling a different story. Several of my clients had purchased these products over the last several years, so I still keep track of many of these holdings and receive communications from the companies.
Early in the year, we saw the distributions cut drastically, which may have been a sign of the bottom or bottoming process. However, just in the past week, two of the stronger players in this group just drastically cut their rate (80% less), and another just eliminated its distribution entirely due to ongoing, severe liquidity issues. They cite having to preserve cash because they are "without traditional liquidity," even with properties that are cash-flow positive.
Position: nm
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Tim Melvin
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| Commercial REIT Thoughts |
7/1/2009 2:59 PM EDT
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I had a chance to chat with John Steffey of Exit Realty the other night over cocktails. John and his family have been involved in commercial real estate in this area for decades. He tells me that it is impossible to do any deals right now. There is simply no financing to be had. He has potential buyers looking to bottom-feed, but none of the banks will touch the loans.
Until the banks begin to make C&I loans again, this market will remain locked up. If I were running a commercial REIT, I would cut my dividend entirely so I could survive until credit returns. I anticipate we will see a lot of lowered and eliminated dividends in this group over the next six months.
Position: none
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Christopher Grey
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| More Thoughts About REITs and Commercial Real Estate |
7/1/2009 3:05 PM EDT
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I've been in commercial real estate for about 16 years now, and I think the downturn is really just getting started. What I'm reading on the board is not a surprise. There is still a lot denial in the market, though.
I am not as negative on the large public REITs, because a lot of the downside is already baked into their share prices, they have raised a lot of equity and restructured their debt, and they may be in a position to benefit from some of the distress. Many smaller and private REITs will ultimately be wiped out in my opinion. Also, many private commercial real estate owners and lenders will be wiped out. The process will be slow. I think it's going to take several years for commercial real estate to bottom out.
Position: none
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Tim Melvin
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| Who Buys This Stuff? |
7/1/2009 4:13 PM EDT
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I just read that Venezuela is issuing $5 billion in binds to offset the drop in oil prices. This follows the heels of a $1 billion issue earlier. In total the government of Hugo Chavez intends to issue $15 billion of bonds to make up for the loss of funds from the oil fields. Oil revenue make up 93% of the nations export revenue. Total debt stands at $14 billion of domestic issues and $29 billion owed to foreigners.
Given that Chavez has shown that property rights and moral obligations mean very little to him I have to wonder who buys these bonds. Who, foreign or domestic, could be comfortable lending that government money? Are people that desperate for yield?
Position: none
Most of the small open economies are highly dependent on exports to Western Europe. With the euro zone likely to contract in 2009 and show very little growth in 2010, Eastern Europe will find it tough to recover from the current downturn. In our view, the downturn in Eastern Europe is likely to be deeper as well as longer compared to what Asia and Latin America are experiencing. Just look at the numbers out of Eastern Europe this week. Estonia IP fell 30% in May, Turkey Q1 GDP contracted 13.8% y/y vs. -6.2% in Q4, Czech IP was reported at -22% y/y in May vs. -22% y/y in Apr, and Latvian retail sales fell 26% y/y vs. -30% y/y in Apr.
With regards to currency performance, we acknowledge that increased risk appetite and the search for yield have boosted EMEA currencies with relatively weak fundamentals, such as HUF, TRY, and ZAR. But in order for these currencies to hold on to gains and continue to outperform, we think real money equity flows are needed, and to us, the fundamental case for investing in EMEA equities appears weak.
Position: None
The dollar posted losses across the board vs. most of the majors on an extension of the green shoots theme, basically giving up the previous day's gains. U.S. data was mixed, but data from Asia and Latin America pointed to continued healing of the global economy.
Sterling underperformed again, and so EUR/GBP tested the 0.8600 level. The yen was softer too but underperformed the buck, so dollar/yen bounced to test the 97 area. EM currencies were firmer against the buck. Biggest gainers vs. U.S. dollar on the day were PLN, COP, HUF, ILS, and CZK, while biggest losers were NZD, CLP, ZAR, PEN, and JPY.
China and Korea both reported stronger data for June (PMI and trade data), which in recent weeks has tended to weigh on the dollar as optimism picks up and riskier assets see stronger demand. China comments on reforming the international monetary system at next week's G8 meeting also weighed on the buck, though the comments really were nothing new.
U.S. jobs data and the ECB meeting pose some event risk today, with markets likely to thin out with the US holiday Friday. For now, the dollar is likely to remain pressured.
Position: None
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