Market Talk

Our colleague Matt Phillips over at MarketBeat exults in the fact that Fannie Mae and Freddie mac are finally being delisted, which makes sense, since they stopped being real, actual companies the day the government took them over.

From MarketBeat:

First things first. Fannie and Freddie aren’t real companies. The total equity in the two companies is a negative $146.9 billion, according to Bose George, an equity analyst covering the mortgage and housing sectors for Keefe, Bruyette & Woods. In short, these are government-owned zombie entities that would have been shut down by regulators long ago, if the regulators didn’t own them.

At one time there was a solid base of institutional shareholders for these firms. But that changed a long time ago, when the underpinnings of these entities was fatally disrupted by the subprime crisis. In short, any investors are long gone. “It’s largely day traders, I don’t think it’s people that care about the fundamentals that much,” George said of those who own the shares, in a quick chat with MarketBeat.

And those that have been dealing in these shares have basically been playing a giant game of hot potato, so much so that at points during rally off the March 2009 lows, Fannie and Freddie — valueless companies! worse than valueless! — made up some of the heaviest volume of any stocks.

The next step will be for the federal government to further acknowledge reality and add these behemoths to its balance sheet. But we won’t hold our breath for that one.

Here’s something I wrote this afternoon for MarketBeat:

So the Dow Jones Industrial Average, for a brief moment, broke into the 11000 range, a place it last saw back on Sept. 26, 2008. With about five minutes to go in the session, the Dow broke through, briefly touching 11000.85. And while it couldn’t hold the level, closing at 10997, it’s close enough that the Dow is essentially back at the 11000 level.

These big, round numbers always attract attention, and the bulls hope this one will be enough to convince all those recalcitrant investors to come back to equities. Of course, the parabolic move of the past year hasn’t done the trick, so the bulls may have to start laying tracks for 12000 if they really want to bring mom and pop, and their money, back.

“The move to 11000 is a clear sign of a well-advanced recovery in the market,” Jeffrey Kleintop, chief market strategist of LPL Financial, said, given it gets the index back where it was before Lehman Brothers collapsed. (Of course, it had been falling for a year ahead of Lehman’s collapse, but that’s another story.) The 10000 level has been crossed and crossed again a number of times, he said, but the 11000 level has been crossed only once “definitely” to the upside.

Interestingly enough, equities’ gains today came as the dollar fell and the euro rose amid rampant speculation — and hope — that some kind of joint EU-IMF bailout is imminently headed the way of Greece. It wouldn’t be a moment too soon, either; as Fitch made clear in their downgrade of Grecian debt today, the nation needs to “import credibility.” Of course, given that the Europeans have spent months doing nothing but talking, it’s worth questioning how on target the speculation will prove to be.

It’s also interesting to watch equities surge right into another earnings season. Alcoa’s report Monday is the unofficial kickoff, and expectations are running higher for another stellar spate of profit growth. Street views roughly peg growth at 35%. Of course, JP Morgan downgraded Alcoa today, concerned about earnings expectations amid lower aluminum prices.

Stocks, as they say, are priced to perfection. And perfection is a maddeningly difficult thing to produce. Ask the 2007 Patriots.

Here’s a little something I wrote up for MarketBeat this morning, which won’t come as a surprise to you, dear readers, given how much we talk about the dollar. Still, good insights from UBS’ Art Cashin.

It may not sell papers like stories of economic recoveries do, but the stock market is being moved as much by the dollar as it is by the Institute for Supply Management’s service sector data – cited for Monday’s modest rally.

“You could credit the better numbers in the ISM service sector and in pending homes sales for moving stock prices higher,” UBS’ Art Cashin says. “With a little finesse you could even credit that data with sending crude prices higher (economic recovery, etc.)” But it’s harder to square the data with gold prices, he says.

“Today’s rule of thumb is that if the Troika (oil, gold and stocks) is moving in the same direction, the catalyst is currencies,” he says. “If the Troika is up, odds are that it’s based on a weakening in the dollar. Conversely, if the Troika is down, you can bet the dollar is probably firming. Is that boring and frustrating? You bet it is! But it is the dominant force in today’s markets.”

It hasn’t been a one-for-one match, but it’s been a pretty steady relationship this year. So far in 2010, the dollar is up 6.2% on the euro, and 5.8% on the pound (albeit, it’s up only 1.3% against the yen.) Meanwhile, the DJIA is up 5.2%, and the S&P 500 is up 6.5%. Also, the U.S. Dollar index hit a near four-year high in March 2009, when the major indexes hit 12-year lows. This morning, stocks are falling, and as per the rule of thumb, the dollar index is rising.

Our BFFs over at MarketBeat picked up something John wrote for the wire this morning:

Despite a solid first quarter advance for the S&P 500, “many investors remain skeptical,” says Oppenheimer strategist Brian Belski, calling this “the most reluctant bull market” he’s seen in his career.

Bullish sentiment is up in the past few months, but “trading volumes and equity flows remain tepid,” he notes. “For our part, we still see the US economy in its early stages of recovery and we expect market strength to persist in coming months as prospects for corporate earnings continue to improve.” He also doesn’t “envision a scenario that takes the market significantly below current levels over the near term.”

While the March nonfarm payrolls report should be cause for celebration Monday in the stock market – it was closed Friday – others think it may be already baked into prices.  “Based on last week’s gains ahead of the Easter Holiday, we’d expect that any celebration over Friday’s non-farm payroll number will be relatively modest, as the market will consider the good news already priced into equity prices,” says Ticonderoga strategist John Stoltzfus.

“Job creation is the best remedy for what currently ails our economy, and we’d expect that even as prior stimulus packages are removed from the system that helped revive the financial sector and the capital markets, further rounds of stimulus will likely be needed and developed to address the needs of an economy that can’t afford another jobless recovery,” he adds.

It reminds me of the famous Chuck Prince quote: “As long as the music is playing, you’ve got to get up and dance.”

Of course, one should keep in mind that after the music stopped, Prince lost his job, his company collapsed and quite nearly disappeared, and the economy collapsed and quite nearly fell into the abyss. So some attention should be paid to the song being played, too.

Our colleauge over at WSJ, Peter McKay, pens the following:

Come on, lucky seven!

If the Dow can hold onto its current gain, it will be on a seven-day run higher, the longest such streak since an eight-day gain in late August 2009. But this rally has been different in important respects.

For one, it’s been much more gradual. If the Dow holds onto its 45-point rally so far in Wednesday’s session, it will be up 1.7% over a seven-day stretch. That compares with a 4.5% gain over the first seven days of the August 2009 rally, which ended with a 4.9% gain overall.

A quick trip down memory lane (or, at least, the Journal’s archives) shows that there was a heavier flow of news to drive the market back then, including President Obama’s re-nomination of Ben Bernanke as Federal Reserve chairman. Even though the staging of the event was somewhat low key, it resolved a key piece of uncertainty that had been looming over the market at the time.

Continue reading…

From MarketBeat’s Matt Phillips:

The dollar-funded carry trade is becoming quite the topic of the moment. Nearly every markets story we’re reading seems to have a boilerplate ‘graph explaining how exceptionally low U.S. rates are prompting traders to borrow and sell cheap dollars and buy higher yielding foreign assets, adding grease to the slide the dollar has been on.

When ink-stained — or in our case, pixel-pocked — wretches, and by extension the general public, becomes too familiar with any trade trend, that seems like it should present something of a red flag to professionals. But with the Fed and the global central banking community appearing to be dead set on keeping the liquidity flowing, we’ve heard nary a peep of caution about piling into this trade.

That’s why our contrarian hearts were, well, heartened to see this squib in a note from Christopher Sheldon, BNY Mellon Wealth Management’s director of investment strategy. While stressing that he believes the dollar will continue its decline in the medium term, Sheldon seems to warn investors off making huge bets on the ongoing slide in the buck:

We advise against extreme shifts as the dollar is, once again, close to a multi-year low and most of these defensive positions represent a crowded trade. Many investors’ portfolios already are well positioned for a weaker dollar. A substantial dollar reversal could cause investors to rethink the degree to which they have positioned their portfolios towards dollar weakness and would likely result in reversals in the price of many of their investments.

“What could cause such a reversal in the dollar’s slide?,” you ask.

Well, any sign that the Fed might be thinking of changing its hyper accommodative posture would likely play a part. Yeah, sure the Fed’s on hold for the foreseeable future. But if inflation expectations start rising, for instance if we get a bad auction of Treasury debt — BTW there’s $25 billion of 10-years at 1 p.m. — and yields shoot higher, that could get a lot of people in the markets thinking hard about their position on the buck.