Monday, February 13, 2012

Market Summary - 2/13/2012


Highlights
Finally, at long last, the Greeks decided to pass austerity measures in a 199-70 vote in favor of the cuts.  They lowered minimum wage, cut government labor, and proposed to remove benefits in a sweeping reform that sent markets higher.  I imagined such a day would bring a 2-3% shot up in markets given the down days we have recently experienced.  Instead, the DOW rose a measly 0.57% with the S&P and NASDAQ posting similar gains.  What caused such a muted reaction?  Well, for the Greeks to actually get the €14.5 billion of the €130 billion bailout from the EU and IMF, the Greeks must specify the a portion of the exact cuts to be taken as well as send the EU a written commitment to actually follow the terms of the proposal.  It seems that the Euro zone is finally realizing that money thrown at Greece is likely not to be recovered and it may make better sense to let them default and exit the Euro.  The question remains, is what happens under a defaulting scenario?  Surely people will try and run the banks in fear of their bank being the Lehman of a potential Euro crisis.  The Greek economy will face much more severe contractions and the people will probably revolt, but this time full fledge. It will be interesting to see what the EU and IMF decide come Wednesday.  Beyond this, 100,000 Greeks set Athens ablaze in violent and disruptive protests.  Yes, 100,000, and given that Greece has around 11,000,000 people, this would represent nearly 1% of their population.  This is a staggering number and makes you wonder if the government did all they could if Greece is even able to be saved.  Don't even get me started on Portugal.  They may be the next domino to fall in the chain.  After being pro the Euro recovering as little as a day ago, I now realize that the people may make this not even a possibility.  Here is a nice picture of Athens ablaze last night:



Beyond Greece,  there was little action in the US markets.  There were a few t-bill auctions, but nothing special.  Crude was halted midday on what was labeled a "technical glitch" by the CME.  There is speculation that an algo went wrong and the CME caught this one before we experienced an oil flash crash.  There weren't any crazy earnings reports to note.  Apple did break $500 on the day as there is speculation of a dividend and the iPad 3. 

Equities
Stock markets were relatively boring on the day. Nearly all markets finished close to where they started.  The S&P 500 did close above the psychological barrier of 1350.  The main wonder is whether it can hold it this time as last year the market hit over 1370 before crashing hard over 300 points in all.  The VIX was down and finished at 19, low given the risks in the market.  Priceline (PCLN) was the biggest gainer on the S&P with a 4.8% pop followed by International Paper (IP) and Fastenal (FAST).  Biggest losers on the S&P were First Solar (FSLR) with a -5.0% drop followed by TripAdvisor (TRIP) and Netflix (NFLX).  On the DOW, Bank of America (BAC) continued its hot year with the largest pop at 2.2%. 

Rates and Fx
I am still a treasury bear long term, but short term, risk remains.  Bill Gross added to his position in treasuries as well.  I will be especially curious as to what happens after tomorrow's import/export prices report.  The 30 year finished down 1 bp at 3.11%, same with the 10 year (1.96%), and the 7 year (1.36%).  Somewhat related to rates, but I think extremely telling, individual central banks in the Euro zone are expanding the types of assets they can take as collateral.  This is English for the banks do not have collateral to meet their needs and the Central Banks are helping them out.  I was amazed that the European banks were not just absolutely punished on the news.  If I was long a European bank, I would suggest an exit as the upside does not compensate a 0 on the downside.  In FX news. the Euro was down on the day settling most recently at 1.3161 $/Euro.  The Yen actually sold off heavily as the BOJ announced a surprise asset purchase program enlargement.  Most recently the Yen was quoted at 77.88 Yen/$.  The pound also finished down on the day to settle at 1.5707.

Commodities
As mentioned before, Crude was halted on the day.  WTI Crude finished at $100.53 down $0.38 on the day with Brent at $117.20.  Spot gold finished at $1,716.39, down $6.10. Natural gas continued its descent finishing at $2.44.  This price continues to be unsustainable, but with supply and production well above demand, it's hard to see a short term recovery in prices.  I am still very bullish NG's longer term prospects as the US starts to make use of this energy source in greater quantities.  Coffee futures dropped to $214.60, down 1.29% on the day. 

Tomorrow
Should be a much more interesting day.  First, Zynga(ZNGA) reports its first earnings since filing for public status.  This should provide light on the health of Facebook before its IPO as Zynga accounts for a large portion of revenues.  Regal (RGC) is another name I would watch for earnings.  In economic news, Retail Sales are going to be a metric for the health of the consumer as well as inventories and import and export prices.  Import and export prices will be one I will especially be watching as the argument for QE3 continues to be brought up.  The only thing I feel that stops this initiative is the potential for inflation picking up.

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