Tuesday, November 22, 2011

Market Comment 11/22/11: European Woes; Gold vs Stocks; MF disaster


Follow the bouncing ball – otherwise known as the stock market. Yes, JP Morgan, as in the original John Pierpont, was right when he was purported to have said of the the stock market, “it will fluctuate.” And so the Wall Street Maalox market plays on. This morning stock futures are saying there's a diminished chance for a turnaround Tuesday after a Monday that saw the Dow give back 248 points to 11,547. The S&P 500 landed at 1192. The problem again this morning that has taken futures off the highs is Europe. Spreads are widening something unbelievable again to the 200% range and bonds of various EU nations are getting hammered.

When the Dow was down over 300 at the worst of it yesterday, the 3-month treasury bill was the magnet for money looking for near term safety. For a time, the the yield on the 3 month dropped to 0.00% and is holding at .01% this morning. That is not a positive near term sign for stocks as it indicates another large move out of the stock market to hold something that will pay nothing in yield, but with the promise of getting the principle back. What a concept!

As for other flight to quality areas. The dollar got little love as the UUP (PowerShares Dollar Index) finished off the highs, but managed to nudge above the 22 level. In spite of the pronouncements of a strong dollar in the mainstream, the UUP is down from its peak earlier this year of near 23, but did manage to find support just below 21. This narrow and downward trending year long pattern shows a lack of enthusiasm for the greenback even as the euro is on its death bed. Hmmmm, I wonder why? In my best Mr. Rogers voice: Can you say, “fiat” and “massive deficits”? Thought you could!

So there's the on going market irony. The dollar drags along (admittedly bouncing from the March lows), but has largely moped while Treasurys, priced in these dollars, attract money because they are perceived as a safe haven! Yes, the market is an entertaining place.

At one point yesterday, Gold was down $50/oz. But let's remember, behind a 20% rise in feeder cattle this year, gold is up 19.2% in comparison to a 1.3% Dollar decline and a 4.7% S&P 500 drop. On a monthly basis, the stock market indexes (or indices, if you prefer) are also red, while gold even with yesterday's drop is up 3.5% for the month. In other words, don't be fooled by the daily moves that we are seeing in gold. The picture remains very green for the year.

By the way, for the year, the Utilities stock group has been the best performer, up 9% YTD. The worst performers – the Financials, down a whopping 23% this year. Healthcare is the only other positive performer this year with a 2% gain. Go to finvez.com for further details. I bring this up only to show, again, the mess the stock market is in vs the double digit gain for gold this year. It's two different worlds. And there shall come a time when investors will flock to gold as the real haven (sensibility shall return), but the entrance will be a small one – like fitting a camel through the eye of the needle – stealing from a classic New Testament biblical reference. The time for amassing gold is now and not at a future point when everyone will attempt to crowd into it.

Unfortunately, $50 moves are going to happen in gold (we'll likely see even larger moves) to jostle the unaware and the weak hands. It's the glaring defect of the system that we're in. Something with core intrinsic historic value is priced in a sinking value asset – in this case gold being priced in paper dollars. It's what we must live with for the time being.

Moving on to a few other items of note

The $MF situation looks worse and worse as we telegraphed at http://www.financialbalerdash.com yesterday. Credit expert Janet Tavakoli weighs in with this assessment. It' a pdf that should shared among your investment friends. http://www.tavakolistructuredfinance.com/MFGR.pdf

Analysts are so useful. Canaccord Genuity resumes Netflix as a Sell. This coming the morning after the company announced plans for a stock dilutive $400 mln convertible notes offering to raise $200 mln in cash. The stock is at $69 pre market. The conversion price is $85. It bought back $200 mln shares of its stock this year at over $200! Very funny stuff!

Let's talk economy. One of my favorite economists who I often interviewed at CNBC, Paul Kasriel, of Northern Trust sees a lost decade coming for the EU. The EU is the world's largest economy. You've got be asking yourself how this is going to impact the global economy and the U.S. Economy. http://stks.co/1ELP . I like Kasriel because he accurate. He is not part of the 'consensus' community of economists who have only declared recession when we're actually in one. Kasriel is ahead of the curve.

Even more to ponder. From Stocktwits: RT aliadi US GDP no longer enjoying export advantages of weak $USDX. PCE starting to top out. wheres growth coming from? #forex. Good question.

I love Amazon... http://stks.co/1E7Z, although its stock is certainly vulnerable to market declines.

Speaking of retail. Best Buy and Radio Shack are not long for this world. BBY is said to be removing tradition bar codes from products to keep consumers from using their smartphones to compare prices on their shopping jaunts. BBY is so losing. Radio Shack is in the same antiquated category. I will have more on retailers tomorrow from my own channel checks and the impressions that I get from my teen daughter.

I remember having involvement in setting up this story when I was at Fox. How Turkeys are processed: http://www.youtube.com/watch?v=YVl_xl3_LHI&feature=colike. Classic.

Focus Media has been grabbing headlines. The real pain – the analyst experts on Wall Street who recommended it. The stock is down 66% since. http://buswk.co/tydweo.

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