On 9/6/12, Thursday, futures are up strongly (S&P’s plus nine) anticipating Draghi’s move. ECB’s Draghi surprises traders by not lowering rates to spur growth. The ECB leaves rates on hold so the euro bounces immediately off the news. Europe needs growth and Germany can especially use a lower euro to help Europe grow out of the morass but alas, no rate cut. Draghi brings a bazooka and delivers on his promise that he will do whatever it takes. He provides details on his unlimited, sterilized bond-buying program. Countries must request a bailout and agree to give up some sovereignty in doing so, thus, the path ahead remains murky. Draghi will buy at the short end thereby keeping the yields low while helping to maintain a steep yield curve with the longer dated maturities which, in turn, helps the banks recover. Spain has been reluctant to request a bailout due to the worry of exactly what conditionality will be required. Merkel meets with Rajoy. The U.S. equity markets explode higher. The SPX ends the day up 29 points, 2.0%, to 1432. The Dow Industrials are up 245 points, 1.9%, to 13292. The Nasdaq is up 67 points, 2.2%, to 3136. The RUT is up 17 points, 2.0%, to 838. The SPX closes above the 5/19/08 high printing four-year highs, however, the SPX has not surpassed the intraday 5/19/08 high at 1440.24 . The Nasdaq prints 12-year highs going back to November 2000 just after the March 2000 Dot-Com Bubble market top. President Obama gives his nomination speech from the Democratic convention.
On 9/7/12, Friday, Asian stocks rally strongly as China provides infrastructure stimulus. Copper lagged the markets yesterday but today explodes higher with all commodities, traders now responding to Chinese crack cocaine stimulus. Hungary industrial output falls off a cliff for July showing a deepening Euro zone recession. Spanish 10-year bond yield falls under 6% for the first time in many months. This shows calm returning to Europe. The euro pops above 1.27 for the first time since late June and starts to attack 1.28. The U.S. futures continue the bullish fun with the S&P’s up about five points going into the jobs number. The Monthly Jobs Report is very disappointing with 96K jobs and 8.1% unemployment rate. The labor participation rate is the lowest in 30 years! These folks are not finding jobs, they are simply being forgotten. This is causing the slight down tick in the rate from 8.3% last month to 8.1%. The consensus was from 125K to 150K jobs so the number fell way short. Average hourly earnings and hours worked were flat which means companies have no plans on hiring anyone, they are simply trying to maintain their businesses at the current level. The trend for many years now, and especially over the last couple years, is that the higher-paying jobs are being replaced with lower-paying jobs. Other workers work part-time but desire to work full-time. The unemployment problem is structural, pathetic and depressing for those struggling each day. Food service jobs, such as waiters, waitresses and bartenders were the big gainers this month; perhaps folks are eating and drinking their troubles away? The markets, however, in this backward bazarro world, where free markets now only appear in history books, run higher on the news since traders figure that QE3 from Chairman Bernanke on Thursday is now virtually guaranteed. GOOG tops 700 not seen since 2007. The markets are mixed in the session but end up on the day. For the week, the broad indexes experience large gains of 2% or more. The SPX is up 2.2% to 1438. The Dow Industrials are up 1.7% to 13307. The Nasdaq is up 2.3% to 3136. The RUT is up 3.7% to 842; traders are chasing into small cap growth stocks pumping the risk-on stimulus trade. The easy money policy provided this week has traders running into commodities, small caps, gold, PM’s, miners and financials. After the close, Keystone highlights the CPC Put/Ratio at 0.74, uber low signaling rampant trader complacency. Traders do not have a care in the world, they are fully loaded on the bull side of the boat completely convinced that nothing will go wrong and the central banker stimulus moves will fully support the long side for the markets well into the future. Traders see no reason to purchase protection so volatility continues lower with the VIX printing a 14 handle. Even traders that wax how worried and concerned they are about the markets, the CPC and VIX paint a different picture. The CPC and VIX say that analysts, pundits and traders that wax concern about markets on television or in print are actually not worried at all. This uber complacency and complete lack of fear is exactly when the markets hand you a surprise. The uber low CPC at 0.74 signals that the broad indexes have now placed a significant market top. It is very prudent to think about all long positions held currently in the context of what you will do in the event of a large market pull back occurring at any time.
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On 9/9/12, Sunday, Italy’s Monti says there is no plan for Italy to tap the bond market but this is only political rhetoric from a master politician; Italy is drowning in debt and deep in recession. China reports weak economic data; both imports and exports are dropping. China’s domestic economy, that is supposed to help prevent a hard landing in China, actually weakens. In these bizarre, counterintuitive markets, the Shanghai Index actually moves up since traders are now expecting China to act with more stimulus. Copper makes another jump higher and basic resources and miners are up in global markets on further expectations of quantitative easing by China. The German media condemns Draghi’s ECB bond-buying plan. The majority of German citizens are against the ECB’s plan announced last week.
On 9/10/12, Monday, futures are lower on the weak China data. Greece’s Samaras coalition cannot attain agreement on spending cuts that are required to receive additional funding for this bankrupt nation. Greece agonizes over the choice of austerity versus growth so the Greek tragedy plays on. George Soros tells Germany to “lead or leave the euro.” Congress returns from the summer recess and is back in session, which is typically a market negative; the childish behavior begins again. Markets are weak all day languishing sideways until the final one-half hour of trading when Consume Credit data shows a customer reluctant to spend money. Keystone’s SPX 30-minute chart shows the 8 MA stabbing down thru the 34 MA at 3:45 PM EST indicating bearish markets moving forward. The broad indexes lose about one-half percent.
On 9/11/12, Tuesday, Greece’s Samaras meets with ECB’s Draghi. China’s money supply and lending data is mixed. A German law maker tries to prevent the ESM vote from occurring tomorrow but news is released saying the vote will continue as scheduled. The euro pops on this news and moves sideways using 128 as support. In the U.K., Burberry luxury goods provider warns on a slowdown, and also says they are not the only luxury retailer seeing trouble ahead. Asian and Chinese luxury goods customers are dwindling. Today, on the Anniversary of the 9-11 Attacks on the U.S., demonstrations occur in Egypt, Libya and Yemen; four U.S. citizens are murdered in Libya. Markets move sideways awaiting the German vote tomorrow and the Fed on Thursday.
On 9/12/12, Wednesday, China’s Wen says that further stimulus is on the table which helps to lift Asian and European stocks but the basic materials, miners, and copper sectors are all weak. The violence escalates at the platinum mines and now ripples thru to other mining sectors. Rajoy is resistant to any conditionality attached to a bailout request and says that he may delay the request. Markets are concerned since there is no more time for Spain. The 10-year yield has dropped under 6% as some calm has returned after Draghi’s announcement last week, but the fear is that Spain yield can be back above 6% and moving higher in a heartbeat. The dollar is at a four-month low. The euro is sitting on its 200-day MA. Barroso, European Commission President, the E.U., provides his ‘state of the union’ speech to the EU parliament and calls for a ‘Federation of States’, not a ‘Super-State’. This discussion is important in reference to developing a banking union to handle the debt crisis. At 4 AM EST, 9 AM GMT, the German Court allows ESM with conditions. A cap is set for German liability and this cap needs identified when the ESM is officially signed into law. The German Court basically says everything done to date for the European debt crisis appears acceptable, but any future measures will have to be reviewed by the German Parliament. This stipulation could lead to time constraint problems for handling problems that need quick attention in the future. The risk-on trade occurs in global markets with the euro jumping up towards 129 and the S&P futures jumping from up two to up over seven. The Dutch vote results in favorability to the European plan moving forward so the market bulls are running the table with the Draghi bazooka, the favorable German vote and successful Dutch elections. The FOMC meeting begins. Keystone’s SPX 30-minute chart shows the 8 MA running up thru the 34 MA at 11:30 AM EST indicating bullish markets moving forward. AAPL releases the new iPhone5 with the new features well telegraphed in advance. The Apple die-hards say it is revolutionary; others say that Apple finally caught up with the other Smartphones. Despite all the good news, markets remain flat now awaiting the main Fed event tomorrow.
On 9/13/12, Thursday, the U.S. sends warships and Marines to Libya. Real Household Income data shows that total family incomes continue to fall lower and have steadily dropped since the 2008 crash. The market tension mounts with the FOMC Rate Decision, Forecasts and Press Conference on tap. At 12:30 PM EST, Chairman Bernanke delivers a bazooka of stimulus promising 40 billion per month stimulus targeting MBS (mortgage-backed securities). Fed plans on maintaining accommodative policies well into the future, an open-ended program which surprises even the most bullish prognosticators. The Fed will maintain appropriate policies even after a recovery strengthens. This is QE Infinity. The Fed is laying all its cards n the table. Operation Twist will continue thru the end of the year and also the low rate language was extended from late 2014 to now mid-2015. Bernanke says that the Fed likely does not have the tools to handle the fiscal cliff should it occur. The Fed’s actions should place downward pressure on the longer term rates. The vote was 11-1 with Lacker dissenting. All this occurs on the four-year anniversary of Lehman’s bankruptcy. The Fed continues to believe in the ‘wealth effect’ theory where a higher stock market will make people feel wealthier, so they will go out and spend more, and buy more houses, and then the economy can recover. Bernanke is now all in with this economic experiment. The Fed is attempting to help employment so the Friday Monthly Job reports take on epic importance moving forward. Bernanke now loses all credibility. He is truly the hand maiden for the stock market. After he provided QE3 today, he licked trader’s shoes and also washed their cars. The republicans cry foul since the easy money will insure President Obama’s reelection. The bulls ran the table over the last week with Draghi, the German vote, the Dutch elections, and Bernanke, all favorable for bulls, four for four.
On 9/13/12, after the Fed move, the stock market catapults higher, the SPX takes out the 2008 intraday high at 1440.24 like a hot knife thru butter. The SPX moves up thru 1460 printing a high near 1464. The SPX is now officially at four-year highs. The SPX finishes up 23 points, 1.6%, to 1460. The Draghi bazooka one week ago sent the SPX up 29 points. The Dow Industrials are up 207 points, 1.6%, to 13540. The Nasdaq is up 42 points, 1.3% (note the lag), to 3156. The RUT is up11 points, 1.3%, to 856. Interestingly, the Fed’s money pumping should have caused small caps to outperform the SPX and Dow. Gold is up about 40 bucks to 1772. Commodities rally strongly. Bernanke supports the banksters and the financial sector jumps strongly; BAC up nearly 5%. What a day. This is epic economic history in the making in real-time. G-20 Finance Ministers are meeting today and tomorrow.
On 9/14/12, Friday, global markets respond to the QE3 euphoria. Oil is over 100. Brent Oil is over 117. The euro overtakes 131 filling a gap on the weekly chart from late April. Growth assets around the world run higher. Emerging markets are up. Copper is up. Gold to 1776. Shares in Europe are at or near 14-month highs. Banks are strong. JPM has now recovered the losses from the London whale trading incident. Republican’s cry foul as President Obama’s favorable poll ratings escalate on the QE3 news, provided by the man he hired, Chairman Bernanke. The Fed has laid all their cards on the table, essentially a QE Infinity. This is a Bernanke experiment where he does not even know the eventual outcome. Always thinking of outlier events, a war conflict in the near future will render all these QE machinations meaningless. Perhaps the president informed the chairman of the coming global turmoil, green-lighting the kitchen sink approach with QE, since it will be inconsequential in a few months time anyway? Euro zone Finance Ministers are meeting today and tomorrow mainly discussing Greece and Spain. U.S. futures are higher wanting to push the market rally further.
On 9/14/12, at the opening bell, the SPX punches up thru yesterday’s high and then accelerates to test 1468, the starting year number for 2008, pierces that and places a HOD at 1474.51. The euro prints a HOD at 131.68, an over 1% move for a currency, a 5% move in only six days, these are unprecedented times, epic economic history in the making with the Draghi and Bernanke bazooka’s. The ECB and Fed are both easing but the Fed is easing more so the euro moves higher. The dollar plummets since the Fed’s QE3 devalues the dollar. The SPX, and the VIX, move up together today which only happens 10% of the time or less, one of them is wrong. The low VIX (at multi-year lows) and CPC continue to signal that a Significant Market Top is now in place. What curious markets since the QE3 bazooka tells all traders to go long and strong without thinking, and they have. The utilities sector continues its weakness which is a very ominous signal for markets. The telecom sector is weak on T and VZ downgrades. NKE sells off. The broad indexes are up about one-half percent today. In the final minutes, the SPX falls about five handles on news that Egan-Jones rating agency lowers the U.S. debt rating but quickly recovers. Gold is up slightly but silver is actually negative. For the week, after all the fanfare and excitement, with central bankers firing bazooka’s, the SPX is up 1.9% to 1466. The Dow Industrials are up 2.2% to 13593. The Nasdaq is up 1.5% to 3184. The RUT is up 2.7% to 865. The broad indexes are at or near multi-year highs. Note the underperformance of tech.
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On 9/19/12, Wednesday, Housing Starts.
On 9/20/12, Thursday, Rajoy and Monti meet.
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On 9/25/12, Tuesday, Consumer Confidence.
On 9/28/12, Friday, Consumer Sentiment.
In late September, Troika Report is due which is needed for the Greece decision. Spanish bank audits are due so watch for a potential ratings downgrade. Window dressing for Q3 occurs in the equity markets.
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On 10/4/12, Thursday, ECB Rate Decision and Press Conference—euro will drop if rates are lowered.
On 10/5/12, Friday, Monthly Jobs Report—second to last report before election but considering the Fed’s QE3 to help employment, this number is the most important data point in the markets here on out each month, bar none, moving forward into and thru 2013.
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On 10/8/12, Monday, Eurozone Finance Ministers meet to discuss Greece aid.
In October, Troika Report on Greece is due (this is needed for leaders to make a decision on Greece) and has been delayed since the original due date in early September. Also, the new China Premier, Xi Jinping, is officially selected, but, where is he?
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On 10/18/12, Thursday, ECB/Euro Summit (Merkel may avoid a decision on Greece until now? Will Greece exit the euro? Is the banking union outline accepatable?)
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On 10/24/12, Wednesday, FOMC Rate Decision.
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On 11/2/12, Friday, Monthly Jobs Report—last report before the election.
On 11/6/12, Tuesday, U.S. Presidential Election Obama v. Romney.
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On 1/1/13, Tuesday, if Congress does not act, the U.S. hits the ‘massive fiscal cliff’ (a phrase coined by Chairman Bernanke in early 2012) that will cut the GDP, increase unemployment and immediately launch the country into recession, but, on the positive side, the nation’s debt will decrease. Bernanke states on 9/13/12 that the Fed does not have tools to handle the fiscal cliff, should it occur.
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In March, the new China Premier takes over control.
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