by Larry Levin
After two outsized trending days earlier in the week, traders ran into a buzz saw on Thursday and again last Friday. Friday was even more range bound than Thursday, putting in a diminutive 9.60 range in the S&P futures. The volume, however, was a fairly decent 1.43-million contracts and yet 70% of that volume traded within a slight 3.50-point range. This coiled spring could snap or pop early next week - be ready.
What could make that coil snap and the market fall? Probably nothing since the Fed has engineered a market rally and basically told Wall Street, "Hey boys, we got your back." However, one subject that has already had much conversation lately and will surely be increasing in the future is the cost of gasoline. One gallon of regular gasoline has now surpassed $4.00 in both Chicago and its suburbs.
While I filled up my tank this afternoon I noticed the prices on the marquee taunting me...shouting actually..."$4.05 for Regular...$4.15 for Mid-Grade, and $4.25 for Premium!" As I gave the marquee the one-fingered salute while shouting in what sounded like a Martian language, I noticed approval from the other customers. I guess we're all going nuts.
Paying $4.05 a gallon for gasoline will do more than lighten your wallet and have you gnashing your teeth. I believe it will start altering our basic lives, transforming how we live, work, and change the way we do business. It may even change our eating habits. After all, food must be shipped from the growers to the various warehouses and eventually the store where you shop. And that's after the ever-escalating price/cost of fertilizers, ethanol subsidies, and pesticides & herbicides have been factored in. In fact, if you recently passed up that ribeye steak at the grocery because of its $10-a-pound price tag, the price of gas has already changed your diet. Food is now a petroleum-based product, and as oil costs soar, so does the cost of food.
Not only will rising petroleum products affect our lives directly, but business in general...no matter how often the Fed and Wall Street "analysts" tell us $126.00 oil is no real concern. FedEx Corp. warned Friday that fourth-quarter earnings are poised to come up well short of prior targets, adding that if oil prices continue to rise from this point, more damage to the bottom line could be on the way.
"While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices," CFO Alan Graf Jr. said in a statement. "This revised outlook assumes no additional increases to the current fuel price environment and no further weakening of the economy."
Of course, all of this talk of rising energy costs has many people talking about inflation. "The CPI will be very important," said Sam Stovall, market strategist at Standard & Poor's. "That's what everyone is focusing on. If we get higher than expected numbers, it could be that it's the '70s all over again -- stagnant growth together with surging inflation. That would not be good."
Oh come on now Mr. Stovall. Did you just fall off the turnip truck? The CPI isn't allowed to go up. It's a flimflam, a charade, a make-believe number...like EBITDA and non-GAAP accounting. The government just says, "This data wouldn't look good, so we won't count it." This, by the way, is similar to D.R. Horton's earnings last week when it decided not to count its massively lower land value it holds when it said, "This data wouldn't look good, so we won't count it." Well lookie there, it's not just similar - it's exactly the same! Thanks for the flimflam lesson Uncle Sam, you have taught us well.
How many times have you heard that the worst is behind us? That the credit crisis is (abracadabra) over? Maybe it is, but then why is there a fire-sale at Citigroup? Citigroup said Friday that it would slash more than a fifth (22%) of the assets currently on the balance sheet over the next three years, in a bid to shore up its capital base and divest itself of riskier investments.
That 22% slash of assets comes out to $1/2-TRILLION! If things are so dang rosy, why would Citigroup be doing this? Let's forget about these wishful proclamations for a moment and think about the future. Will Wall Street be back to the old days (printing money at will) in just a few months (as so many portfolio managers want us to believe) when Citigroup is leaving the following businesses: real estate, high leverage investments, subprime loans, SIVs, and auto loans just to mention a few?
How can this go unmentioned? The biggest player on the block is quitting the game; the riskiest part of the game anyhow, and the aforementioned business segments are where the recent mega-marginal dollars had come from. It was the unfettered lending of Citigroup & friends that drove the entire economy over the last several years. Without that, what is the driving force?
And finally, the FDIC said late Friday that ANB Financial N.A., a Bentonville, Ark.-based bank, has been closed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. has been named receiver. This is the third bank of the year to go belly up, while last year's total was just 3-banks. The FDIC said ANB Financial had $2.1 billion in assets and $1.8 billion in total deposits as of Jan. 31.
Yep, all is well.
Real Time Trading Signals*for
Trade Date: 5/9/08
E-Mini S&P Trades*
(before fees and commissions):
1) B/away sell @ 8:35am at 1385.00 = -1.50 (1 lot)
2) Engf sell @ 8:55am at 1387.00 = -1.75 (1 lot)
3) FT sell @ 9:30am at 1389.50 = -1.25 (1 lot)
4) Engf sell @ 1:25pm at 1387.50 = +1.00 (1 lot)
5) Algorithm trades (2)...combined total...-0.75
E-Mini Russell Trades*
(before fees and commissions):
1) Buy @ 8:48am at 713.3 = +.9 (1 lot)
2) Sell @ 1:55pm at 717.8 = b/e...+$90
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