Strange title for an equity guy but with interest rates at historical lows and the bond traders with a long history of getting the economic scene right I thought it was a good day to discuss what low interest rates are saying about the economy. The bond traders are saying two things: first, the economy is not recovering any time soon and second, there is no faith in the FOMC to see us out of this economic mess.
Yields cannot get much lower as the two year is at .49%, for TWO YEARS you get essentially no interest on your money. This is why people just go to the mattress, taking no bank failure risk and getting the close to the same interest rate.
Frankly I agree with the bond market and it is only a matter of time before the stock market wakes up and smells the deflation. I wrote on Friday that the S&P is going to go lower and perhaps much lower.
Today we get word from the Fed at 2:15 pm est of what their monetary policy stance is going to be, which we know is going to keep rates at 0-.25% but we will also read what the FOMC is going to do about more quantitative easing and the expansion of their already inflated balance sheet.
Bottom line is the Fed is irrelavant and what they say today does not really matter. What matters is the economy stinks, we are losing jobs there is nothing more the Fed can do at this point. Good night Irene!
Happy Trading!
The Technology/Telecom book had a decent day closing up 55 basis points. The book was able to perform right in line with the S&P 500 which closed up 55 basis points also but lagged the NASDAQ Composite and the XLK (Select Sector Technology/Telecom ETF) which closed up 75 basis points and 67 basis points respectively. We made no changes to the book and closed the day the same way we went out Friday.
The top performers on the day were MA, GOOG, V, AAPL, and CREE. MA and V had a very strong day due to bullish articles in Barron’s over the weekend, the names both closed up 3.6%. GOOG, AAPL, and CREE rounded out the top five closing up 1.03%, 64 basis points, and 1.37%, respectively. CREE’s strength was attributed to the strong numbers coming out of the top Taiwan LED manufactures.
The losers on the day were VCLK, DELL, and RIMM. VCLK was down 3.55% due to an uncertain research note from JPM Securities. DELL opened the day strong due to HPQ’s weakness but then closed the day down 1.07% nicely off the lows. Last was RIMM which closed the day up 3.5% and was one of the strongest names in the tech sector. RIMM was up on positive news coming out of Saudi Arabia that said RIMM and the Saudi Government were close to settling the security dispute and RIMM smart phones would be deemed acceptable for use in Saudi Arabia.
Other major news stories today was a note out on TechCrunch saying the talk of a Verizon iPhone in January is true. The note went on to say “Sources with knowledge of this entire situation have assured me that Apple has submitted orders for millions of units of QCOM CDMA chipsets for a Verizon iPhone run due in December,” he writes. “This production run would likely be for a January launch, and I’d bet the phone is nearly 100% consistent with the current iPhone 4,” but with a fixed insulator on the antenna. Digitimes was also out saying they are expecting Verizon to release the CDMA iPhone at the CES 2011 conference where VZ CEO Ivan Seidenberg will be giving the keynote speech.
I felt this was good news for the stock and finally gave us some clarity that VZ would be bringing the iPhone to market and solidifying the rumors we have been hearing for some time now. I was surprised the stock didn’t rally more and will be keeping a close eye on AAPL tomorrow morning.
Wow, lightest volume I have seen thus far during my time at this fund. The action was extremely lackluster. The market did grind higher throughout the day, albeit very slowly, and ended the day up about half a percent. I wonder if we should just discount days like the ones we’ve been having lately where the volumes are incredibly low. So in light of the lack of news and market commentary, I will address an article that I came across in the WSJ’s Smart Money about charities and donations. Sounds all good on paper. But who can afford to give out donations in an economy like our current one? According to the article, charity donations fall about 1% in recessions. However, for the past two years, charitable giving has declined at record pace: 3.6% in 2009 to $303.8B and 2% in 2008.
It’s amazing how wide the gap is between top and bottom income earners in this country. Bill Gates and Warren Buffet together formed an organization called “Giving Pledge,” which is a recession-inspired commitment to contribute at least half of one’s assets to NPOs/charities over their lifetime or after their death. The two announced on Wednesday of last week that a total of 40 signers have joined the group. Needless to say, they are all billionaires including founder of Oracle (ORCL) Larry Ellison, George Lucas, Diane Von Furstenberg, and Barron Hilton of Hilton Hotels.
The article goes on to detail how the rest of the small people out there, “consumers,” can maximize their donations. Tactics include selecting charities that will make the most of your contribution, focusing on a single charity, donating time and items rather than cash, and skipping the middlemen by writing checks directly to the organization. I didn’t really care so much about this part of the article, although in a less sucky economy, I honestly would have cared more. I just wanted to point out that as always it is the billionaires who can continue to live and spend like the economy has not changed. At least this Giving Pledge seeks to do some good though.
The finacials book performed as it should. Up slightly on the day, lagging the SPX by 25 bps. Or should it have? There is no market direction because of the uncertainty in our economy. The market is already cheap and, there’s been no really good substantial news and volumes have teetered to its lowest levels of the summer. Therefore, it’s a gamble that the market will go down when that’s all it’s really wanted to do lately. Tomorrow is a big day as Zach described the FOMC will have its quarterly interest-setting meeting. Interest rates can’t go any lower so the only news the street is waiting on is what type of quantitative easing strategy the Fed will take in order to stimulate the slow job recovery and poor consumer sentiment. One QE method is open market operations which is primarily done through purchases of financial assets such as bonds and corporate bonds from other banks or financial institutions. By engaging in open market operations, the Fed is essentially electronically adding money to their account. Tomorrow we will hopefully review the Fed’s latest balance sheet to analyze QE scenarios.
Today the market traded in a sleepy 9 handle range; action that Mark described as typical of August trading, particularly the day before a Fed meeting. Tomorrow, the Federal Open Market Committee (FOMC) will meet. The FOMC is comprised of Chairman Bernanke, seven members of the Federal Reserve board, President Dudley of the New York Fed, and four other Presidents of regional Fed banks. After disappointing economic numbers including a sluggish advanced GDP and worse-than-expected employment numbers, quantitative easing has become the hot button issue for this month’s meeting. This monetary tool involves the purchase of government-backed securities (T-bills, T-bonds, and T-notes) in order to inject additional money supply into the economy. If the Fed chooses to halt their policy of quantitative easing, it would mark a significant change in monetary policy and would likely lead to a violent sell off. Fed economist Dean Croushore states “I don’t think they really want to take a strong step at this point…They kind of want to hint at it and wait for the data. But there will be a pretty strong discussion at this meeting.” Furthermore, the policy of quantitative easing has received a mixed reaction; while many agree that this policy would beget a short term rally in the market, it fails to address the underlying fundamental problems in our economy. Former St. Louis Federal Reserve President William Poole said “More bond buying from the Federal Reserve won’t help the U.S. economy, because purchases can’t remedy the main problem plaguing the U.S., which is fiscal and regulatory uncertainty…Monetary policy is not the appropriate tool to solve the problem.” Finally, the Fed still has the option to lower the Fed Funds rate from 0.25% to 0%. According to the 74 economists surveyed by Bloomberg, there is a 39.5% chance the rate will be dropped and a 60.5% chance the rate will remain unchanged. While the possibility of a rate change seems remote, people will be paying attention to the language used in the Fed’s press release. Any change in the “extended period” language we have come to expect from the Fed can lead to an immediate plunge in the market as sophisticated algorithms scan the press release in nanoseconds for any vernacular modifications. Happy Fed Day!
The market had a decent bid to it today continuing to trade higher following the closing rally Friday afternoon. The Hedge Fund Live portfolio lagged the broad market today closing up 9 basis points versus the S&P 500 which was up 55 basis points. The hedge was our main reason for our losses considering we came into the day pretty much flat, we covered 40% of the hedge as the market pulled in.
The top winners on the day were MA, BBY, GOOG, V, and AAPL. MA and V both had a strong day following bullish articles written in Barron’s, both closing the day just off the highs up 3.6%. BBY was strong on no direct news and closed the day up 1.9%. GOOG showed strength off of the $500 level and ended up closing the day towards the highs up 1.03%. Lastly, AAPL traded in line with the market closing up 64 basis points. I was expecting a stronger day out of AAPL because of the high speculation that VZ will announce a CDMA iPhone at CES 2011 but there wasn’t much of a reaction.
The losers on the day were the futures, XIDE, VCLK, DELL, and IMAX. The futures hedge was by far the biggest loser on the day closing up 56 basis points and costing the firm about $5,300 in PNL. As far as equities go XIDE was the outsized loser to the cost of $2,500 closing the day down 4.27% and well below the $6 level. VCLK showed weakness today following an uncertain research statement from JMP Securities, the stock ended up closing down 3.55% at $10.60 the lows of the day. DELL was down 1.07% on no direct news but could have gotten hit due to the HPQ news. DELL was up in the premarket on the HPQ weakness but was quickly sold once we opened. IMAX was down 1.29% on no direct news weaker than expected weekend ticket sales.
Overall it was another poor day of performance for the portfolio closing the day up 9 basis points while the market was up 55 basis points. Overall we covered 31.50% of our shorts on today’s strength and which takes our net exposure up to 18.5%.
The Hedge Fund Live portfolio had a decent day Friday closing down 21 basis points outperforming the S&P 500, which closed the day down 43 basis points. The book was performing terrific when the market was on the lows trading down 1.5% the book was down only 23 basis points but when the market rallied into the close we gave back a lot of profits in the hedge.
The top winners on the day were TPC, S&P Futures, MA, IMAX, and MEE. TPC had a strong day closing up 9.21% following strong earnings. The futures short was performing great but rallied about 1% at the end of the day to close down 33 basis points. MA had a strong day closing up almost 3%. IMAX and MEE also had strong performances closing the day up 1.25% and 5.30%, respectively.
The top losers on the day were XIDE, GOOG, JPM, FXE, and CVE. We saw some selling in XIDE on Friday closing down 4.56% and back below 6 dollars. Pay attention to XIDE at this level as Tontine has been unloading shares at roughly six dollars. GOOG was sold Friday after a nice run back above 500.00. GOOG closed the day down 1.55% right at $500. JPM and CVE closed the day down 2% and 3.15%, respectively. Lastly, our FXE short position took a beating with the euro rallying and the FXE closing up 75 basis points.
Dean put it simply at the end of the day and said it’s a NICE FRIDAY in AUGUST. In addition to the poor nonfarm payroll employment number coming in at negative 131,000 for July and unchanged unemployment rate of 9.5%, the quiet summer friday provided for a perfect bear move in the market. The whole day we watched sellers come in and sell off market 1.5% until 3:30 when the buy programs came in to lift the market back up to only down .37%. Economic recovery isn’t occuring in line with the market and it’s really confusing the heck out of traders and PM’s alike. We’re running into a shortage of data to look at. The increase in volume off the number and the decrease in volitility in the market was a typical Friday move. Over and out.
There are too many straws to grasp at in this market. The vast array of economic numbers, trends, ways to filter data to validate your thesis is nauseating. And on the technical front, the story goes the same regarding the countless amount of indicators that exist- averages, lines, ”key” price levels. I think we are all tired of getting whipped around and of receiving conflicting messages in the market. What’s another poor economic number? Today’s employment report was depressing. The unemployment rate remained the same as the prior month’s at 9.5%. Doesn’t seem overly negative at first. However, it was partially due to people continuing to leave the work force. In other words, they stopped looking for jobs during the month. They either got lazy or gave up. The latter, if true, would add more fear to the market. If that is the case, then I don’t see Consumer Confidence showing legitimate gains for a while. I still want to cling on to the “everything will work out” mentality; that is how we are brought up. I think Mosk’s blog today was titled perfectly- sometimes it sucks to be right. And that is how all the bears out there better feel as well. They may be right in calling the direction of the market and health of the economy; however, we’re all living in that same exact economy that is suffering. I guess it’s the paradox that is the bear.
Clearly I am becoming the sage of Wall Street as I am understanding exactly how this market is trading and am way ahead of the supposed “smart” money when it comes to the economy. I know this is not typical Mark Moskowitz but self promotion seems to be the way of the finance world so I figured I would jump on the bandwagon.
But in the real world, if I am right but we lose money as a fund none of this matters. I am very negative on the economy as my readers know. Every month I get more and more proof of this as the economic numbers show that if we are in a recovery, it is the slowest recovery on record. Bill Gross of PIMCO stated that 7% unemployment is our new bottom number as opposed to 4%
The economy WILL DOUBLE DIP and the next dip could be so brutal that it will last for years. Let’s not keep fooling ourselves that we can spin these poor numbers in a positive way, fact is fact. Right now the S&P is overvalued, I don’t think the $95 earnings estimates by the analysts are even remotely possible.
This last 100 point rally is going to be another great chance to sell stocks and get short. I don’t know if we will do this as a firm, but I know the direction of my pad.
Oh, by the way Obama’s economic team is leaving in droves, hmmmm!
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