Gold bounces back

     Gold  was higher today a huge selloff cause prices to drop 350 dollars from the peak.  At one point in overnight Sunday, gold was at 1530 dollars but was near 1650 in recent trading up 4% from yesterday's closing price.  Silver also recovered up 9% after an even sharper 30% decline over the past week or so.

     Markets were higher once again this morning on hopes that European policymakers were finally getting a plan in place to fix the European debt crisis.

     "This comes after a European official said that a detailed plan to leverage money in the EFSF was in the works and that the it would use a portion of the money from the fund to shore up European bank capital, while another portion would be used as seed money for a European Investment Bank," said a CNBC article.  

     The DJIA opened up 150 points and quickly rose to 250 points higher in early trading.  Bank and energy stocks were leading the way with BAC up 3% and XLE up 4%.

     European shares rocketed higher with the FTSE up 3% and the DAX up 4.5%.  Asian shares rebounded as well with Hang Seng and Nikkei both registering large gains.  Across South America, the Brazilian Bovespa was up 900 pts.

Market Recap
     Wow, that was a pretty bad finish if you are a bull today.  We were up as much as 300 points on the DJIA but gave over half of it back in the last hour of trading finishing up about 150.  I'm not sure what caused the 200 point selloff at the end of the day but it might be because of fighting between countries about who's going to eat the cost of the bailout.  Governments want bondholders to eat a bigger portion of the cost. 

     From the Financial Times...

     A split has opened in the eurozone over the terms of Greece’s second €109bn bail-out with as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger writedown on their Greek bond holdings, according to senior European officials.

     The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July.

      While hardliners in Germany and the Netherlands are leading the calls for more losses to be imposed on the private sector, France and the European Central Bank are fiercely resisting any such move. They fear re-opening the bond deal could spark renewed selling of shares in European banks, which have significant holdings of Greek and other peripheral eurozone debt."

     Needless to say, this is a bad sign for tomorrow.  I purchased some AAPL stock amid the euphoria early on and am quickly in the hole 1.5%.  AAPL had been outperforming the market recently but has lagged the last 2 days on the news that they are ordering parts for less ipads than expected.  This has led people to believe their sales are not as good as forecast which has put pressure on the stock.   It looks like this trade is not going to work out for me but I have a stop loss on the stock so it won't hurt me too much unless we get a huge gap down tomorrow which is possible. 

     This market is completely news driven right now which makes it hard to trade, for me anyways.  If I get stopped out of this AAPL trade, I will probably sit on my hands for awhile until a trend emerges.  I will keep adding to core holdings on big dips as well.


    


     If you are into trading, please check out my friend's blog.  It's called the Chartographer's Map Room.  This guy really knows his stuff.  Thanks.

      

Disclaimer: Nothing in this blog should be construed as a recommendation to buy or sell any securities! Please do your own due dilligence before buying any stocks or bonds!

Gold and silver in liquidation mode

     Gold and silver were in total liquidation mode on Monday morning as European and Asian traders are looking to raise cash anywhere they can.  Gold continued it's decline from the past 3 days as the dollar strengthened versus major currencies.  Gold was down 3.5% while silver was down a whopping 12.4% to 26 and change after earlier dropping as much as 17%!

                                               Yikes!

     There is full blown panic in the commodities space as oil and copper were down big as well.  Oil was down 2.50 to 77.50 and copper was down 5.5%. 

      Well it looks to be another roller coaster day on Wall Street after a weekend of talks between central bankers and policymakers from around the world failed to produce any agreement on how to deal with the European debt crisis.

     "There was very little official detail on the talks however as speech after speech outlined how worried global policy makers were, without offering any clear signals on what the response will be to the debt crisis," said a CNBC article.

     There was talk of a shock and awe trillion dollar upgrade to the European Financial Stability Fund or EFSF but little consensus about implementation of such a plan.  Markets have been reacting negatively to all the confusion.

European stocks down big

     I wasn't going to have a post today after all today is Labor Day here in America but I woke up to see panic across Europe.  It seems markets are concerned about Europe's debt crisis worsening after German chancellor Angela Merkel lost some elections in her home state.  Merkel has supported a conditional bailout of insolvent countries in the EU which has made her unpopular back at home where the German people want nothing to do with bailing out anybody.  Germany is the only country with enough money to bailout other countries like Greece.  If the European bailout loses Germany's support, all hell is going to break loose in Europe, including perhaps the demise of the Euro as a common currency and a breakup of the European Union.

     Here is a chart of the German stock market over the past 6 months or so.

                                     The German stock market is down over 35% from its highs.

     The German DAX is down 5.5% as I type this at 7:25 AM Pacific Time.  The London FTSE is down 3.5%.  Asian markets all closed in the red as well by more than 2% and US Dow Jones stock futures are lower by more than 250 pts.  Gold is revving up once again up 21 dollars to 1897 and change.  Oil is down 2.5%.

     Deutsche Bank tumbled 6% after the US sued to get money back for fraudulent mortgages and its CEO said " the euro zone debt crisis could kill weak banks and stunt profits for the rest of industry for years to come," according to CNBC.

    "It's stating the obvious that many European banks would not survive having to revalue sovereign debt held on the banking book at market levels," he said.

     In other words, it's either bailout or death for the banks.  This would perhaps set the dominoes falling across the financial system worldwide leading to the destruction of the system as we know it today.  I hate to sound melodramatic but there is potential here for catastrophe.   One bank in the US(Lehman Brothers) almost brought down the system in 2008, if European banks start failing, look out!!

     Former German chancellor Gerhard Schroeder is calling for the creation of a United States of Europe to solve the European Debt Crisis.  He said it will take time but that “...to solve the crisis today, you have to realize that having a common currency, you can’t only have a coordinated money policy. You must have also a coordinated fiscal, social and economic policy,” said Schroeder.

     Europeans, what do you think about that?  How would you like to have a United States of Europe with a federal government like the US?

     I contemplated shorting Europe last week with EFZ, an exchange traded fund that moves inversely with European stock prices but felt I missed my opportunity the last few days.  I think I will put that trade back on Tuesday as it definitely looks like Europe is going down.  We could be looking at a repeat of September of 2008 when the shit hit the fan when Lehman Brothers failed and US stocks dropped precipitously.  With no appetite for bailouts anywhere anymore, markets are going to have to let the chips fall where they may which could mean a worldwide depression with European stocks dropping 50% or more from here.

Stocks fall sharply after terrible jobs report

                                                    Even Ronald McDonald needs a job.

    Stocks on Friday fell sharply after the Commerce Departments Non Farm Payrolls report showed employers added 18,000 jobs for the month of August.  This was far below the consensus forecast of economists of 66,000 jobs.

     The August report was hurt by striking Verizon telecommunications workers which removed 45,000 workers from the tally.  The July numbers were also revised down from over 100,000 to 80,000.

     Mohamed El-Erian, chief executive officer at PIMCO in Newport Beach called the employment report "grim and scary," earlier today in an interview on Bloomberg TV.

     In a particularly awful portion of the report, average hourly earnings dropped .1% to 23.09/hr and hours worked dropped 6 minutes to 34.2 hours.  This does not bode well for consumer spending going forward.  The jobless rate remained the same at 9.1%

     Government bickering, uncertainty over the debt ceiling and the downgrade of the US Sovereign debt can be blamed for the poor payroll number.  Consumer and business confidence was crushed after the spectacle in Washington.  

     Stocks dropped more than 200 points on the news on the heels of a more than 100 point drop yesterday.  Gold was up 3%  and treasury bond yields plummeted as traders bought up more recession protection. 

     European shares were slammed as well with the German DAX down almost 4% as of 7:30PST.

STOCKS

     I am watching Annaly Capital Management(NLY) again today as it has been doing relatively well in a bad tape after yesterday's thrashing.  The proposed SEC rule changes would drastically alter their business model by forcing them to reduce their leverage from 600% to who knows what.  Annaly's leverage is the life blood of their business so any reduction would be catastrophic for the dividend and stock price.  People buy Annaly for it's 14% dividend and in this low interest rate era, it would seem like one of the better places to be.  Unfortunately, NLY and MREITs in general are being attacked by the government who is trying raise revenues and looking everywhere they can.  Investors today are bargain hunting perhaps thinking that this regulation is unlikely to be enacted because it would require legislation that would be very hard to pass in this political environment.  NLY is still down .5% as of 9:21 AM PST but is well off this mornings lows at 16.80.  I liquidated my position in NLY today for a small loss.

     AAPL is also outperforming today in a lousy tape.  This reiterates my thesis that AAPL is a defensive play and a quasi safe haven in this market environment.  AAPL is coining money and has 80 dollars of cash on it's balance sheet.  It has an 80% growth rate but is trading at a backward PE of 15!  Incredible.  This stock should be double what it's trading at, but the law of large numbers comes into play here.  Stocks with a higher market cap are perceived to be harder to grow than smaller companies.  People think that it's easier to go from 1 billion market cap to 2 billion market cap than it is to go from 350 billion to 700 billion.  This is probably true, but AAPL is a different case in my opinion.

     IWM is getting crushed today again after yesterdays 2% drop.  IWM is down 3.5% confirming my idea that this rally is probably over for now.   I was contemplating buying RWM yesterday but never did and am now kicking myself for it.  Oh well, there was too much event risk there with the unemployment report. 

     We might trade down to 1120 on the S&P from here.  I feel I have missed my chance to short as we are now in the middle of a trading range between 1120-1230.   I will just sit and observe.

Disclosure:  Long IAU

Consumer = broke, unhappy and pissed

  This chart from ZeroHedge shows consumer confidence has been falling throughout 2011 and has never recovered post Great Recession.

     Consumer confidence dropped to the lowest level since the depths of great recession a private research report showed Monday.

     "The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July," said a Bloomberg article.  This drop was the biggest one month drop in the history of the Conference Board survey.

     Consumer sentiment was weighed down by constant bickering in Washington over raising the debt ceiling, high oil prices, falling stock prices and the downgrade of US debt which caused turmoil in the financial markets.

     Consumer spending makes up 70% of the US economy so any changes in  consumers' attitude is monitored closely by economists and traders.  With consumer mood souring it may make it less likely they open their wallets to purchase that new flat screen TV or automobile. 

     Stocks immediately dropped sharply in reaction and Gold rose.  Stocks later recovered after an initial 100 point drop on the Dow Jones Industrial Average.

     Stocks ended higher on the day after minutes from the Fed's recent meeting came out showing that the Fed was looking at creative ways to boost the economy.  Stocks and Gold both shot higher on the news.  At the close the Dow finished up 20 pts after earlier being up almost 100.  A sharp selloff in the last 15 minutes of trading pared gains.  Gold closed at $1834 an ounce up almost 50 dollars on the day. 

     It was another day of strong bullish action in the markets.  The initial swoon of the markets on the consumer confidence news didn't faze the bulls as they drove the markets higher.  A few weeks back, markets would have been down 400 pts on the negative consumer confidence news.   The fact that bulls could brush off that kind of news and rally is extremely positive.

      Later in the day, the Fed minutes gave more ammo to the bulls as they are looking for any kind of stimulis that could drive asset prices higher.  A little concerning was the last 15 minutes of trading.  It was a swift drop of 60 pts on the DOW which could lead to some follow through selling tomorrow. 

     I chickened out and sold my AAPL on the consumer confidence news.  The market dropped so sharply it freaked me out and I got out of it around $388.  Still, I made a 4% profit on the trade so I'm happy.  AAPL later traded up past 391.  I am still holding on to my XLE.
 
     I also started a position in Gold from the proceeds.  I decided to go ahead and buy some as a hedge.  I only bought a small position and will add to it as it goes up.  If it goes down I set a 4% stop on it.  I may decide to keep it to see if it comes back because it is such a small amount.

     I like Gold because it is showing a lot of strength even in the face of rising stocks.  I think the price of Gold is an indictment of the fiscal policies of the developed world.  I don't see any change in the loose monetary policy so Gold should still be a good place to be albeit with some sharp corrections along the way.

Market rally continues into the new week

Local weather forecaster Kaj Goldberg is a little excited about Hurricane Irene...   

     The major indexes continued their recent rally into the new week as two major Greek banks merged and consumer spending reached its highest level in 5 months.  At 1:00 pm Pacific Time, the DJIA was up over 250, the S&P 500 was up 33 to 1210 and the technology heavy NASDAQ was up 82 points!

     Small caps stocks were outperforming with the Russell 2000 up over 4.5% to 724.  Gold prices were lower by $30 and the 10 year bond yield rose to 2.27% as people sold gold and bonds and put money to work in stocks.  Oil was up 2% to 87.50.

     Financial stocks rallied as Greece's EFG Eurobank and Alpha bank merged to shore up their finances.  This alleviated fears of a complete meltdown of the Greek banking system.  Banks and insurance companies were the top performing sectors in today's trading.  Insurance companies rose after damage from Hurricane Irene was less than expected. 

     Stocks were also supported by word out of Europe of a radical new plan to recapitalize banks.  The program would be similar to the TARP program implemented in the US during the 2008 credit crunch.

     "The government's of the healthier European banks could inject new capital into the banks, while the most extremely pressured banks could also receive backstops for their debt, (just as happened in the U.S.)," according to John Carney of NetNet blog.

       If true, this could be a game changer in the European debt crisis.

      European shares rallied smartly on the news with the German DAX up 2.5%, the French CAC up 2.4% and the Spanish IBEX up 2.6%.  The British FTSE was closed today for summer bank holiday. 


     Market action today was very positive.  Stocks steadily rose throughout the day and finished on their highs.  This type of action usually bodes well for tomorrow.  Interestingly, small caps are outperforming once again and over the past few days the small cap index has risen over 10%!  I was looking at small caps to lead a sustained rally higher and it looks like we are getting it.  We could rally for the rest of the week until we get unemployment data for August on Friday.  This data will confirm or deny the rally.

     Technicians I follow say that this 1210 level is important because it is where the rally failed a couple weeks back.  We are sitting on that level right now on the S&P.  If we can break through this level convincingly on good volume, the rally should continue.  I'm of the opinion that it will so I'm looking for the SNP to trade up to 1240-1250 in the next week or so.  If the double bottom pattern I outlined last week is confirmed we could even rally up to 1300, but I consider that unlikely in this environment.  Let's see what happens....