Month: February 2012

Dow Theory sending ‘troubling sign’ for stock rally

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Transportation stocks are sending a troubling signal – for Dow theorists in particular – that the four-month market rally is nearing its end.

In particular, the Dow transport index, which is considered a key confirmation point in Dow Theory, has rolled over in February and reached a triple-top that could signal an extended selloff is in the making.

Higher energy prices have pressured the transports, which had fallen 3.7% since Feb. 3 before rallying Thursday.

“It`s a troubling sign, but it`s no surprise,” says Todd Schoenberger, managing director at LandColt Trading in Lewes, Del. “If you want the one catalyst that is preventing transports from moving in tandem with the industrial average, it`s got to be higher oil prices.”

Indeed, the fall in transport stocks has nearly mirrored the rise in crude oil prices over the past two weeks. Increasing tensions in Iran have put a jolt of fear back in the market and threaten the gradual recovery the US economy has seen.

“Our view for 2012 is that energy would be caught in a tug-of-war where it would be supported by Mideast fear and somewhat depressed by the euro zone problems,” says Walter Zimmerman, senior technical analyst at United-ICAP in Jersey City, N.J. “It appears that Mideast fears are winning that tug-of-war.”

Dow Theory is more than 100 years old but still has many adherents in the financial markets.

In essence, it holds to six principle tenets, with perhaps the two most closely followed being that trends must be confirmed both by internal Dow indexes – particularly the transports as a gauge of shipping activity – as well as trading volume. Market participation has been well below historical norms since the market began rallying in October.

The transports have hit what technicians call a triple-top, meaning it has tested its current level three times over a defined period. They have not fared well in the previous two tests.

The index crossed this range first back in May 2008 before beginning a descent that would last until March 2009. After a strong recovery, the transports made another run at the 5400-5500 range in July 2011 before faltering again.

Both moves mirrored broader market behavior.

Zimmerman believes a similar pattern is possible this time thanks to a strongly overbought market and peaking levels of investor enthusiasm.

“With these overcooked extremes, we`re more inclined to think it`s going to fail again,” he says. “That combination of deeply overbought (stocks) and historic bullish sentiment extremes has been toxic to bull market prospects.”

Even Standard and Poor`s, which holds a modestly bullish 12-month target of 1400 for the SandP 500 a 4% gain from here – noted that the transport index “has quietly rolled over” and could be indicating trouble.

“We`ve seen some deterioration in some of the cyclical sectors,” says Mark Arbeter, SandP`s chief technical strategist. “Certainly one of them has been the transportation average, which has been putting in lower highs and lower lows.”

Arbeter is looking for a 3% to 5% pullback over the next month, followed by a rally that could go as high as 1440 in the SandP 500 “before we see a real decent-size correction.”

In the meantime, low trader interest plus the movement in transports has some traders on edge.

“The feeling is if you did not sell into the rally in January you might be lost for the year,” LandColt`s Schoenberger says. “You have so many headwinds that are preventing any type of robust rally in 2012 that the margin for error is so thin.”

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Forget Europe, oil a bigger threat to Asia’s growth: Expert

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While investors fret over the debt crisis in Europe and discuss its possible impact on Asia`s growth, one economist tells CNBC that emerging markets face a greater risk from rising oil prices than from Greece`s rising woes.

“While everybody is focused on Greece, the bigger risk is the rising cost of oil,” says Frederic Neumann Co-Head of Asian Economics Research at HSBC. “If the price of crude continues to climb it will snuff out the recovery we are seeing in the United States and will weigh on Asian exports.”

Brent crude is currently trading around USD 120 a barrel and is about USD 10 more expensive than what is was at the same time last year. Neumann believes geopolitical uncertainties and robust Asian demand could drive prices even higher this year.

“People who believe Europe weakness will rein in oil prices in the near future are underestimating Asian demand,” he says.

The region also stands to suffer the most from a spike in crude as most Asian economies are very energy intensive.

Asia, including Australia and New Zealand, is the largest consumer of crude oil today, accounting for almost 32% of world demand, with North America making up about 26% and Europe close to 17%, according to HSBC data.

Worry About Growth, Not Inflation

Neumann argues that the greatest impact of high oil prices will be on growth, rather than on inflation.

“If prices were to go up to USD 140 a barrel this year, that would mean a 30% year-on-year increase, which is manageable from an inflation perspective,” he said. “I would only be worried about inflation if the year-on-year change in prices is 90%, like it was in 2008.”

He added that when it comes to growth, the level of oil prices matters much more than the rate of change, “since the cost of crude acts like a tax on economic activity.”

The overall cost of oil consumption to GDP is the highest in Asia`s emerging markets at 7% compared to a little more than 5% for the US This makes economic activity in the region more vulnerable to price rises.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Europe crisis will take years to sort out: Paulson

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Although there are similarities with what the United States went through at the onset of the financial crisis, the issues in Europe are more complex and will take years to resolve, Henry Paulson, former Treasury Secretary and founder of the Paulson Institute told CNBC on Wednesday.

“There is similarity [with the financial crisis in the US] in certain regards. This has been going on for a long time and I think it will take years to play out,” Paulson told CNBC.

Paulson, who served as Treasury Secretary when the subprime mortgages credit crunch erupted, sparking the world’s worst economic crisis since the Great Depression, said that at the time the US was faced with a “collision of political forces and market forces”.

“That’s really what you’re seeing in Europe,” Paulson said. “The structural issues around the EU are very difficult issues.”

The most important thing is protecting the banks from a big failure that could drag down the whole banking system, he said.

“When you look at Lehman Brothers – I believe Lehman Brothers was a symptom as much as anything – I don’t think that is the right analogy. The one thing you should take away from Lehman Brothers is you don’t want a big, systemic institution to fail and you certainly don’t want that with a member state [in Europe],” Paulson said.

In his opinion European Central Bank President Mario Draghi has taken “a big step” to stabilize the banks with the “massive” liquidity injection.

The ECB launched a long-term refinancing operation (LTRO) in December, offering banks three-year loans at its record low 1% interest rate and another LTRO is scheduled for Feb. 29.

The important thing is that a Greek default doesn’t happen in a “messy” way said Paulson, who added: “The American people don’t like bailouts, no one likes bailouts but they`re certainly better than the alternative, which would be a catastrophe.”

American banks are much better capitalized than a few years ago and better regulated and their exposure to sovereign debt in the European Union is manageable, but still “I wouldn’t want to test this firewall if … you had catastrophe there. And I`m not expecting that,” Paulson said.

The financial crisis stemmed from wrong government policies and is not the fault of banks exclusively, despite the fact that they made a lot of mistakes, according to Paulson.

“Wall Street will get through this, Wall Street made a lot of mistakes… financial crises stem from flawed government policies. Always.”

“This was a huge credit crisis. Why did Americans borrow too much and save too little? There are flawed government policies, “he said.

But while banks worked to correct their mistakes and a lot was done to strengthen the banking system, the government policies that brought on the credit crunch still need to be changed, Paulson said.

“I think it’s going to be years before we get our unemployment down to an acceptable rate. It’s going to take a higher growth rate than we had to create a higher jobs number,” said Paulson.

“I’m not being an alarmist, I just think that until we deal with the huge structural issues that we have… we’re not going to get the kind of growth that we need.”

Tax issues have come into the limelight recently as a tentative deal was reached to preserve a cut in the payroll tax and provide more unemployment benefits.

Paulson said there was no doubt the economy needed more tax revenues but that the whole tax system should be revamped.

“The issue shouldn’t be what do we do with this rate or that rate, it should be what form of taxes… will give us economic growth? We need a new system and I’ve been for a system where we’d eliminate the deductions… and lower the rates and have something that will make us competitive,” he explained.

Chinese central bank governor Zhou Xiaochuan said on Wednesday China will continue to invest in euro zone government debt and will play a bigger role in solving the area’s problems via the International Monetary Fund and the EFSF rescue fund, boosting hopes for a solution.

“Chinese are investors all around the world and they very much want to invest more. I think they’re looking to invest in Europe, they’re looking to invest in the US, they’re looking to invest everywhere,” Paulson said.

But at the same time Chinese companies, as well as government officials, are worried about Europe, he added.

“Their job isn’t becoming any easier to continue to grow and meet the needs of the Chinese people.”

Living conditions have improved dramatically over the past 10-20 years but China, with its USD 6 trillion gross domestic product still dwarfed by the US’ USD 14 trillion and Europe’s USD 16 trillion, has many reforms to carry out.

“I’m not a bear on China, but China has got some real challenges,” Paulson said. “They need to speed up the process of reform. There’s actually more risk to them if they’re going too slow than if they’re going too fast.”

“I believe that you’re going to see ultimately more political freedom, more personal freedoms, because they will inevitably follow the economic freedom,” he added.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Does Germany want Greece to default?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Germany is attempting to engineer a default on Greek bonds, according to a claim in BankingNews.gr, a Greek language business news site.

Despite an outward appearance of supporting a financial rescue, the website argues, “the actual position of Germany is that Greece should go bankrupt.”

Banking News argues that regardless of whether or not Greece gets the next installment of rescue funds, eventually it will default on its bonds. The only choice is whether or not Greece defaults and stays within the euro zone or is forced to leave.

It should be noted that officially, the German government supports a rescue for Greece. The accusation from BankingNews is not sourced to any official statements or documents. It is a speculative argument.

But it is worth asking: why might Germany prefer a defaulted Greece to a rescued Greece?

One answer might be the growing awareness of the potential for a financial domino effect if Greece is rescued. One of the conditions for Greece to receive the next installment of rescue funds is an agreement from private creditors to reduce the amount Greece owes them-the so-called “private sector involvement” or “haircut.”

The trouble with the PSI is that it may set off a wave of similar demands from deeply indebted countries. If Greece can have its outstanding debt reduced, why shouldn`t other countries also get this treatment?

“The Irish are asking that question already, and I`m sure the Portuguese and Spanish will soon be asking the same thing,” writes former investment adviser Marshall Auerback at the website New Economic Perspectives.

It may be that Germany has seen the danger of a domino effect of debt reduction and is trying to avoid that.

“At some point, you have to wonder if the costs of a Greek rescue outweigh the costs of a Greek default,” one hedge-fund manager told CNBC (on the condition that he not be named). He said he was short the debt of several European nations, but not Greece.

He speculated that Germany might continue to demand ever more austerity in return for aid, declaring every possible agreement reached in Greece as unsatisfactory. Eventually, the Greek government would find itself unable or unwilling to make further budget cuts.

“In this way, Germany could force a Greek default without ever moving off their public stance supporting a bailout,” the hedge-fund manager said.

So far, all publicly available evidence indicates that Germany continues to support extending aid to Greece. But there is a certain logic to the idea that at least some German policy makers may be increasingly worried about triggering a wave of demands for “private sector involvement” across Europe.

Follow John on Twitter. (Market and financial news, adventures in New York City, plus whatever is on his mind.) You can email him at john.carney@nbcuni.com.

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Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia’s budget carriers go long haul for growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Budget carriers in Asia, which have seen surging growth over the last decade, are now looking to tap the long-haul market.

“The long-haul low-cost market is the latest fad, as a very small portion of long-haul flights are operated by LCCs, (low cost carriers). This is a sector which has tremendous growth potential,” Brendan Sobie, Senior Analyst at CAPA – Centre for Aviation, told CNBC.

By the end of 2012, there will be an estimated 50 budget carriers operating in Asia, but only four will be in the long haul segment. Air Asia X of Malaysia and Australia`s Jetstar currently fly long distance, and they will be joined by Singapore`s Scoot in mid-2012 and Philippines` Cebu Pacific in 2013.

Low cost carriers typically fly short distances of up to three hours, and pack up to 25%  more passenger seats on the same aircraft type. Passengers in Asia have so far lapped up the cheap fares of these no-frills airlines..

Whether they are willing to put up with the lack of entertainment as well as limited legroom and food on longer routes of five to 10 hours will make or break the long haul budget model.

Air Asia X, which pioneered the category, announced this month that it was discontinuing all flights to London and Paris by the end of March, after almost three years of operations. CEO Azran Osman-Rani told CNBC that falling European demand and high taxes squeezed them out of those routes. The carrier will now focus on Australia, Korea, China and Japan.

But some see Air Asia X`s change of plans as a setback for the long-haul budget model.

“Air Asia X experimented with something new and had to pull out. Don`t know whether passengers are ready to fly long haul on budget,” a senior executive with a full-service European airline told CNBC.

The success of the long-haul model depends on “passenger tolerance”, Campbell Wilson, the CEO of Scoot, said on the sidelines of the Low Cost Airlines 2012 Conference in Singapore. His airline plans to fly to destinations within nine to 10 hours of Singapore and will launch with a flight to Sydney later this year.

Another long-haul budget carrier, Philippines` Cebu Pacific, is looking toward the Middle East market, which has a large Filipino immigrant population. According to its CEO, Lance Gokongwei, about 600,000 Filipinos visit Saudi Arabia every year – yet the Middle East is not served by any Filipino airline

“There is a rock-solid demand base [for us],” said Gokongwei, adding that currently there are 11 million Filipinos abroad. “Overseas contract workers are our main market.”

While Cebu is looking to tap a very specific market, others are hoping to cash in on the boom in leisure travel by offering a cheaper option to more far-off destinations. But full-service airlines are already responding with more attractive pricing.

“Over the last year, legacy airlines have also dropped prices by about 20 percent. The spread between budget and us is fast narrowing,” said the full-service airline executive.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Europe’s the wild card as traders watch the Fed

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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European debt crisis headlines are the wild card for markets Wednesday, but the interesting news of the day may come from the Fed.

The minutes from the last FOMC meeting are released at 2 p.m. EST. Traders are watching to see what Fed members had to say about more quantitative easing , but Fed watchers are also looking to see what the Fed says about its members expectations for its balance sheet and how they formed their views on the target Fed funds rate.

“It is a bit rearview mirroresque. The flavor that comes through from the minutes oftentimes is something investors bite on,” said Mark Luschini, chief investment strategist at Janney Montgomery.

Some market participants are convinced the Fed will carry out more easing, which traders believe has provided a leg of support under the stock market`s current rally.

Besides the Fed, there are also several economic reports, including the Empire State survey at 8:30 a.m. EST; Treasury international capital flow data at 9 a.m.; industrial production at 9:15 a.m. and the National Association of Home Builders Survey at 10 a.m.

Fed Chairman Ben Bernanke and other Fed members have left the door open for more easing, if the economy weakens sufficiently to require it. The next program, if carried out, would further expand the Fed balance sheet with the anticipated purchase of hundreds of billions of dollars of mortgage securities.

“In the past the minutes had contained a few remarks about whether Committee participants thought further asset purchases were likely or whether the balance sheet would contract, so if tomorrow`s minutes are to expand on that we would expect to see something a little more substantive, perhaps how many favor expansion, contraction or no change of the balance sheet,” writes J.P. Morgan economist Michael Feroli.

Feroli said the Fed members will also include “key factors” that influenced Committee members views on the path of the funds rate. After the Jan. 24/25 meeting, the Fed issued a statement saying that it now expects to keep rates no hold until the end of 2014, more than a year longer than it previously had stated. The Fed also released individual members expectations for when rates would begin to rise.

“If we are right that any decision regarding further QE (quantitative easing) remains data dependent, then we would expect the majority of the Committee foreseeing no change in the size of the balance sheet for the time being,” he noted.

Besides the Fed and economic reports, there are a few earnings reports, including Comcast (the parent of CNBC), CBS, Abercrombie and Fitch, Deere, Six Flags and Nvidia.

Treasury Secretary Tim Geithner appears before the House Ways and Means Committee at 10 a.m. and former Treasury Secretary Hank Paulsen appears on “Squawk Box” at 7 a.m.

Whither Stocks?

Stocks Tuesday were weighed down by concerns about Greece`s ability and willingness to abide by austerity measures, required by euro zone finance ministers and the IMF as a prerequisite to more bailout funds. A comment by the head of the Democracy party, possibly the next Greek prime minister, turned the U.S. stock market losses into a slight gain in the Dow late in the day. There were reports that he provided a letter to the European commission assuring compliance with bailout agreements.

A euro zone finance ministers` meeting was cancelled for Wednesday but it was expected they would hold a conference call instead as Greek continues to work on its plan.

The Dow finished up 4 at 12,878 after moving in a 90 point range. The SandP was off 1 at the key 1,350 level, and the Nasdaq finished up less than a point at 2,931.

“The market has been remarkably resilient,” said Luschini, although he expects a short term pullback.

The positive economic surprises that pushed stocks higher are now fading and not likely to continue to give stocks a boost. “We think this market is vulnerable if only because of some of the conditions that make it ripe for a pullback,” he said.

“The market has been built here on the back of positive surprises,” he said.

Scott Redler of T3Live.com analyzes the market`s short-term technical and he notes an interesting phenomena. “We haven`t had a close below the 10-day moving average since Dec. 20,” he said. The 10-day moving average for the SandP 500 is now 1,343, and the 20-day is 1,329.

“Typically, the strongest stocks, the high beta stocks, follow an elevated 10- and 20-day moving average. Rarely does an index track it so well and since the Dec. 20 gap and go, the SPDR (Spy SandP 500 ETF) has not closed below or considerably below the 10-day moving average during this entire rally,” he said.

Redler said the SandP has been trying to break resistance at 1,354, a level it has hit several times in the past week. If it does close above that level, he expects to see the SandP try to make a run to 1,370, its closing high in 2011.

“In order to break through, we have to have more unambiguously good news, and I think that it`s got to be Europe again,” said Luschini.

Traders have been debating and waiting for a pull back for the past week or so. “The bulls are spoiled. Even if we do get a correction, then don`t get far away from the market… It does feel like we`re going to take out that 2011 high,” Redler said.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Disclaimer

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow