Anyone paying attention to the Ishares National Municipal Bond ETF (MUB)? As far a bonds go, this type of move is extraordinary. Should this problem spread and infects the treasury market, it could reach the point where interest rates are rising in lockstep with the dollar. If the dollar continues to rise, it would place additional pressure on stocks, commodities, and bonds. For most retail investors, there will be no place to hide.
Historically, the US experienced very few municipal defaults -- around a tenth of 1 percent over the last 40 years, and hence has been thought of as a safe place to invest. But that $2.8 trillion market is becoming more and more vulnerable. >>READ MORE
Crude Oil declines even off huge draws in inventories....
Total crude oil and petroleum products stocks declined -9.10 mmb to 1106.40 mmb in the week ended November 12. Crude oil inventory plummeted -7.29 mmb, compared with consensus of a -1.20 mmb incrase, to 357.6 mmb as stockpile in Gulf Coast tumbled -6.81 mmb. Cushing stock, however, rose +1.27 mmb for the first time since July 30. Utilization rate climbed +1.6% to 84.0%.
Have Crude Oil Prices Moved to a Higher Range? Link
"At some unknown point, easy money turns into excess leverage, reduced deflation risk becomes inflation fear, fiscal stimulus becomes sovereign credit risk," says the J.P. Morgan Chase asset-allocation group in a recent note. "We can't tell where this turn comes, but history warns us it tends to happen suddenly and violently. As investors, you can't always focus on tail risk, but it makes sense to tilt portfolios toward them." W$J story
The Shanghai Composite Index plunged more than 5.2% on Friday on fears China would hike rates over the weekend. China was the focus on Friday with inflation at two-year highs and worries over further tightening to slow its rise. China's inflation for October came in at 4.4% and nearly a full point higher than the 3.6% rate in September. Rampant inflation in China caused worries about a new round of tightening and crushed commodity prices and equities.
However, as Itz has pointed out over the last few posts, the markets were looking for a catalyst to sell the news. This rally started back on August 27th when Fed Chairman Ben Bernanke announced more quantitative easing. The first week of November the markets were treated to the FOMC $600B QE2, midterm elections with a Republican win in the house and the positive October Nonfarm Payrolls report. However, this week test the 2 month rally, with negative feedback from G-20 toward US policy, one of the worst earnings reports from Cisco & then Friday's China news. It also doesn't help when you have veteran investors like Jeremy Grantham calling for S&P 900 & Ken Heebner selling Apple shares.
So getting back to inflation...this weeks economic reports tackle that question. The PPI on Tuesday and CPI on Wednesday would normally be worrisome because of the inflation component but inflation is currently near zero. That makes them important only if they show a sudden spike in the core rate of inflation.
So what to do in the coming weeks? As pointed out in past posts Itz has been anticipating a pullback in the markets and welcomed it. Some asset classes & stocks were getting parabolic. Itz Stock Chartz remains long term bullish and is the 'Buy the Dip' camp. The problems in EU will get solved and the current panic will subside as it did before. Even if China does hike rates the country, their economy will still continue to grow at 10%, so the impact to commodities will be minimal at best. Really do most larger investors truly believe things have changed that much in just a short period of time?
More than likely the China and Ireland/EU stories will spill over into the coming week and that the major indexes will see lower support levels tested. Itz has pointed out, as for the S&P500, that it was setting up a handle in the Cup & Handle formation (see past charts). Some technicians have cited a 'Double Top'...sorry don't agree. The bears will try to say the market is overbought and over valued, actually it is selling for 13.5xs earnings, cheaper than the 15xs at the April '10 peak?!
This is the pause that refreshes, pick your own specific support levels near term...but remember...'Don't fight the Fed!'
S&P500 Charts:
Since September 1, 2010, Itz has pointed out the the $SPX was set to rally & test the 1225 level. >>LINK >>LINK
Crude oil ($WTIC) broke above $88 a barrel today, Itz Pix position in Proshares Ultra Short Crude Oil ($SCO) hit the $11 STOP. As per prior post >>LINK Average cost basis $12.45, exited @ $11.00 for a -8% loss. More on this Weekends Review
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Reversal Day, well at least that's what most are calling today's action. But as Itz highlighted in this past weekend's post >>LINK to expect a minor & welcome pullback. After all, several sectors were becoming parabolic and that's not good longer term. We need the pause that refreshes and welcome it.
So what led up to this, or what was the catalyst? Well.... the markets got a change in Congress, QE2 & great Nonfarms Payroll report last week. However, the party is over as some Republicans, Sarah Palin & the German Finance Minister, are suggesting that Fed Chairman Ben Bernanke should go with QE lite instead of QE2. That along with several other factors such as a stronger US Dollar & the CME/Silver news spurred profit taking.
The market was ripe for profit-taking, sellers had a number of triggers late in the session to unload shares. The biggest negatives were a sudden decline in the euro and a late-day slump in the Treasury market.
Silver Wheaton report blowout earnings after the close last night the stock hit a high of $37.20 this morning, the CEO was also on CNBC's Fast Money Half-Time Report. Shares of the iShares Silver Trust the exchange-traded fund that tracks the price of silver, fell 3.7% on massive volume as more than 150 million shares changed hands, nearly 10 times the average dailyvolumeover the last 50 days. News from the CME Group said it was increasing the margin requirements for silver futures contracts to $6,500 from $5,000. The price of silver fell from a 30-year high earlier in the day.
The nearly 30% increase in margin requirements for silver futures triggered selling after several bullish days in the sector. There was a lot of speculative money in silver,this led to leveraged longs being forced to sell to reduce margin exposure. This supply fed on itself, which in turn, led to sharp selling across the board in the precious metals futures complex. Silver traded as high as $29.30, but at the close of the days trading was @ $26.60, currently futures trading has it at $27.36 (7.25pm).
The markets will as projected by Itz back and fill over the next several days. Buy the dips. Below are several key video reports from today.
Are we in a commodity bubble? Mark Fisher, of MBF Asset Management, shares his view.
Silver surged to a 30-year high, sending Silver Wheaton (SLW) soaring along with it. Peter Barnes, CEO of Silver Wheaton, discusses his company's outlook with the "Fast Money"
The Fast Money traders take a look at today's top business stories
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Silver Wheaton (SLW) reported Q3 earnings after the close tonight and they hit it out of the ball park. Itz has been targeting $40 for SLW as posted in this past blog post >>READ
Net earnings more than doubled to a record US$69.2 million (US$0.20 per share), compared with US$33.6 million (US$0.11 per share) in 2009.
Operating cash flows increased 55% to US$70.5 million (US$0.20 per share)(1), compared with US$45.4 million (US$0.14 per share)(1) in 2009.
Record attributable silver equivalent production of 5.9 million ounces (5.5 million ounces of silver and 7,000 ounces of gold), representing an increase of 41% over the comparable period in 2009.
Silver equivalent sales of 4.7 million ounces (4.3 million ounces of silver and 7,100 ounces of gold), lagging production for the quarter due primarily to the build-up of concentrate inventory as the Penasquito mine ramps up production, as well as timing of concentrate shipments from the Yauliyacu and Campo Morado mines.
As at September 30, 2010, approximately 2.2 million payable silver equivalent ounces attributable to the Company have been produced at the various mines and will be recognized in future sales as they are delivered to the Company under the terms of their contracts.
Total cash costs(1) of US$4.09 per silver equivalent ounce,compared with US$4.08 per ounce in 2009.
Cash operating margin(1) increased 42% compared to 2009, to a record US$15.72 per silver equivalent ounce, while average silver prices over the same period increased by 29%. >>More info
Gold, Silver & Energy Outlook
Using options to protect against a pullback in silver, with Mike Khouw of Cantor Fitzgerald.
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What a Halloween the markets received this week, a shellacking to President Obama with a Republican House win, QE2 $600B plan from Bernanke, and a very positive Nonfarm Payrolls report. Yes sir the market got its sweet treats this past week...but how long will the 'sugar high' last? BUY THE DIP! There are still hundreds of billions in cash waiting on the sideline for a dip to buy. The decision to buy has already been made but they don't want to buy into a new high every day. So, can this market continue to roll ahead without some sort of pullback or correction? The catalyst to do so was a tax sell off, based on the termination of the Bush Tax Cuts. However, many believe that they will be extended or some modified form in '11. You may see tax selling, but a quick sell then buy back of equities. There maybe allot of good news in both earnings and economic reports in coming months, so one has to ask will the $75 billion per month be necessary or could the Fed let off the gas pedal? The again the $600B could be perhaps a signal that things maybe getting worse in coming months and are not as rosy as they appear...Hmmm?
The economy created +151,000 jobs in October according to the government report. That was more than twice what economists expected. As highlighted in last weeks Weekend Report... Currently a person can qualify for a total of up to 99 weeks of unemployment compensation when combining state and federal programs. Those extensions end on November 30th. Nearly one million people will stop receiving checks in December and another 3-4 million will lose benefits by April.
The outlook remains this, if the economy is improving, the US Dollar should see a near term rally...if the economy remains sluggish the dollar should continue its decline. PIMCO's Bill Gross believe the US Dollar has another 20% decline ahead. >>LINK
Commodities have been on fire for the last 2 months on the anticipation of QE2. Gold came within $1.30 of hitting $1,400, Copper set a new two-year high on Friday. Silver set a new 30-year high as well. Oil hit a new six-month high at $87.43. Energy stocks are rocking higher even though demand has not yet caught up with production. The high oil prices are going to provide a catalyst for further exploration and higher profits. Energy and miners should be two sectors that will benefit the most from the QE2 program. Itz Pix Portfolio has several energy & miner stocks, but has hedged of late via Proshares Ultra Short Crude Oil etf (SCO).
But one has to keep in the back of their mind, what if the economy does improve more than expected, how strong will the dollar get? If we really begin to see some significant improvements the short dollar long commodity trade could unwind very quickly. We are probably a couple months away from that risk but it does exist. If asked most traders would most likely prefer a stronger economy over an artificial boost provided by an aggressive Fed. FOMC Statement Bottom line the Fed is forcing investors to take on more risk and has put a put under the market. The Fed convinces investors to buy equities. Should stocks go up over the next six to nine months and everyone makes a nice profit at no cost to the Fed. We can sell our stocks, pay our taxes and spend our profits. The economy accelerates as the cash flows through the system.
So as the old adage goes...'Don't fight the Fed'..looks like for now don't consider selling but rather adding to positions, if we ever see any dip?!
Is now the time to buy in to commodities or is it too late, with George Gero, global futures vp of RBC Capital Markets; Philip Gotthelf, president & commodities analyst at Equidex; and CNBC's Sharon Epperson & Maria Bartiromo.
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"The conventional wisdom is buy on the rumor, sell on the news and the market did the opposite," said Benny Lorenzo of Kaufman Bros. earlier this morning. "It just kept going up and up, and I think it will keep going up because third-quarter earnings have been very, very good," he said, adding that the macroeconomic concerns might abate as the political environment for business becomes more friendly.
The move in equities today was a delayed reaction to the midterm elections & QE2. Itz has maintained that the rally would continue and perhaps sell off on the Non farms Payroll report tomorrow.
As indicated in the past weekends Itz Weekend Review, several index weekly charts were posted. Below is the S&P500 weekly chart. Again 1225/11250 has been the level Itz has been targeting near term. As you can see there is quite abit going on here, basically a larger Inverse Head & Shoulder pattern & completion followed by a retracement that formed a larger Cup & Handle. Then a Mini version in 2010 which should see the S&P hit 1245 & retrace to 1155.
With the election & QE2 out of the way the remaining moving event remains the extension of the Bush Tax Cuts. Itz suspects that this will be done prior to the new year. Some sort of tax deal will invlove merging both Dem & Repub tax cuts. So look for abit more upside followed by a few weeks of retracement (which is healthy) then a rally into the New Year.
On the energy front, Itz Pix holdings such as RIG, PDE, SU, WLT, PWE, PGH, VLO are ripping as oil has broken above $85. Itz suggested hedging using the Proshares Ultra Short Crude Oil etf (SCO) which closed today @ $11.36. Note the STOP is set @ $11
Now Itz Stock Chartz still see oil blasting off in the New Year, based on the silver to oil lag period of 4 months. near term oil could hit $90, with a raised support floor of $78. On the Radar is Proshares Ultra Crude (UCO). Itz will go in depth in this weekend report
Back into Proshares Ultra Short Crude Oil etf (SCO) this morning @ $12.20. This is a 1/2 position after having been stopped out of the 1/2 position back on Oct 22nd @ $13. link
Recap: Entered first 1/2 position Oct 12th @ $12.70; 2nd 1/2 position Oct 19th @ $13.00 which was stopped out @ $13.00 on Oct 22nd; re-entered 2nd 1/2 position Nov 1st @ $12.20.Set Stop @ $11 for entire position~ Average cost basis $12.45
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