Over the weekend (May 19-20), the G8 leaders agreed that they wanted to see Greece remain with the euro and Europe to recover from its economic troubles. We can expect these kinds of agreements as the power brokers at every opportunity push for more centralized control and less individual freedom. As last week unfolded, markets calmed and activity subsided.
Monday, stocks in both Asia and Europe showed little evidence of reaction to that news. U.S. stocks posted a strong “relief rally,” perhaps with a little help from our friends at the PPT. Despite the rally and likely continued support from its IPO banks, Facebook still fell 11%. When all phony support and false hope finally disintegrates, we will then witness the true value of this stock. Excluding banks and Facebook, equities had a “risk-off” day to the tune of about 1.5% on low volume. The fear gauge (VXO) dropped sharply from 24.52 at Friday’s close to close Monday at 21.75
Tuesday, U.S. Treasury bond rates surged upward for a second day to reach 1.80 level on the 10 year bond. Despite these gains, the stock market marched upward on light volume for a second day. By the end of the day though, stocks faded to close even. Scant news to justify the bond move included a Fitch downgrade of Japanese bonds (a reminder that U.S. could follow), a positive report on housing, a statement by Fed member Lacker that QE3 is not off the table, “risk-off” sentiment, and the G8 talk of coordinated effort to support Europe.
Of course, we know at any time the Fed can intervene in the repo pool or otherwise with PPT justification to affect short term market moves. With the Facebook IPO bleeding red ink and buddy JP Morgan on the ropes, we cannot rule out this kind of move for the purpose of “stabilizing” markets—Bernanke’s denials notwithstanding. Note the JPM stock today rose 6% but gave a bit back by the close. It’s amazing what a little help from good friends can do. Facebook continued its free-fall, now apparently without underwriter support, closing the day at $31. With the PPT having done their deed, and U.S. Treasury rates exploding upward today, Wednesday ought exhibit a return to the stock price erosion we witnessed most of this month.
Wednesday, stocks in Asia declined 1.5% while European stocks fell 2.5%. With stock market support withdrawn, U.S. stocks (IBM, banks, etc.) followed Asia and Europe lower. However, the U.S. stock market continued to evidence froth as the very overvalued Facebook registered a positive move for the day. U.S Treasury bond rates also reversed yesterday’s move big move in another big move downward while oil tumbled and the dollar index soared.
Gold miners again caught fire. Coupled with the big up day last Thursday, they’ve gained over 10%. Here’s a good article projecting the stock market decline needed before QE3 can start. Stock trading volume increased from yesterday’s level to register as moderate. Call me simplistic or skeptical, but the bizarre constant slope rise of the stock market starting about 2:30, rising from down 1.5% to even at the close, looked a bit fishy to me.
Thursday, stocks in Asia closed roughly flat while Europe posted gains near 1%. U.S. stocks opened slightly positive with the U.S. Treasury bond rates gyrating a little less extremely today to erase about half of Wednesday’s drop. From the education to make your head spin department we present to you (from Zero Hedge) a complete list of EU monetary accommodation programs.
Near the close, stocks erased their move into negative territory to again close about flat for the day. AAII inverstor sentiment moderated but still remained bearish. The VXO closed at 21.12 on light volume.
Despite these negative indicators, irrational demand still abounds as Facebook posted another positive trading day. In light of the escalating banking turmoil in Europe, the U.S. Dollar Liquidity Swap Operations report surprisingly showed virtually no change over this past week. Zero Hedge also reported that the CME has lowered margin prices for crude oil and gold about 10%. Both of those markets reacted with little notice.
Friday, Asian and European stocks traded flat. Investors justifiably ignored a positive consumer sentiment survey result as the real world economy—at home and abroad—crumbles. Rates on the new (devalued) Greek 10 year bond climbed to over 30% while the Spanish bond closed at 6.31%. The Dow Jones Industrial Average drifted lower, but the broader market ended the day flat on low volume.
Grossly overpriced Facebook ended the week at 31.91. Speaking of pork barbecue, IBM, which traded well over $200 a few weeks ago, settled in to end the week at $194.30. For the week, U.S. stocks rose around 1.5% with all of that gain happening on Monday. Other than that folks, it was “off to the beach.”