Stock Market Summary for February 21st 2008

Today’s catalyst for the decline in the market was the Philadelphia Fed Survey, which is considered by many as a benchmark for the rest of the country. Over the span of many years the Philadelphia Fed Survey has been one of the more accurate barometers of the overall economy. Last month when the data dropped substantially and some were thinking that it might be an anomaly, that it could not be that bad. But this months data not only confirmed last months to be correct, it even dropped further. Well this was enough to take away the "rate cut euphoria" that the market felt yesterday. This time the signs of the economy getting much worse hit the market in the gut. But this was no surprise to us and is why we have been maintaining our view that we are in a bear market for a long time now. Our long time readers know that we have been writing about what the trends have been signaling to us and what the likely result was going to be. We continue to receive data that shows that the economy is deteriorating at a rate which shows no signs of stabilization yet. And it is very likely to deteriorate much further, much more than the Government will admit to.

Today’s sell off in the markets was broad based and very little was left untouched. From a technical standpoint we established a new low from the previous few sessions, all but dashing the hopes of some that the market was on it’s way to stabilizing. The closing price of the major indices today opened the door wider to the downside path.

Shown below is the Philadelphia Fed Survey data that was released this morning:

 

 

 

 

 

 

 

(Data source: Moody’s Economy.com)

The Philadelphia Fed Survey data dropped to a negative 24 which is now the lowest reading since 2001. And the rate of the decline is not showing any leveling off at this time. This data is very forward looking for the economy, it shows how business are hunkering down for the future. It reveals that inventory of goods they manufacturer is being allowed to dwindle without creating large amounts of inventory to take its place. This impacts the labor market and long term capital expenditure plans of companies.

What we are seeing in the markets is a sense of fatigue. Those who are bullish on the market are starting to signal the white flag and are giving up. The fight between the bulls and bears has been exhausting over the past 9 months now. And with each passing day the economic data just keeps getting worse and the market keeps taking the bulls money away. What strength there has been in the markets has been waning away little by little. But it appears now that the bulls are giving up at a faster pace. And it is not just our markets, this is being seen in many stock markets around the world.

We remain on course for a recession that will be much deeper than the Government has been telling people, and we remain in a bear market.

Some news items crossing the wire tonight:

WSJ REPORTS FEB RETAIL US AUTO SALES FELL 16.4% Y/Y THROUGH FEB 17; GM, CHRYSLER LEADING DECLINERS IN FEB RETAIL SALES

NY HEDGE FUND DB ZWIRN & CO TO WIND DOWN ITS PRINICIPAL FUNDS FOLLOWING REDEMPTION THREATS BY INVESTORS - FT ($5 Billion Dollars under management)

 

The current Dow Industrials chart:

 

 

 

 

 

 

 

 

Stock Market Close

The market broke down into the close with the DOW closing below 12300.  May be time for another leg down.  Economic news is weak and the market reflected that today.  The following are some of the news items out today:

Starbucks (SBUX) announces organizational changes and restructuring. "…These changes will restructure the company, but they will also result in a decrease of both the number of positions and partners by approximately 600.  This total includes the elimination of existing positions and open headcount, as well as the reduction of  current workforce. Within this context, approximately 220 partners have separated from the company.  Nearly all were U.S. partners serving in non-retail support roles."

WSJ reports says GM and Chrysler leading decliners in February Retail Sales.

MEXICO DEC Retail Sales:  1.1% V 3.0%est.

S&P cuts 74 ratings on 12 US CDOS of ABS, affecting $6.6B

 

Job losses, declining retail sales globally, more ratings cuts. This is just a sample of the "minute-to-minute" news items we see everyday and it can seem disjointed, but it’s not.  These are but puzzle pieces, that’s why we take these items and put them into a bigger picture context for you. 

MBIA Leaves Association

MBIA (MBI)  Withdraws from the Association of Financial Guaranty Insurers (AFGI).  The company says it no longer shares common view with the Association.  I do not know what, if any, impact this has on plans for helping out the bond insurers.

Stocks Continue Slide

The markets continue to show weakness into the afternoon.  Selling on upticks remains the name of the game.  Smith International (SII) continues to trade in no man’s land, but I’m still watching it for a short around that 60.61 area.  This one can move a couple of bucks intraday, but you don’t want to take unless it’s breaking support/resistance areas. 

See you after the close, maybe there will be "noteworthy" news.  It’s a weird, quiet, down-pressure day.

Investment Bankers Will Need a Job

CNBC’s Gasparino is reporting that sources say Lehman will cut 10% of investment banking staff (as many as 200 positions).  Also, reporting that Merrill-Lynch (MER) may announce another round of lay-offs.

Stock Market Update

The market is weak and uncertain since the ugly Philly numbers came out.  Not much to say here, so I’ll update more later.

Crude and Oil Inventories

DOE CRUDE:  +4.2M V +2.5ME ;  GASOLINE:   +1.03M V +700KE

EIA NATURAL GAS INVENTORIES: -172 BCF VS. EXPECTED RANGE OF -170 TO -175 BCF

These numbers show a bit larger build than expected.  Oil is a volatile play, because it’s not just about build numbers, but global political concerns matter, too. 

February Philadelphia Fed Index

FEB PHILADELPHIA FED INDEX:  -24 V -10E
- New Orders:  -10.9 v -15.2  prior
- Employment:  2.5 v -1.5 prior
- Prices Paid: 46.6  v 49.8 prior
- Inventories: -13  v -11.7 prior
- Six-month business conditions outlook: -16.9  v 5.2 prior

Lower than expected.  Markets pulled back, but are hanging in there to the positive side so far.

 

T. Boone Pickens says he’s shorting oil.  He thinks it will trade in a range from around $85 to $100.  Crude inventory numbers later.

Stock Market - Pre Open Report for February 21st 2008

Pre market futures were up and on the Dow had hit resistance. Those futures have since pulled back of the highs. The weekly jobless claims data came in and for us there was no surprises, the average of jobless claims continues to rise and the continuing claims index is also still moving upwards. Confirmations of a still deteriorating employment picture.

The chart below is the current daily chart for the Dow Jones Industrial Average. The blue circle is where we took our short position on the Dow by purchasing the Ultrashort DXD. Today is setting up to be a day of indecision. We’re holding our short position.

 

 

 

 

 

 

 

 

 

 

Daily Chart: Dow Jones Industrial Average

 

Stock Market Summary for February 20th 2008

The US markets ended the day higher because of the rising ‘Fed Funds Futures’ which now have the FOMC cutting rates by another 50 basis points at their March 18th meeting. The bad economic news today, coupled with some talk from Federal Reserve Bill Poole in which he said that rates may have to go lower got the market on a "rate cut high".

The fact that inflation data continues to worsen was of little impact on the mind of the market masses today, the only thing that mattered was the markets brain got a serotonin boost from the thought of more rate cuts.

Rate cuts by the Federal Reserve will only go so far in controlling the credit crisis, and it is a crisis. Today we learned that several auctions for securities and bond funds which have ‘auction rate preferred shares’ (ARPS) failed at auction to get bidders. When banks and other financial institutions are unable to auction off various holdings it shows just how bad this "stuff" has become. The failure to receive bids at auction for securities or other packaged investment vehicles/holdings will just lead to additional write downs from those institutions for they have to take the loss eventually.

Today’s economic data was not good. The only reason the market reacted the way it did was on the increased chances of another 50 point cut in the rates next month. But this is not going to solve the problems and the economy is continuing to decline. Inflation is getting out of control and the Federal Reserve knows this. Are they stupid enough to keep cutting rates and watering the seeds of inflation? Maybe they are because it would seem they are only concerned about giving the markets their "rate cut fix" and not worry about the long term implications of their actions.

We are still holding onto our short trade (ETF symbol: DXD) on the Dow Jones Industrials. This trade is still a profit for us and we are continuing to hold until further notice.  Lisa provided some of the details earlier on the FOMC minutes from their last meeting. They have lowered yet again their forecast of the US economy. Last October the Federal Reserve had the projected the GDP to be 1.8% to 2.5%. At that same time I said on this site that the GDP will be 1.0% to 1.5%. Today the Federal Reserve revised their projections and now claim that the economy will decline even further and they now project the GDP to be 1.3% to 2.0%. They are getting closer to my projections all the time :).

I also projected that the unemployment rate would rise to 5.5%, and today they raised their projections of unemployment to now go to 5.2% to 5.3%. I’m not trying to toot my own horn here on my projections being accurate. Instead, what I want to point out is that we have been examining all of the economic data for many months now, analyzing the trends, and taking into account all of the business indicators. And we were able to see long ago that the economy was going to contract much further than the Government was admitting. And with each passing month the Government seems to be slowly changing their tune to match what is really happening. Are their economists that blind? Or is it because the Federal Reserve/Government wants to let out the bad news in dribs and drabs? I think it is becoming quite clear that it is because they want to break the bad news to the markets slowly over time. So much for transparency in our Government and the financial system. It is not only the Federal Reserve that is guilty of ‘playing’ with the markets by changing their forecasts constantly in dribs and drabs. Corporate America does the same thing. Let the bad news out in tiny pieces so as not to shock anyone into knowing how bad things are.

Shown below is the latest Federal Reserve Forecast: (click on image to see full screen)

 

 

 

 

 

 

  (Data source: Moody’s Economy.com)

The Federal Reserve continues to use words like "inflation expectations remain anchored". How they can keep saying this as the costs of everyday items continues rise is ridiculous. The CPI data today continues to show a rising trend of inflation. The chart below is the CPI data as of today. Do you see an anchor in there anywhere? I don’t.

 

 

 

 

 

 

 

 

 

Consumer Price Index, top line number. (Data source: Moody’s Economy.com)