By Nicholas Santiago on January 26th, 2010 2:51pm Eastern Time
Today the DXY (U.S. Dollar index) gapped above its daily 200 moving average only to pull back shortly after the open. When the dollar pulls back commodities and inflationary stocks are free to run higher, and usually do. Today we are seeing many of the gold mining stocks trading higher such as Newmont Mining Corp (NYS: NEM), Yamana Gold Inc (NYSE: AUY), and the Market Vectors Gold Miners ETF (NYSE: GDX). Agriculture stocks such as Potash (NYSE:POT), and Monsanto (NYSE: MON) which are inflationary plays have also traded higher on the back of the intra-day dollar pullback.
Since 2001 the U.S. Dollar has been declining. In 2002 the DXY (U.S. Dollar index) was trading around 120.00. In March 2008, it traded at a low of 70.70. Since the 2000 stock market top many are calling the stock market the lost decade as the Dow Jones Industrial Average is below its 2000 level. Remember in the 1990's the dollar was the world’s strongest currency. In September 1992 the DXY traded at a low of 78.19. This was also the low for the dollar as the stock market was near the end of a recession and a new administration was taking over. As the dollar strengthened in the 1990's so did the stock market. Now the stock market only rallies when the dollar declines. This is how important the weak U.S. Dollar has become over the last decade for stocks.
There can only be one reason for this reversal of fortune in the dollar as it has fallen from grace, and it is simply, DEFLATION. The Federal Reserve Bank and the U.S. Treasury are fighting deflation. The way they are trying to fight deflation is by simply inflating the economy back to health. The high prices of gold are telling us this.
Gold is at all time highs while the Dow Jones Industrial Average is below its 2000 stock market high. The cost of most goods and services are cheaper than ever. Take a computer for example; ten years ago a computer would cost over $1000.00, today a much better computer costs less than $500 bucks. Airlines are another industry group facing the deflationary headwinds. Plane tickets are sometimes cheaper than a Greyhound bus ticket. The airlines simply do not have any pricing power. On the flip side of this coin are the high energy, commodity, food and agriculture prices. The necessities are expensive. It is starting to seem a lot like Japan in the United States now. Please recognize, Japan has been fighting deflation since 1989 with little or no success.
The Japanese Nikkei index topped out at 40,000 and has been trading around 10,000 currently. This could be what is in store for the Dow Jones Industrial Average for the next ten years as well. I'm not convinced that the solution to this problem is to inflate your way back to health; if that can even be accomplished with huge unemployment, and a massive housing crisis.
Capitalism can be cruel sometimes for many. When you live by the sword you must die by the sword. However, it does work when it is left alone to do its job. The secret to capitalism is failure. Yes, companies must be allowed to fail. If they are not allowed to fail then we will have to deal with the repercussions. Unfortunately, this will mean many years of choppy markets, lacking real movement which may even go lower before things get better.
Nicholas Santiago,
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
By TRADER X on January 26th, 2010 10:28am Eastern Time
SPY has reversed it's early decline on the back of the U.S. Dollar sell off. The SPY will have minor intraday resistance at 109.95 and good resistance at 110.40. Remember to keep an eye on the dollar as the inverse relationship to the market is alive today.
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By ITMS News on January 26th, 2010 1:21pm Eastern Time
The Treasury Department sold $44 billion in 2-year notes at a yield of 0.88%, which is the second lowest yield ever.
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By InTheMoneyStocks.com on January 26th, 2010 12:31pm Eastern Time
Many of the stocks highlighted last Friday and over the weekend are continuing their run into general targets. JASO was the latest to get there with an ultimate target of a cross of $5.00. It just hit $5.04 a little while ago. In addition, stocks like TAN are up again nearing a target of $9.45 and Chief Market Strategist Gareth Soloway took half off the table on FSLR at $115.38 and is holding the rest with a break even stop for a target of $117.09. XOM is getting a solid bounce today while all the other plays mentioned are inching higher as well.
Another correct call on the overall market as Chief Market Strategist Gareth Soloway went bullish for a 1-3 day bounce as of Friday's close. The futures overnight were under quite a bit of pressure but have recovered as the indexes have all gone positive. At this point a majority of profits should be taken with just a few remaining half long positions. All remaining half positions should have a break even stop.
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Posted by dentist 007 on January 26, 2010 at 5:44pm
Manchester United 8.75% Feb 2017: 26 January 2010Manchester United’s refinancing deal has attracted considerable comment in the press. The company has refinanced its debt with a new two-tranche bond issue, launching $425 million of USD-denominated bonds and £250 million of an 8.75% February 2017 bond into the sterling market. The purpose of the deal is to refinance the orginal debt raised by the Glazer family for their leveraged purchase of the footbal club in 2005. The refinancing was no doubt a deal worth doing. Amongst the other debt raised for the purchase, the original deal saddled the owners with the servicing of expensive "PIK" or "payment in kind" securities, reputedly rolling up at 14.25% per annum. Standing back from the situation, the club now has over £700 million in debt, which should be viewed in context against the 2009 revenues of £278 million.The new seven-year sterling bond is a senior obligation of MU Finance, guaranteed by Red Football. Launched at an issue price of 98.089, the bond carries a semi-annual coupon and has call features, with the issuer holding the right to redeem the bond at a price of 108.75 in February 2013. The call price thereafter rolls down each year to the final maturity at par. The bond has been issued with a minimum deal size of £50,000, suggesting that the private investor is not the target market. The lack of a credit rating also indicates that this bond will not find a natural home in conventional risk-adverse bond portfolios.Early comments from the media suggested that the bond would meet a warm reception, with investor demand stoked by the strong international brand recognition of the footbal club. The managers of the issue have marketed the Red Devil’s bond actively, with roadshows in Europe, Asia and the US. However, last Friday saw a lukewarm reception for the bond in initial secondary market trading and this week has seen the price of the Sterling tranche trade down in the 93 area, a price equivelent to a yield to maturity of 10%.My view: Manchester United is privately owned company, and investors do not have the benefit of financial transparency that would be afforded by a listed entity. Add to this the high levels of leverage that have been applied to the company and the varied history of football clubs and their owners. Whilst it is tempting to look at the high headline yield offered by this security, the new Man U bond should be viewed as an uncertain prospect.investors intelligence.com
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By ITMS News on January 25th, 2010 11:33pm Eastern Time
"The Bank of Japan kept its unsecured overnight call loan rate at 0.1% at the end of its two-day meeting Tuesday as widely expected, by a unanimous vote. The BOJ also maintained its economic assessment, saying the nation's economy "is picking up mainly due to various policy measures taken at home and abroad." Growth in emerging economies has helped the nation's exports increase, but there is still "not yet sufficient momentum to support a self-sustaining recovery in domestic private demand." The BOJ has left its benchmark rate steady since December 2008. BOJ Gov. Masaaki Shirakawa is scheduled to hold a regular news conference, with comments expected to emerge after 4:00 pm local time." TOKYO (MarketWatch) By Lisa Twaronite
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By InTheMoneyStocks on January 25th, 2010 5:04pm Eastern Time
The volatility last week was wild with earnings that just did not cut it. However, the real shock came when President Obama, due to a republican win in MA and the super majority gone in the senate, was forced to talk of tightening the noose on bank and the future risk they wish to take. Considering these banks like Goldman Sachs Grp. (NYSE: GS) made half their revenue from trading, a high risk venture, this put a major scare in Wall Street. It also sets up a possible war between Wall Street and the administration. Since President Obama took office, he has been a dear friend to the banks and in turn they have scratched his back. However, with a possible war looming, Wall Street is on edge and rightly so. This culminated with a near 600 point drop in the DOW from Wednesday through Friday last week. This week promises to be even more wild with Apple Inc. (NasdaqGS: AAPL) reporting earnings after the bell on Monday and much of the S&P later this week.
While market commentators and analyst try and figure out where the next move is going, I just turn to the charts. Apple is one of the most interesting charts to look at after the dramatic fall in the markets the last few days. The daily chart took out the 20 and 50 moving averages, yet today is getting a solid bounce ahead of earnings. The bounce on Apple is holding just below the 50 moving average. Any technician must be concerned that Apple took out key support in recent days. I know it sounds like blasphemy to question whether or not Apple will have a blowout quarter, however, here I sit wondering just that. Even if they beat earnings, which I do expect them to do solidly, based on the charts, I do not expect the stock to move higher. In fact, I look for a sell off down to a target $190.00.
In addition to all the major earnings releases this week, watch for the FOMC Policy Statement on interest rates on Wednesday afternoon and for the State of the Union Address Wednesday night. As a Chief Market Strategist and trader, this type of market is a dream come true. Learn it and master it.
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Tuesdays release of German Jan IFO (9:00 am GMT) climate survey is expected to show the 11th consecutive monthly increase, but the expectations component will be scrutinized after recent declines in the ZEWs investor sentiment survey. Tuesdays release of UK Q4 GDP (9:30 am GMT) is expected at +0.4% q/q and -3.0% y/y, will be largely scrutinized in function of comparing it to the consensus of expectations. GBPCAD hit 1.72 from the last IMT, with the weekly stochastics calling for prolonged gains towards 1.73, but any retreat is seen limited at 1.71. Gold is still seen falling towards 1070 in the current downleg with any rebound unlikely to regain 1117--Dec 3rd trend li
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By InTheMoneyStocks.com on January 25th, 2010 11:44am Eastern Time
Last week was brutal for the markets. After nearly a 600 point DOW sell off, the markets gapped higher this morning. Talk that Federal Reserve Head Ben Bernanke would be confirmed into a second term later this week helped ease Wall Streets fears. In addition, there was a technically oversold market with many key stocks coming into super support these were highlighted on the Hot Charts & Alerts and Pro Trader Watch List. A gap up was somewhat of a no brainer based on buyers stepping up. Remember, every sell off has been a buying opportunity. Investors will use that until it is proven over and over to not work. Following the gapup in the markets today, we got Existing Home Sales. Existing Home Sales dropped by 16.5%. That is a very sharp decline but not surprising following the first time home buyer tax credit, as many utilized that into the end of 2009. The markets since the open have traded sideways to lower. This has continued for the first two hours of the market. Much of the early gains have vanished but technically speaking, there is still an in spirit of bull flag in play. Watch this pattern. Should a close of a 10 minute candle occur below the gap fill level, this will be negated and we could dump out. The odds of that happening though are minimal.
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By InTheMoneyStocks.com on January 25th, 2010 2:09pm Eastern Time
The volatility last week was wild with earnings that just did not cut it. However, the real shock came when President Obama, due to a republican win in MA and the super majority gone in the senate, was forced to talk of tightening the noose on bank and the future risk they wish to take. Considering these banks like Goldman Sachs Grp. (NYSE: GS) made half their revenue from trading, a high risk venture, this put a major scare in Wall Street. It also sets up a possible war between Wall Street and the administration. Since President Obama took office, he has been a dear friend to the banks and in turn they have scratched his back. However, with a possible war looming, Wall Street is on edge and rightly so. This culminated with a near 600 point drop in the DOW from Wednesday through Friday last week. This week promises to be even more wild with Apple Inc. (NasdaqGS: AAPL) reporting earnings after the bell on Monday and much of the S&P later this week.
While market commentators and analyst try and figure out where the next move is going, I just turn to the charts. Apple is one of the most interesting charts to look at after the dramatic fall in the markets the last few days. The daily chart took out the 20 and 50 moving averages, yet today is getting a solid bounce ahead of earnings. The bounce on Apple is holding just below the 50 moving average. Any technician must be concerned that Apple took out key support in recent days. I know it sounds like blasphemy to question whether or not Apple will have a blowout quarter, however, here I sit wondering just that. Even if they beat earnings, which I do expect them to do solidly, based on the charts, I do not expect the stock to move higher. In fact, I look for a sell off down to a target $190.00.
In addition to all the major earnings releases this week, watch for the FOMC Policy Statement on interest rates on Wednesday afternoon and for the State of the Union Address Wednesday night. As a Chief Market Strategist and trader, this type of market is a dream come true. Learn it and master it.
Read more…
By Nicholas Santiago on January 25th, 2010 12:56pm Eastern Time
The recent sell off in the market has been blamed on the current Ben Bernanke saga. Recently he has been on the hot seat, as it is unsure if the current Federal Reserve Bank Chairman will get enough votes from Washington to get reappointed. Since the markets sharp three day decline many in Washington are changing their tune and will now vote to keep Chairman Bernanke on as the Federal Reserve Bank chief.
Chairman Bernanke has recently been praised for the Wall Street bailouts by many politicians, as well as Time Magazine who named him "Man of the Year." On the flip side of that, other major politicians have blamed the Fed Chairman for the global financial crisis. Senators John McCain (AZ-R), Barbara Boxer (CA-D), and Russ Feingold (WI-D) have all gone on record stating that they would not vote for the confirmation of Bernanke.
Will it really make a difference who is at the helm of the Federal Reserve Bank? One would expect the exact same policy to be applied either way. Recently the Federal Reserve Bank has keep their Fed funds rate at an historic low, zero percent. This rate is what the large banks pay the Federal Reserve to borrow money overnight. Therefore, the large major banks have been able to borrow money at zero and simply buy U.S. Treasuries, and they make money. They do not have to lend or make loans in order to make money, therefore, their risk is very low.
When you think about all the consolidation that has taken place in the banking industry the big banks have it pretty good right now. Remember with the failure of so many other banks and broker dealers being bought for pennies on the dollar by the major banks such as J.P. Morgan (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) have really narrowed the competition. Let us not forget the removal of the FASB "mark to market" accounting and some would say that the banks have made in the shade.
This week we will find out if the current Federal Reserve Bank Chairman gets confirmed for another four year term. However, does it really matter? Will policy change if he does not get reappointed? That is highly unlikely. The Fed funds rate is likely to remain at zero for the foreseeable future.
Nicholas Santiago,
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
