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Bear Market Macro: SP500 Levels, Refreshed

It’s been a great week for the proactively prepared. This week’s action in the SP500 reminds us that managing risk works both ways.

 

While the SP500 remains broken across all 3 of our investment durations (TRADE, TREND, and TAIL) it’s also proving to have some predictability in terms of how it behaves on the downside.

 

In my Early Look note this week titled “Focus On Risk”, this is how we laid out Risk/Reward:

 

“Risk/Reward: For the sake of this illustration I’ll use the SP500 (SPY) short position – moving to a 3 standard deviation level of downside support I was coming up with 1040 (the 2.5 standard deviation level = 1053), and in terms of immediate term TRADE upside I was registering 1077 on a 2 standard deviation move.”

 

Now that partly explained why I covered some short positions on the drawdown to 1040 (the intra-day and intra-week low for the SP500 was 1041). The next risk management question is obviously where do we put our short position in the SPY back on? My answer as of 3PM EST is 1067. That’s our refreshed level of immediate term TRADE resistance. A close above that puts 1092 in play, in short order. A close below that, puts 1035 in play on the downside.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bear Market Macro: SP500 Levels, Refreshed  - S P


No Confidence, but we have “Preconditions”

No matter where you turn, the evidence of an economic slowdown is here.  The recent figures are showing slowdowns in housing, business investment and consumer spending!

 

Despite these facts, Ben Bernanke is in a room full of “Fiat Fools” in Wyoming today saying that “preconditions” for growth in 2011 are “in place.”  A quick turn to Google and you can see that a precondition is defined as a “condition that must exist or be established before something can occur or be considered; a prerequisite.”  In computer programming, a precondition is a condition or predicate that must always be true just prior to the execution of some section of code. 

 

What condition is present that gives the Fed chairman the ability to use the word precondition? What can he or President Obama do to reignite growth in the USA?  Call the Chinese? 

 

Over the past 18 months, government spending programs have not create any new demand; they only shifted the time at which American consumers were going to make purchases they were going to make anyway.  And today’s consumer confidence print from the University of Michigan is proof of that.       

 

The University of Michigan final index of consumer sentiment came in at 68.9 from 67.8 in July, which was the lowest reading since November 2009.  What is even more interesting is that the FED chairman made the statement of “preconditions” knowing that 2Q GDP was going to slow by 50% quarter-over-quarter.  

 

All that government spending accomplished was to not let the market forces run their course and added uncertainty into the economy, which is making it harder for businesses to plan their next move (i.e. not hiring additional employees).  The leveraging of our balance sheet did not create new wealth for consumers; it diverted capital and resources from other places. 

 

Given the facts as we see them today, we see the preconditions in place for a significant slowdown in consumer spending in 4Q10.

 

Howard Penney

 

No Confidence, but we have “Preconditions”   - hpchart


EARLY LOOK: Panza Policy

This note was originally published at 8am this morning, August 27, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK in real-time, published by 8am every trading day.

 

____________________________________________________

“Never stand begging for what you have the power to earn.”
-Miguel de Cervantes Saavedra

 

EARLY LOOK: Panza Policy - Don Quiote

 

 

This is an important quote from one of Western literature’s most important authors. Cervantes wrote Don Quixote in two volumes (in 1605 and 1615) and to this day it is regarded as one of the greatest fictional works of all time.
 
Wikipedia summarizes the Cervantes central characters well: “Don Quixote is noble-minded, an enthusiastic admirer of everything good and great, yet having all these fine qualities accidentally blended with a relative kind of madness. He is paired with a character of opposite qualities, Sancho Panza <http://en.wikipedia.org/wiki/Sancho_Panza> , a man of low self-esteem, who is a compound of grossness and simplicity.”
 
As we prepare to hear the proclamations of Fiat Faith from our central planners in Jackson Hole, Wyoming this morning, we must realize that the developing story of Sancho America is far from fiction. Consumer and small business confidence in this country is abysmally low and the causes of the slowdown in US economic growth are being grossly misrepresented by both the US government and its dogmatic economic advisors.
 
The “grossness and simplicity” of it all is now being compounded by the world YouTubing us for who our professional politicians have become. When the most compromised and conflicted of all central planners in the world (Japan) launches into public attacks on Americans being “simple” and “single-celled organisms”, folks we have a problem.
 
Those are Ichiro Ozawa’s quotes. He is challenging the current Japanese Bureaucrat in Chief, Naoto Kan, to an election in Japan on September 14th. The battle lines have already been drawn. This economic disaster of a Japanese quantitative easing experiment provides for a proactively predictable political debate.
 
Never mind whether his challenger’s platform is calling America a modern day Sancho Panza, there is only one question that matters here. It’s the same question that the Fiat Republic of Japan has been asking of its countless PM’s since Paul Krugman talked the Bank of Japan into “PRINTING LOTS OF MONEY” in 1997. After only 2 months on the job will the current PM of Japan lose his job to an antagonistic charge that he isn’t doing more of what hasn’t worked?
 
Want hasn’t worked in Japan is government “stimulus spending” that is financed with borrowed money (government debt). This week, the Japanese sold 1.1 TRILLION Yen in 20-year debt in order to ostensibly give Naoto Kan that last heroin shot he needs to give his citizenry another enema before the election.
 
All the while back in America we have our own Panza Policy that will be pandered to, big time, in Jackson Hole as the czars of ‘government is good’ throw down the gauntlet of their long-standing, fear-mongering, marketing message to the American people.
 
This morning, Paul Krugman has already accused the US government of “sugar coating” the messaging about the recovery. This must me some sad and sadistic attempt to make sure that the fear-mongering messaging that leaves America effectively begging Bernanke for free moneys remains Washington consensus.
 
Never mind empowering American independence and confidence. Out with the grind and grit that makes the great leaders on this country’s fields of battle earn the world’s respect. Bring in the government  - it’s the elixir you need – debt financed spending will give us all “the power to earn.”
 
I wish I was coloring Krugman unfairly – I really do. Sadly, the alternative to believing this man doesn’t have an impact on how Bernanke thinks is also fiction. In the flesh, here are the 2 comments that were most alarming to me in his New York Times editorial this morning:
 
1.      “This isn’t a recovery, in any sense that matters… and policy makers should be doing everything they can to change that fact.”

2.       “We’ve already seen the consequences of playing it safe, and waiting for recovery to happen all by itself… It has landed us in what looks increasingly like a permanent state of stagnation and high unemployment.”

 
Alarming, yes. And being blunt about the economy being a mess isn’t what alarms me. It’s A) the misrepresented cause of the mess and B) the dogmatic solution to this mess that makes us trust government so little.
 
If Americans think that the answer to this Failed Fiat Experiment is empowering government to compound their Japanese spending and quantitative easing mistakes, this is not the United States of America that we used to be.
 
Put on our cowboy hats in Jackson Hole and pretend you are patriots. Begging for Bernanke and stimulus will have no power in earning this simple man in New Haven, Connecticut’s respect.
 
My immediate term support and resistance levels for the SP500 are now 1038 and 1070, respectively. I continue to register lower-lows of support and lower-highs of resistance on both the US Dollar and the US stock market. Stocks are down -14% since April and down -33% since 2007. These markets don’t lie folks, politicians do.
 
Have a great weekend and best of luck out there today,
KM


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Panza Policy

“Never stand begging for what you have the power to earn.”

-Miguel de Cervantes Saavedra

 

This is an important quote from one of Western literature’s most important authors. Cervantes wrote Don Quixote in two volumes (in 1605 and 1615) and to this day it is regarded as one of the greatest fictional works of all time.

 

Wikipedia summarizes the Cervantes central characters well: “Don Quixote is noble-minded, an enthusiastic admirer of everything good and great, yet having all these fine qualities accidentally blended with a relative kind of madness. He is paired with a character of opposite qualities, Sancho Panza, a man of low self-esteem, who is a compound of grossness and simplicity.”

 

As we prepare to hear the proclamations of Fiat Faith from our central planners in Jackson Hole, Wyoming this morning, we must realize that the developing story of Sancho America is far from fiction. Consumer and small business confidence in this country is abysmally low and the causes of the slowdown in US economic growth are being grossly misrepresented by both the US government and its dogmatic economic advisors.

 

The “grossness and simplicity” of it all is now being compounded by the world YouTubing us for who our professional politicians have become. When the most compromised and conflicted of all central planners in the world (Japan) launches into public attacks on Americans being “simple” and “single-celled organisms”, folks we have a problem.

 

Those are Ichiro Ozawa’s quotes. He is challenging the current Japanese Bureaucrat in Chief, Naoto Kan, to an election in Japan on September 14th. The battle lines have already been drawn. This economic disaster of a Japanese quantitative easing experiment provides for a proactively predictable political debate.

 

Never mind whether his challenger’s platform is calling America a modern day Sancho Panza, there is only one question that matters here. It’s the same question that the Fiat Republic of Japan has been asking of its countless PM’s since Paul Krugman talked the Bank of Japan into “PRINTING LOTS OF MONEY” in 1997. After only 2 months on the job will the current PM of Japan lose his job to an antagonistic charge that he isn’t doing more of what hasn’t worked?

 

What hasn’t worked in Japan is government “stimulus spending” that is financed with borrowed money (government debt). This week, the Japanese sold 1.1 TRILLION Yen in 20-year debt in order to ostensibly give Naoto Kan that last heroin shot he needs to give his citizenry another enema before the election.

 

All the while back in America we have our own Panza Policy that will be pandered to, big time, in Jackson Hole as the czars of ‘government is good’ throw down the gauntlet of their long-standing, fear-mongering, marketing message to the American people.

 

This morning, Paul Krugman has already accused the US government of “sugar coating” the messaging about the recovery. This must me some sad and sadistic attempt to make sure that the fear-mongering messaging that leaves America effectively begging Bernanke for free moneys remains Washington consensus.

 

Never mind empowering American independence and confidence. Out with the grind and grit that makes the great leaders on this country’s fields of battle earn the world’s respect. Bring in the government  - it’s the elixir you need – debt financed spending will give us all “the power to earn.”

 

I wish I was coloring Krugman unfairly – I really do. Sadly, the alternative to believing this man doesn’t have an impact on how Bernanke thinks is also fiction. In the flesh, here are the 2 comments that were most alarming to me in his New York Times editorial this morning:

  1. “This isn’t a recovery, in any sense that matters… and policy makers should be doing everything they can to change that fact.”
  2.  “We’ve already seen the consequences of playing it safe, and waiting for recovery to happen all by itself… It has landed us in what looks increasingly like a permanent state of stagnation and high unemployment.”

Alarming, yes. And being blunt about the economy being a mess isn’t what alarms me. It’s A) the misrepresented cause of the mess and B) the dogmatic solution to this mess that makes us trust government so little.

 

If Americans think that the answer to this Failed Fiat Experiment is empowering government to compound their Japanese spending and quantitative easing mistakes, this is not the United States of America that we used to be.

 

Put on our cowboy hats in Jackson Hole and pretend you are patriots. Begging for Bernanke and stimulus will have no power in earning this simple man in New Haven, Connecticut’s respect.

 

My immediate term support and resistance levels for the SP500 are now 1038 and 1070, respectively. I continue to register lower-lows of support and lower-highs of resistance on both the US Dollar and the US stock market. Stocks are down -14% since April and down -33% since 2007. These markets don’t lie folks, politicians do.

 

Have a great weekend and best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Panza Policy - eldd


THE M3: S'PORE JULY VISITATION; UNEMPLOYMENT

The Macau Metro Monitor, August 27th 2010

 

VISITOR ARRIVALS TO S'PORE UP 24.1% TO EXCEED 1 MILLION IN JULY Channel News Asia, STB

Singapore visitor arrivals reached 1,095,000 in July (24.1% YoY growth), the first time that visitor arrivals have exceeded 1 million in a single month.  STB attributed the growth to improved travel sentiment, the two IRs, and the Great Singapore Sale.  Visitor days increased 21% YoY to 4.3 million days.

Indonesia (232,505), China (117,728), Australia (87,273), Malaysia (82,512) and India (64,862) were Singapore's top five visitor-generating markets. China registered the highest growth at 62.8%, followed by Malaysia at 52.6% and HK at 39.9%. Hotel room revenue increased 37.2% YoY to S$173 million as occupancy rose 10.2% points to 90% and ADR increased 19.9% YoY to S$209.

 

THE M3: S'PORE JULY VISITATION; UNEMPLOYMENT - SINGA1


EMPLOYMENT SURVEY FOR MAY-JULY 2010 DSEC

The unemployment rate for May-July 2010 was 2.9%, up 0.1% point over the previous period (April-June 2010).  Total labor force was 326,000 in May-July 2010 and the labor force participation rate stood at 71.5%, with the employed population decreasing by about 200 over the previous period to 317,000.  Number of the unemployed increased by about 300 from the previous period to 9,600.

THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - August 27, 2010

As we look at today’s set up for the S&P 500, the range is 32 points or 0.88% (1,038) downside and 2.18% (1,070) upside. 

Equity futures are trading mixed to fair value as markets wait for the first revision to the Q2 GDP reading and Fed Chairman Bernanke’s speech in Jackson Hole. He is set to speak on "The Economic Outlook and the Federal Reserve's Policy Response"

 

After the close, Hewlett Packard (HPQ) raised its bid for 3PAR (PAR) to $27 a share.

 

Eli Lilly (LLY) got another court order temporarily blocking generic versions of Strattera drug while it appeals patent ruling J.Crew Group (JCG) cut FY EPS forecast to $2.25-$2.35, vs. est. $2.46

 

Netezza (NZ) boosted FY sales growth forecast to 30% from 20%

 

OmniVision Technologies (OVTI) reported 1Q rev. $193.1m vs. est. $204.1m

  • PERFORMANCE ONE DAY: Dow (0.74%), S&P (0.77%), Nasdaq (1.07%), Russell 2000 (0.84%)
  • PERFORMANCE MONTH-TO-DATE: Dow (4.59%), S&P (4.94%), NASDAQ (6.03%), Russell (7.86%)
  • PERFORMANCE QUARTER-TO-DATE: Dow +2.17%, S&P +1.60%, NASDAQ +0.45%, Russell (1.60%)
  • PERFORMANCE YEAR-TO-DATE: Dow (4.24%), S&P (6.09%), NASDAQ (6.63%), Russell (4.10%) 
  • NCE/DECLINE LINE: -867 (-1516)
  • VOLUME: NYSE - 1045 (-6.2%) - Waiting on Bernanke today
  • SECTOR PERFORMANCE: Every sector traded down yesterday
  • MARKET LEADING/LOOSING STOCKS YESTERDAY: Teradata +5.80%, Monster WW +4.70% and Red Hat +3.88%/Sandisk -5.24%, Ralph Lauren -5.18% and Pattersao -4.91%

EQUITY SENTIMENT:

  • VIX - 27.37 +2.51%          
  • SPX PUT/CALL RATIO - 1.47 down from 1.97  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD - 15.74 0.305 (1.974%)
  •  3-MONTH T-BILL YIELD .16% unchanged
  • YIELD CURVE - 1.985 from 2.01

COMMODITY/GROWTH EXPECTATION:

  • CRB: 264.04 +0.865% - first up day in 6
  • Oil: 73.36 +1.16% - a 2 day rally
  • COPPER: 332.55 +2.91%
  • GOLD: 1,236 -0.24%

CURRENCIES:

  • EURO: 1.2707 +0.04%
  • DOLLAR: 82.934 +0.39%

OVERSEAS MARKETS:

  • ASIA - Most markets ended mixed although Japan closed higher on a report that Prime Minister Naoto Kan would speak about steps to fight the rise in the yen.
  • Australian shares were lower on the back of banks and resources
  • Japan July seasonally adjusted jobless rate 5.2% vs. prior 5.3%. July core CPI (1.1%) y/y, matching expectations.
  • EUROPE - Major indices have drifted lower after a flat open with investors largely sidelined ahead of US GDP and Bernanke's speech at the Jackson Hole symposium.
  • Weighing on indices were Oil & Gas, Basic Resources, Financials and Technology, while Construction and Media were trending higher
  • UK Q2 GDP (first revision) +1.7% y/y vs. cons +1.6%
  • France 12M Industrial Investment 5% vs. prior 6%
  • Germany July Import Prices +9.9% y/y vs. cons +9.8%
  • LATIN AMERICA - Mostly lower - Argentina, Brazil and Mexico are trading down
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER


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