Archives: July 2008

Bernanke opens Discount Window to GSE's

by TwoCentsEditor
Published on: 07/11/2008
Categories: Current Events, Financial Markets
Tags: , , , ,
Comments: 2 Comments

This is getting funnier by the minute. Yesterday, Hank Paulson announced that both Fannie Mae and Freddie Mac were ‘well capitalized’ and yet this afternoon, Ben Bernanke stepped on the Treasury Secretary’s toes by offering the two GSE’s use of the discount window. Undoubtedly, the Fed Chief was trying to convince traders into buying stocks on a Friday afternoon as the markets have continued their recent slide, almost unabated.

This situation bears watching over the weekend. It is eerily similar of March when Bear Stearns went from being ‘well capitalized’ on a Thursday to essentially worthless the following Monday. People need to get on the stump and in unison demand of these characters where exactly all this bailout money is coming from. I can guarantee you won’t like the answer, should they actually decide to come clean.

Crude off to the races

by TwoCentsEditor
Published on: 07/11/2008
Categories: Financial Markets, Foreign Exchange Markets, Technical Analysis
Tags: , , , ,
Comments: 2 Comments

Once again, main stream commentators have been burned by calling a premature end to the commodity (particularly oil) bull market. Crude bounced off of the trendline we have repeatedly pointed to in our premium newsletter and is now heading upward. Fueling this rise to some degree has been program trading as it is nearly certain that other technical analysts have identified the same trendline we have. Another siginficant factor has been increasing tensions over Iran and turmoil in Nigeria.

In FOREX markets, the Dollar is down against the Euro as the pair is very close to breaking $1.60; a critical resistance level. The Japanese Yen is attempting a breakout as well at 105 and is right at the 50-day moving average.

Equity markets around the globe are in a rout today as selling pressures have emerged due to the continued troubles at Fannie Mae / Freddie Mac, slow economic growth, and runaway import prices. This last item gets almost no attention even though it is a fairly accurate indicator in terms of consumer health since so much of what we buy is imported. We discussed recent trends in import prices in our 5/16/2008 issue of My Two Cents which may be read here:

Do you believe in Fairytales?

The technical rally that we have been looking for has been a no-show to this point with the major US indexes continuing to probe newer lows. In fact, as I write, the DJIA is threatening to break below 11,000, currently at 11,024.16.

A see-saw day ends up

by TwoCentsEditor
Published on: 07/10/2008
Categories: Current Events, Financial Markets, Technical Analysis
Tags: , , , ,
Comments: 3 Comments

Today’s action featured the DJIA up over 100 points, then down in negative territory, and finally finishing up around 81 points. Financials, particularly Fannie Mae and Freddie Mac are under mounting pressure as the true state of their affairs becomes more widely known. Oil was in stealth mode today, surging nearly $6/barrel as Iranian tensions and the end of the Nigerian cease-fire created more nervousness in the trading pits. So much for the end of the commodity bull market.

Looking forward, if the major indices are going to muster any kind of a rally, they’d better get started soon. Earnings will start trickling out and the news is not looking good despite a solid attempt to window-dress the results by the mainstream financial press. Lower earnings make current P/E’s high, and warrant further correction (lower prices). The economic stimulus checks have been hitting Main Street for nearly 2 months now with the last scheduled to be sent within a few weeks. Once the brief jump in spending numbers wanes, there is not a lot of good news for US markets looking forward. 

Oil Correction and weakness across the board

by TwoCentsEditor
Published on: 07/08/2008
Categories: Financial Markets, Foreign Exchange Markets
Tags: , , , ,
Comments: 3 Comments

Last week I commented about the fact that the Canadian Energy Royalty Trusts were almost inexplicably dropping in concert. We attributed much of this phenomenon to the fact that profitable investments were being sold to cover losses elsewhere. With a correction in commodities now underway after this past weekend’s G8 meeting, it now appears that at least some of the action was in anticipation of  the thesis that an effort to prop the Dollar and talk down oil prices was going to intensify.

My position? Talk is cheap. Action counts. Another verbal campaign will do absolutely nothing to fix any of the problems that have caused the high oil prices and disintegrating value of the Dollar. We have seen the selling reach fever pitch in the highest quality energy trusts pushing yields to incredible levels. I believe this is a unique opportunity and as such will analyze a number of the energy Trusts in this month’s Centsible Investor which will be out by July 15th. For more information, please visit:

http://www.suttonfinance.net/newsletter.php

Divergence continues

by TwoCentsEditor
Published on: 07/03/2008
Categories: Financial Markets, Foreign Exchange Markets
Tags: , , ,
Comments: 3 Comments

The divergence between energy prices and the underlying stocks continued today as energy issues, particularly the Canadian energy trusts were routed. After review of the short positions, press releases and fundamentals on a number of the issues we watch, we conclude that the price action is likely indicative of selling to cover the losses of other positions as opposed to a fundamental shift. 

In other news, the Dollar saw a counterintuitive rally as the ECB raised interest rates. Hmmm, ok. This reeks of currency intervention on a day when many traders in the US got an early start to the holiday weekend. The press sold this as a Dollar rally based on the fact that ECB President Trichet gave ‘no bias’ on further rate moves in the Eurozone. Again, the reality is that today the Euro-Dollar spread grew by 25 basis points in favor of the Euro. Rates here are going nowhere soon. Ben Bernanke would rather swim the English Channel than raise rates right now.

In other news, Andy Sutton’s recent interview with Contrary Investor’s Cafe is available - Listen Here

I extend best wishes to all for a somber reflection on our many blessings this Fourth of July.

Wall Street rout continues

by TwoCentsEditor
Published on: 07/02/2008
Categories: Financial Markets, Technical Analysis
Tags: , ,
Comments: 1 Comment

After a one-day respite, the rout on Wall Street continued Wednesday. This price action was unexpected by most for a number of reasons. First, stocks historically fare comparatively well on short weeks before holidays. Second and more importantly, yesterday’s v-action in prices along with the formation of a hammer candlestick has been prescient in the past in terms of identifying bottoms.  So yesterday’s 32 point rally goes into the books as a head-fake rally with downside momentum still intact.

Even more perplexing and alarming is the rout in energy stocks. Oil is currently at an all-time high above $144/barrel and yet the vast majority of energy stocks are getting pummeled today along with the rest of the market. The good news here is that the value of these companies’ assets and products is going up while the share price is going down. We could be seeing some good bargains in this sector shortly if this action keeps up.

A merciful end to Q2

by TwoCentsEditor
Published on: 07/01/2008
Categories: Current Events, Economics, Financial Markets
Tags: , ,
Comments: No Comments

The second quarter ended mercifully yesterday with the DOW losing nearly 10% in the month of June alone. It was the worst June since 1930 for the DOW. Unfortunately, it appears as though there is still a good bit of selling pressure that remains to be wrung out of the markets. How much? Tough to tell, but looking at profits and the expectations thereof, I would expect to see prices fall a good deal further in order for many stocks to maintain their current P/E ratios. If the markets decide on lower P/E’s then we have A LOT of selling left. We will start to learn more in the next few weeks as earnings reports for the second quarter come out. 

After market close, Starbucks announced that it was closing 600 stores in an effort to ‘revitalize’ operations. This is management-speak for ‘we’re in trouble’. Could there be trouble brewing in Coffeeland? An alarming trend is developing showing that perhaps the almighty US consumer is beginning to roll over under the mountain of debt. This will tie into stock prices vis a vis corporate profits. 

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