Market Soapbox 11/11/05
Resistance: DJIA 10800; SP500 1250; Nasdaq 2225; NDX 1670
Support: DJIA 10200 ; SP500 1175; Nasdaq 2000; NDX 1500
In our top story tonight, Generalissimo Francisco Franco is STILL dead. In other news, Japan's economy grew a faster than expected 1.7% which sent the Nikkei 225 to a four year high today. The Bank of Japan has hinted that they will be raising interest rates, as have the BOE, ECB, BOC and FED.
For those of you with A.D.D. or in denial, take a BIG FAT hint, the central banks are telegraphing everyone loud and clear. We expect that the 10 year yield will be at 5.45% or higher Q106 and we repeat one of our mantras, rates are going to continue to rise, far beyond anyones expectations.
Witness, the rapid widening in CDO spreads within the last two weeks, Fannie & Freddie are no longer the last resort and the subprime market is having difficulty offloading their crap, er, I mean loan portfolios even to the Asians & Europeans who previously were eager to buy. As risk increases, premiums in the form of interest rates rise.
Speaking of the devil, the average fixed 30 year mortgage hit 6.31% last week, its highest in 16 months. The cost of an ARM linked to one year Treasury notes has risen even more steeply: to 5.09% last week, up from 4.91% a week earlier. It is now at its highest level since 2002, and I would hate to be holding an ARM, better lock in while you still can.
Which leads us to the housing ATM churning on, according to Freddie Mac, in Q305 homeowners withdrew more than $60 billion, equal to Q205's extraction rate. Consumer spending accounts for 70% of economic growth; the construction sector provided over 50% of new jobs in the last non farm payroll report and the housing sector is responsible for over 40% of the economic growth in the last 4 years.
At the same time, the Bush Tax commission suggests replacing the current deduction for mortgage interest, which in our progressive tax system benefits rich borrowers more than poorer ones, with a flat 15% tax credit on mortgages up to a certain limit.
The credit would be the same regardless of the borrower’s tax bracket, and the cap on mortgages to which it would apply limits the tax hand out for the rich. The National Association of Realtors estimates this change would bring a 15% reduction in housing prices across the country.
A recession and a housing market adjustment generally lag FED rate increases by 18 to 24 months. And the Fed usually overshoots the equilibrium rate because of latencies in the econometric reporting mechanisms. We are now approaching that timeline.
I have previously stated that the housing market would not pop & thud, it would suffer more of a slow painful erosion over a 3-4 year period. Couple the potential tax change with higher energy, rising core inflation and rising rates,and we potentially have a witches brew for a housing market implosion. TBD.
Shameless self promotion, oil continued its pullback to 57.50 and hit a 5 month low, as previously posted on this blog, we still feel that $55 is the next stop and this will lead to $52.
Even more shameless self promotion, from 10/21/05 Market Soapbox: "Now, $1.19 to the Euro, 115 yen to the dollar, by year end $1.15 to the Euro, 119 yen to the dollar." Dollar up 7th straight day, longest winning streak since Aug. Today, 1.169 vs. Euro & 117.98 vs. Yen.
Today's SOOHEY PIG PIG award once again goes to the buyers of GM stock & bonds, after PBGC announced a potential demand for profits from any GMAC sale, GM dropped 15% in 3 days, GM up 3.8% today. We have two words, DUMB and DUMBER. SOOHEY!! PIG! PIG!
7 weeks ago, DJIA -270 on higher volume, plunging below all major DMA's. 6 weeks ago, DJIA +148, lacking conviction. 5 weeks ago, DJIA -281 crashing down on higher volume. 4 weeks ago, large swings DJIA -6.
3 weeks ago larger swings, DJIA -77, 2 weeks ago, even larger swings, DJIA +186. Last week, broadbased gains on higher volume DJIA +128.
This week, Mon. a weak attempt with DJIA +55 on so-so internals. Tues, a down day DJIA -47 on wretched internals and lower volume. Wen, DJIA bounced off of 10600 and closed +6. Thurs, DJIA +94, with AUTHORITY.
Today, no impetus on the follow through, DJIA +46 on decent internals, but very low volume. This week, DJIA +154, three consecutive weeks of gains totaling DJIA +468.
Over the last 8 weeks DJIA -18. Oh no, I'm having a bout of DFS, as Maxine Nightingale said: "Ooo and it's alright and it's comin' 'long, We got to get right back to where we started from". Don't laugh as Disco Flashback Syndrome is a serious affliction for anyone who survived that era and it can strike at any time.
DJUA & SOX pounded down, RUT & MID weak. DJTA, XOI & XAU leading the way up. CAC up BIG, DAX up BIG, FTSE up, Hang Seng up & Nikkei 225 up.
Dollar up vs. Euro & up vs. Yen, XAU & gold up, XOI up & crude down @ 57.55, CRB commodities & bonds up. Contra trend: Gold & $ up.
Sectors: Airlines, Gold Bugs, Natural Gas, Oil & Commodity up nicely. Tobacco, Utilities, Tech & Semis beat down.
Bonds flat with the 10 year yield rising @ 4.56% & the 30 year @ 4.74. The 2 & 5 year gap @ 4 basis points; the 5 & 10 year gap @ 9 basis points; the 10 & 30 gap @ 18 basis points.
Looking ahead at potential market influences, Nov 15th: PPI & Retail Sales; Nov 16th: CPI & Net Foreign Purchases; Nov 17th Philly Fed, Capacity Utilization, Industrial Production. Nov 18th: Options Expiration.
From Yesterday: regarding the Import & Export prices component of the trade deficit; "the bad news is that while oil import costs were less than expected, it was the non-oil segment that grew, which implies the arrival of core inflation growth. Signs of core inflation growth imply higher rates".
"The market and investors did not digest this or chose to ignore it because a bond party was in progress. My take is they were unaware of it as the talking heads chose not to say it too loudly."
Today, more hush hush sweet Charlotte, no media follow up what so ever on the Export & Import prices report, and the implications for core inflation, very interesting indeed.
From Yesterday: "As for the 440 put on the SOX, perhaps next weeks action after the CPI & PPI will bring a Dec put into the money just before Friday, lets wait and see." Correction, max pain in now at 450, there still might be a Nov play here for next week.
This was a premature call at 440, as over 5000 call options between 450 & 460 went into the money this week, we suspect they are being sold as we speak. I think we will fall back to 450 as the short covering may be over. Something to watch.
From Yesterday: "The market punched through resistence with conviction, decoupling itself from the underlying action of crude by reversing polarity on the oil - equities relationship. This is a VERY POSITIVE sign." Today, refiners -6.3%, oil & gas storage and transport -5.8%, oil & gas explorers -5.7%, and oil and gas drillers -4.4%.
Overall, not much conviction in todays unconvincing follow through, we suspect Monday may ramp up slightly, but Tues PPI & Wend CPI could give the market an interest rate fear clubbing.
Keep it tween da ditches, we take it day by day and keep our eyes peeled to the sky, because it could be a name brand that pancakes us. Just my opinion, I could be wrong and Hey! Hey! Lets be careful out there...This is The Nattering Naybob and your NOT!!!
Support: DJIA 10200 ; SP500 1175; Nasdaq 2000; NDX 1500
In our top story tonight, Generalissimo Francisco Franco is STILL dead. In other news, Japan's economy grew a faster than expected 1.7% which sent the Nikkei 225 to a four year high today. The Bank of Japan has hinted that they will be raising interest rates, as have the BOE, ECB, BOC and FED.
For those of you with A.D.D. or in denial, take a BIG FAT hint, the central banks are telegraphing everyone loud and clear. We expect that the 10 year yield will be at 5.45% or higher Q106 and we repeat one of our mantras, rates are going to continue to rise, far beyond anyones expectations.
Witness, the rapid widening in CDO spreads within the last two weeks, Fannie & Freddie are no longer the last resort and the subprime market is having difficulty offloading their crap, er, I mean loan portfolios even to the Asians & Europeans who previously were eager to buy. As risk increases, premiums in the form of interest rates rise.
Speaking of the devil, the average fixed 30 year mortgage hit 6.31% last week, its highest in 16 months. The cost of an ARM linked to one year Treasury notes has risen even more steeply: to 5.09% last week, up from 4.91% a week earlier. It is now at its highest level since 2002, and I would hate to be holding an ARM, better lock in while you still can.
Which leads us to the housing ATM churning on, according to Freddie Mac, in Q305 homeowners withdrew more than $60 billion, equal to Q205's extraction rate. Consumer spending accounts for 70% of economic growth; the construction sector provided over 50% of new jobs in the last non farm payroll report and the housing sector is responsible for over 40% of the economic growth in the last 4 years.
At the same time, the Bush Tax commission suggests replacing the current deduction for mortgage interest, which in our progressive tax system benefits rich borrowers more than poorer ones, with a flat 15% tax credit on mortgages up to a certain limit.
The credit would be the same regardless of the borrower’s tax bracket, and the cap on mortgages to which it would apply limits the tax hand out for the rich. The National Association of Realtors estimates this change would bring a 15% reduction in housing prices across the country.
A recession and a housing market adjustment generally lag FED rate increases by 18 to 24 months. And the Fed usually overshoots the equilibrium rate because of latencies in the econometric reporting mechanisms. We are now approaching that timeline.
I have previously stated that the housing market would not pop & thud, it would suffer more of a slow painful erosion over a 3-4 year period. Couple the potential tax change with higher energy, rising core inflation and rising rates,and we potentially have a witches brew for a housing market implosion. TBD.
Shameless self promotion, oil continued its pullback to 57.50 and hit a 5 month low, as previously posted on this blog, we still feel that $55 is the next stop and this will lead to $52.
Even more shameless self promotion, from 10/21/05 Market Soapbox: "Now, $1.19 to the Euro, 115 yen to the dollar, by year end $1.15 to the Euro, 119 yen to the dollar." Dollar up 7th straight day, longest winning streak since Aug. Today, 1.169 vs. Euro & 117.98 vs. Yen.
Today's SOOHEY PIG PIG award once again goes to the buyers of GM stock & bonds, after PBGC announced a potential demand for profits from any GMAC sale, GM dropped 15% in 3 days, GM up 3.8% today. We have two words, DUMB and DUMBER. SOOHEY!! PIG! PIG!
7 weeks ago, DJIA -270 on higher volume, plunging below all major DMA's. 6 weeks ago, DJIA +148, lacking conviction. 5 weeks ago, DJIA -281 crashing down on higher volume. 4 weeks ago, large swings DJIA -6.
3 weeks ago larger swings, DJIA -77, 2 weeks ago, even larger swings, DJIA +186. Last week, broadbased gains on higher volume DJIA +128.
This week, Mon. a weak attempt with DJIA +55 on so-so internals. Tues, a down day DJIA -47 on wretched internals and lower volume. Wen, DJIA bounced off of 10600 and closed +6. Thurs, DJIA +94, with AUTHORITY.
Today, no impetus on the follow through, DJIA +46 on decent internals, but very low volume. This week, DJIA +154, three consecutive weeks of gains totaling DJIA +468.
Over the last 8 weeks DJIA -18. Oh no, I'm having a bout of DFS, as Maxine Nightingale said: "Ooo and it's alright and it's comin' 'long, We got to get right back to where we started from". Don't laugh as Disco Flashback Syndrome is a serious affliction for anyone who survived that era and it can strike at any time.
DJUA & SOX pounded down, RUT & MID weak. DJTA, XOI & XAU leading the way up. CAC up BIG, DAX up BIG, FTSE up, Hang Seng up & Nikkei 225 up.
Dollar up vs. Euro & up vs. Yen, XAU & gold up, XOI up & crude down @ 57.55, CRB commodities & bonds up. Contra trend: Gold & $ up.
Sectors: Airlines, Gold Bugs, Natural Gas, Oil & Commodity up nicely. Tobacco, Utilities, Tech & Semis beat down.
Bonds flat with the 10 year yield rising @ 4.56% & the 30 year @ 4.74. The 2 & 5 year gap @ 4 basis points; the 5 & 10 year gap @ 9 basis points; the 10 & 30 gap @ 18 basis points.
Looking ahead at potential market influences, Nov 15th: PPI & Retail Sales; Nov 16th: CPI & Net Foreign Purchases; Nov 17th Philly Fed, Capacity Utilization, Industrial Production. Nov 18th: Options Expiration.
From Yesterday: regarding the Import & Export prices component of the trade deficit; "the bad news is that while oil import costs were less than expected, it was the non-oil segment that grew, which implies the arrival of core inflation growth. Signs of core inflation growth imply higher rates".
"The market and investors did not digest this or chose to ignore it because a bond party was in progress. My take is they were unaware of it as the talking heads chose not to say it too loudly."
Today, more hush hush sweet Charlotte, no media follow up what so ever on the Export & Import prices report, and the implications for core inflation, very interesting indeed.
From Yesterday: "As for the 440 put on the SOX, perhaps next weeks action after the CPI & PPI will bring a Dec put into the money just before Friday, lets wait and see." Correction, max pain in now at 450, there still might be a Nov play here for next week.
This was a premature call at 440, as over 5000 call options between 450 & 460 went into the money this week, we suspect they are being sold as we speak. I think we will fall back to 450 as the short covering may be over. Something to watch.
From Yesterday: "The market punched through resistence with conviction, decoupling itself from the underlying action of crude by reversing polarity on the oil - equities relationship. This is a VERY POSITIVE sign." Today, refiners -6.3%, oil & gas storage and transport -5.8%, oil & gas explorers -5.7%, and oil and gas drillers -4.4%.
Overall, not much conviction in todays unconvincing follow through, we suspect Monday may ramp up slightly, but Tues PPI & Wend CPI could give the market an interest rate fear clubbing.
Keep it tween da ditches, we take it day by day and keep our eyes peeled to the sky, because it could be a name brand that pancakes us. Just my opinion, I could be wrong and Hey! Hey! Lets be careful out there...This is The Nattering Naybob and your NOT!!!
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