Monday, January 07, 2013

Bullard Acknowledges Fed's Money Printing Ways


- Fed officials do some quick explaining of the FOMC minutes.
- Fed's Bullard glibly acknowledges Fed's money printing ways.
- Non-Farm Payrolls rise and so does unemployment rate. Don't worry, unemployment stimulates employment (a.k.a. the Larry Summers exit theory).
- Small caps and midcaps bounce right back to the lead.
- Big move, could rest, but many look ready to move still.
- AAPL remains a drag, but other leaders look very ready to push the market higher.

Stocks shake off FOMC QE gaffe with the help of a money printing gaffe.

Thursday closed out the session on shaky ground as the FOMC minutes more than hinted QE would end at some point in 2013. When it ends depends upon which 'some' of the three groups of 'some' referenced in the minutes is in control. I have a feeling that none of the groups of some include Bernanke, but the market likes to view things in the worst light and thus struggled through the session.
Friday the news was a bit better (I suppose; none of the news is great) as more economic data hit (e.g. the jobs report) and the Fed engaged in some fancy footwork as two Fed heavy hitters explained how the minutes in no way suggested QE was going to end anytime soon.

It was enough to calm Thursday's nerves and allow stocks to rise. Futures were lower, modestly so, but they grew into the open and chugged steadily higher all session. A last hour bid pushed stocks nicely higher but then sellers entered on the back half of that hour and took away that surge. That took some luster off the day but it still left the indices higher overall.

SP500 7.10, 0.49%
NASD 1.09, 0.04%
DJ30 43.85, 0.33%
SP400 0.75%
SOX 0.04%
RUTX 0.76%

Not a bad result given the market was rattled by the Fed Thursday as noted. Indeed, SP400 midcaps and the Russell 2000 small caps pushed further to new all-time highs as SP500, the Friday leader of the large caps, gets closer to matching a 5 year high itself, led again by financial stocks. Not a bad result to a very strong week, aided of course by the Monday 'let's make a deal' surge and the Wednesday 'we have a deal' surge.

Was that most of the year's gain right there? Could be. The economy is still crappy no matter what terms or reference points you look at, there is still the debt ceiling and entitlement 'fight' ahead (not sure it will be a fight this time), and as we found out Friday AFTER the close, the CBO erred in its assessment of the deficit impact of the 'fiscal cliff deal': it does NOT add $4T to the deficit over 10 years. It adds $4.6T to the debt. Glad that is cleared up.

These are heavy drags on the economy and thus the stock market. The economy CANNOT grow enough to pay off $16.4T in current debt and $50T to $100T of promised additional debt. As the President likes to say, the math doesn't work. Although he obviously failed math given he believes we cannot cut our way to balance but have to raise taxes to do so. Mr. President, we could confiscate (not tax, but outright take) all the wealth in the country and not pay the promises made. That is not a tax problem but a spendthrift problem.

Back to the Fed. After the market was thoroughly spooked Thursday by a public relations gaffe when the Fed released its minutes that actually discussed an economy without massive quantitative easing, it was out in a very planned response Friday.

Indeed, the Fed appeared so intent upon calming the markets that the explanations went too far. Mr. Bullard and Mr. Lacker (the latter being the most hawkish on the FOMC and thus adding credibility to the backtrack) explained to CNBC's chief economist Steve 'think inside the textbook' Leisman that the economy was simply not that great (how reassuring!) and that the Fed was going to have to keep the stimulus going for the foreseeable future. Of course they all agreed great care must be used in spending the money we have to which Leisman said "you have a lot of dollars . . . you get to print them." Bullard, a bit too casually, replied "Aah, indeed we do."

"You want some money Steve? I have the printer in my trunk."

Of course this is exactly what Chairman Bernanke told Congress the Fed could not and would not do. But then again, it is all semantics. Printing and buying your own treasuries is denied as printing money, but the effect is $85B more in the system each month right now.

Even today, a 'new' idea for the Treasury to mint a $1T platinum coin and then borrow against it at the Fed was seen as a rational way to avoid the debt ceiling and maintain the 'full faith and credit' of the US without any lengthy battle. Of course the only way such a coin would be viewed as worth anything would be the promise to back it with $1T worth of platinum. The problem is, to date in the history of the world, 16 tons of platinum has been mined. At $1557/ounce value, it would take 18,000 tons of platinum to back a $1T platinum coin and give it any value.

As you can see, it is a stupid idea in terms of 'funding' the debt. It only continues the charade that the dollar or $1T coin is backed by anything. It is simply a mechanism to use to try and avoid a fight with Congress about the debt ceiling. Hey, if you pretend the problem is not there no one will care, right? At least not the US electorate that is happy to be blind to our financial problems until that day they run out of other people's money.

Jobs beat but unemployment rate rises.

After the Bullard comments the jobs data makes more sense, i.e. the unemployment rate rose despite rising jobs. How so? Remember Bernanke pointed out 6.5% unemployment as a marker for withdrawing QE. How appropriate unemployment ticked higher to 7.8% from 7.7% even as jobs created topped expectations.

Nonfarm Payrolls, December (8:30): 155K actual versus 150K expected, 161K prior (revised from 146K)
Nonfarm Private Payrolls, December (8:30): 168K actual versus 145K expected, 171K prior (revised from 147K)
Unemployment Rate, December (8:30): 7.8% actual versus 7.7% expected, 7.8% prior (revised from 7.7%)
Hourly Earnings, December (8:30): 0.3% actual versus 0.2% expected, 0.3% prior (revised from 0.2%)
Average Workweek, December (8:30): 34.5 actual versus 34.5 expected, 34.4 prior

You cannot have employment falling if the Fed is going to be successful and devalue our currency to the point debts can be paid. Seems illogical but it isn't: The economy is not growing fast enough and cannot grow enough to pay down the debt and it certainly won't grow enough with the big government policies in place and that are going to stay in place. It has to be through devaluing our currency. So, it is okay for unemployment to rise so it can continue the process, as Bullard stated, by printing more money.

Oh, and by the way, lest you think the rate is just made up (well, actually it is), consider the following. First, there are 28.7M citizens on disability. How can an economy be healthy with that many people unable to find jobs, have run out of unemployment, and use disability to get by. Further, the jobs growth was AGAIN all centered in the 55 to 69 demographic group. The 18 to 29 age group suffers unemployment at 11.5%!! Go to college, study hard, get a degree, don't worry about $100+K of debt, and . . . stay unwillingly unemployed.

Reminds me of the old Billy Joel song 'Allentown':

Well we're waiting here in Allentown
For the Pennsylvania we never found

But they never really helped us at all
No they never told us what was real
Iron and coke, chromium steel

And we're waiting here in Allentown.
But they've taken all the coal from the ground
And the union people crawled away . . .

But not to worry. Labor Secretary Solis told us in her rounds on the financial stations that despite tens of millions still out of work either collecting unemployment, disability, or nothing, the extension of unemployment benefits will save us all.

Yes, she played the tired line, saying that thanks to the extension of benefits 'millions and millions' of jobs were saved, using the old 'unemployment leads to employment' argument that prompted Obama's first economic advisor Larry Summers to get the hell out of Dodge lest his reputation be sullied by what was going to be the weak, pathetic recovery we have suffered through. Ms. Solis stated that for every dollar of unemployment benefits $2 of economic activity results. That is an old Keynes theory that of course does not hold up on reality. If that were the case, let's all sit back, collect unemployment dollars, spend them, and enjoy twice the economic strength we have now.

Oh, but that ignores the reality that the money has to come from SOMEONE ELSE who actually IS productive and is making the economy work. TRANSFERRING money from one person to another CREATES NOTHING. Again, if it did then the $6+T the President spent in his first term would have produced over $12T in economic activity. It obviously did not because we are still $6T+ more in debt than we were. Yes, the math just doesn't work, but if you don't know what you are talking about you don't even know you look the fool. Of course the anchors on the financial stations never called her on any of this so it was all an exercise in further 'dumbing down' the debate.

I don't know nuthin', I just praise Obama and collect my $199K salary.

Let's Not Forget the Debt Ceiling and those pesky Entitlement cuts!

Even with worries already rising regarding the debt ceiling and promised (a.k.a. nonexistent) entitlement cuts, stocks still managed gains. Perhaps it was the knowledge that our nation's leaders are already hard at work resolving those issues.

The President, Harry Reid, and John Boehner take a break from debt ceiling/entitlement cut negotiations. Hey, if Pelosi can Photoshop, why can't we?


Dollar. 1.3073 versus 1.3066. Surged again, moving through the 200 day SMA on the high but could not hold it, reversing just below the November recovery peak. The dollar surged Thursday on the thought of taking back QE. Yes it was up Friday, but that sure looks like a possible reversal.

Bonds. 1.92% versus 1.89% 10 year. The 10 year lost more ground, but overall bonds, as shown in the chart, reversed and held the September low. Ready for a relief bounce after getting hammered on the week with a deal, the FOMC minutes. Friday the Fed-speak helped most bonds recover, but not the 10 year, at least not yet.

Gold. 1648.80, -25.80. Gold was bombed again, gapping below the 200 day SMA and selling below the late December lows. Then came Bullard and Lacker, and gold recovered off its low. Yes still a heavy loss but bouncing back as the threat or fear of losing QE was back-burnered for now.

Oil. 93.09, +0.17. Oil sold to the 200 day SMA but then recovered as the dollar lost its early surge. That kept oil above the 200 day SMA it broke through on Wednesday on the Cliff deal. Still some resistance at 94.50, but not insurmountable.



Stats: +1.09 points (+0.04%) to close at 3101.66
Volume: 1.743B (+0.14%)

Up Volume: 1.18B (+308.04M)
Down Volume: 529.49M (-370.97M)

A/D and Hi/Lo: Advancers led 1.77 to 1
Previous Session: Decliners led 1.09 to 1

New Highs: 135 (-4)
New Lows: 6 (-6)

Stats: +7.1 points (+0.49%) to close at 1466.47
NYSE Volume: 573M (-10.47%)

A/D and Hi/Lo: Advancers led 2.74 to 1
Previous Session: Advancers led 1.1 to 1

New Highs: 398 (-34)
New Lows: 40 (-11)

Stats: +43.85 points (+0.33%) to close at 13435.21


SP500. Started flat, then a steady, albeit unspectacular move higher to close near session highs and indeed at a new post-bear market closing high. It missed a new high by 8 points. Financials led the move and thus led SP500 higher.

NASDAQ. AAPL sold off and thus NASDAQ was hampered, closing flat. Tight doji, however, and holding its move past the August consolidation. 3140ish is next resistance, and as long as it holds the gap that is reachable.

Russell 2000/SP400. Another solid session off the Thursday continuation doji, another new high. The children are indeed leading, not testing back at all. After this big week, likely a test toward the old high (864.70 closing), but wasn't showing that on Friday.

SP400 midcaps put in another all-time high again with a solid move of their own. Very solid week, showing now problems, but after such a move a bit of backfilling is normal.

SOX. As with NASDAQ, a doji, going nowhere. But, that is not bad as SOX holds its gap higher as well.

DJ30/DJ20. Modest gain but closing near the session high though well off the closing highs at 13,600. Hey, pretty solid action.

DJ20. Still running and closing in on a post-bear market high of its own at5628 (closed at 5534).

Summary: After taking a day off on the FOMC worries, the same leading indices led higher again with the SP500 coming along better. NASDAQ is a worry but for now it is following.


Big names. Again sloppy. AAPL posted a second down session after gapping upside Wednesday but was unable to hold all of that move. EBAY was up, holding where it needed to but nothing great. Ditto AMZN. GOOG was the performer, making us a lot money on the week and we banked some Friday.

Financial. Strong all week and on Friday. C, BAC, and JPM. Strong.

Retail. More trouble. LULU gapped below the 50 day EMA and glad we got out after the gap and reversal Wednesday. ROST is pretty interesting after its gap through resistance. Many others are struggling though hanging on, e.g. M, JWN.

Technology. Still some interesting, still some struggling. FFIV is volatile but interesting. KLIC is in a nice test. SNDK looks very interesting. RAX as well, and ADTN is heading upside.

Industrial: CAT is holding that big Wednesday gap as is CMI, TEX and DE. Not in buy position, but good moves supporting the overall market move.

Transports. Truckers look good as JBHT and ODFL sport new rally highs. ABFS continues its trend reversal. KSU in rails is surging to a rally high. Even airlines are rallying, e.g. DAL, LUV.



VIX: 13.83; -0.73
VXN: 15.51; -1.6
VXO: 13.8; -0.21

Put/Call Ratio (CBOE): 0.82; -0.02

Bulls versus Bears

Bulls: 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . Bumping 50% level, getting more confident but still off the late September peak. It is similar to the pattern in September when the market started a two month selloff, so bears watching. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Holding flat even as the market surged. Not buying it quite yet as it hovers right at the last September lows. As with the bulls, it bears watching. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


Quite the week and it was a short one. But there was the anticipation of the deal and then the 'deal' itself. Gee, sounds like a Grisham novel. Just read 'The Broker,' and wonder why I finished it. Typos, glaring grammatical errors, unending descriptions of Italy (uses 'ancient' to describe the places multiple times in one paragraph), unending Italian lessons, a major plot miss, and then after endless, boring descriptions of the towns, a short, fast ending with many untied threads. If he had submitted it under a pseudo name it would have never made it to print. But, I digress.

Okay. The biggest opening week for a year in, well, years. With such big moves the market is primed for a test next week, right? It always is after these kind of moves, but if you look at individual stocks, many are not overbought at all. Yes they gapped upside on Wednesday, but just because a stock gaps does not mean it immediately sells back. Indeed on strong moves a stock will gap several times before ultimately rolling over after the run is out of gas and then corrects and fills the gaps.

Thus we will continue to look for the upside positions as many remain set up well to continue the move. Remember, rallies occur in waves. Some rise first and then rest while others complete their patterns and step up to lead. STX, SNDK, EBAY, CTRP and many others still have a lot of room to run.

A rally lives by its leadership. This market still shows plenty of leadership in position to move, even with AAPL flopping around like a carp on hot pavement, and thus we still look for upside.

AAPL gasps carp-like, struggling to regain its cache.

Of course you never get too cocky. Good moves are tested and many of these stocks can test a bit more before moving further upside. Doesn't mean a selloff, just means you have to be patient, let them finish setting up, and when they break upside, move in.

A key will be NASDAQ and its ability to hold its Wednesday gap. It has struggled since, but it has not given up ground. It needs to finish the test this coming week and provide some leadership in the continuing move. Again, AAPL is a major problem given its market weight. It is taking GOOG to neutralize AAPL's weakness, and GOOG does look good. Perhaps NASDAQ can overcome AAPL in numbers as other NASDAQ stocks make the move.

Have a great weekend!

Support and resistance

NASDAQ: Closed at 3101.66

3104-3112 from August and mid-October peaks.
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

3101 is the August 2012 high
3037 is the October low
3090 is the mid-March interim high
3076 is the late April 2012 high
3062 is the December 2012 prior peak
The 2011 up trendline at 3045
3042 from 5/2000 low and several other price points
3024 is the gap point from early May
The 50 day EMA at 3011
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
The 200 day SMA at 2991
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2838 from the July 2012 lows

S&P 500: Closed at 1466.47

1466 is the September 2012 closing peak and rally closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

1445 is a short term down TL from the September 2012 peak
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
The 50 day EMA at 1422
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1391
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak

Dow: Closed at 13,435.21

13,557 to 13,662
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,145
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 200 day SMA at 13,017
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak

Economic Calendar

January 2 - Wednesday
MBA Mortgage Index, 12/29 (7:00): -12.3% prior
ISM Index, December (10:00): 50.7 actual versus 50.5 expected, 49.5 prior
Construction Spending, November (10:00): -0.3% actual versus 0.5% expected, 0.7% prior (revised from 1.4%)

January 3 - Thursday
MBA Mortgage Index, 12/29 (7:00): -10.4% actual versus -12.3% prior
Challenger Job Cuts, December (7:30): -22.1% actual versus 34.4% prior
ADP Employment Chang, December (8:15): 215K actual versus 140K expected, 148K prior (revised from 118K)
Initial Claims, 12/29 (8:30): 372K actual versus 365K expected, 362K prior (revised from 350K)
Continuing Claims, 12/22 (8:30): 3245K actual versus 3200K expected, 3201K prior (revised from 3206K)
Natural Gas Inventor, 12/29 (10:30)
FOMC Minutes, 12/12 (14:00): Everyone agreed QE should be cut back or eliminated at some point in 2013
Auto Sales, December (14:00): 5.6M prior
Truck Sales, December (14:00): 6.5M prior

January 4 - Friday
Nonfarm Payrolls, December (8:30): 155K actual versus 150K expected, 161K prior (revised from 146K)
Nonfarm Private Payr, December (8:30): 168K actual versus 145K expected, 171K prior (revised from 147K)
Unemployment Rate, December (8:30): 7.8% actual versus 7.7% expected, 7.8% prior (revised from 7.7%)
Hourly Earnings, December (8:30): 0.3% actual versus 0.2% expected, 0.3% prior (revised from 0.2%)
Average Workweek, December (8:30): 34.5 actual versus 34.5 expected, 34.4 prior
Factory Orders, November (10:00): 0.0% actual versus 0.5% expected, 0.8% prior
ISM Services, December (10:00): 56.1 actual versus 53.5 expected, 54.7 prior
Natural Gas Inventor, 12/29 (10:30): -135 BCF actual
Crude Inventories, 12/29 (11:00): -11.12M actual

January 8 - Tuesday
Consumer Credit, November (15:00): $10.6B expected, $14.2B prior

January 9 - Wednesday
MBA Mortgage Index, 01/05 (7:00)
Crude Inventories, 01/05 (10:30): -11.1M prior

January 10 - Thursday
Initial Claims, 01/05 (8:30): 366K expected, 372K prior
Continuing Claims, 12/29 (8:30): 3200K expected, 3245K prior
Wholesale Inventories, November (10:00): 0.1% expected, 0.6% prior
Natural Gas Inventories, 01/05 (10:30): -135BCF prior

January 11 - Friday
Trade Balance, November (8:30): -$41.8B expected, -$42.2B prior
Export Prices ex-ag., December (8:30): -0.7% prior
Import Prices ex-oil, December (8:30): -0.2% prior
Treasury Budget, December (14:00): -$86.0B prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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