TUESDAY 2/18/14

BP gains +3% on a big profit jump thanks to China. LVS gambling web sites are up and running again after a cyber attack shut them down for a few days. Pacific Brands, that supplies the majority of work uniforms for mining and construction industries, reports the weakest sales numbers in three years. RBA releases the minutes from this year’s first meeting and keeps policy unchanged. Aussie dollar 0.9035. AA is closing an Aussie aluminum smelter due to overcapacity. Smelters are large users of electricity and natty gas so prices may soften as this will add to supply. The ASX 200 creates a three-day rally closing at a three-month high. Investment banks are pulling out of India as the landscape for attractive business deals diminishes. The dollar/yen is 102.11 moving above 102 over the last day as traders anticipate the BOJ meeting decision. The consensus is that the BOJ will leave policy unchanged, however, the weaker yen (higher dollar/yen) hints that at least some jaw-boning promising more stimulus is expected.

The BOJ meeting ends with the central bank remaining on course with monetary policy. The BOJ extends a special loan program for another year and says there is room for more easing moving forward. The Japanese banks are already awash in liquidity so the move will likely not help to increase lending. Just like the US, there is ‘no velocity of money’ (loaning it out and getting it into circulation so it can create a multiplication affect) so the economies remain stagnant despite the obscene money-printing. The dollar/yen pops to 102.70 and settles nearer to 102.45. The NIKK catapults 450 points, +3.1%, to 14843, on the easy money talk. Japan banks jump +5%. Asian markets continue a several week rally. Equity markets are like junkies needing to inject the central banker heroin to experience highs.

China FID (foreign direct investment) increases more than expected. The PBOC decreases liquidity in the banking system due to the large jump in lending numbers released over the weekend and the SSEC drops -0.8%. Copper drops. China surpasses India as the largest consumer of gold in the world. Singapore is not permitting an Indonesian warship to enter port. The Thai baht drops against most major currency pairs as continued violence results in three deaths. The whiff of contagion remains in the air as the South African rand and Indonesian rupiah both weaken. Brazil’s economy stumbles lower as growth slows.

Italy yields are at 8-year lows as Renzi begins forming a coalition government. Germany’s confidence drops from a seven-year high. Germany’s Bundesbank warns of a housing bubble and says that houses may be as much as 25% overpriced. Germany desires to end subsidies for renewable technologies which may soften prices of solar and other green companies. UK inflation unexpectedly drops under 2% to 1.9%, below the BOE’s target printing the lowest rate of inflation since late 2009. The pound moves lower to 1.6675 as concern grows over a slowing recovery in the UK. Euro 1.3722. European car registrations rise +5.2% fueled by the UK and Germany and a ‘cash for clunker’ program in Spain. European markets trade flat to lower not following through with the Japanese joy.

At 4:45 AM, the S&P, Dow and Nasdaq futures turn negative but remain flat overall. FRX bounces +20% on news that ACT will acquire the pharma company to increase generic drug production. Activist Carl Icahn owns Forest Labs and tweets his pleasure about the Actavis acquisition. As the Forrest Gump movie says, “Run, Forrest, Run!” Venezuela violence increases. Three US embassy officials are expelled. The Ukraine violence continues with anti-government protestors remaining entrenched in camps. Ukraine opposition protestors continue marching against the government wanting to increase ties with the EU. Merkel pledges support for the Ukraine protestors. Major nations conduct talks in Austria concerning Iran’s nuclear program. George Soros doubles his short position against the S&P 500. The computer hackers appear unstoppable considering all the recent security breaches at Forbes, Silk Road, Kickstarter, TGT, LVS, Neiman-Marcus and many other companies. The instability with the bitcoin virtual currency continues but price holds in the 600’s.

Coke earnings are exactly in line with EPS but top line revenue misses. Sales are challenged in both emerging and developed markets just like PEP. KO trades negatively pre-market. Carbonated beverage sales continue to drop globally. Futures are flat as the US prepares to begin trading after the three-day holiday weekend. The 10-year holds steady for a few days at 2.73%. The dollar/yen is 102.47. WTIC moves above 101 as global social unrest increases. Brent oil is 109.50. Natty gas jumps a huge +6% to 5.521. Gold is flat at 1317. The pharma M&A heralds the day as ACT jumps +11% and FRX is now running +32% higher. WM drops -5% after earnings and lower guidance appear in the garbage pile. TSLA jumps +3.3% on a news story that Elon Musk had met with AAPL to discuss potential partnerships or more.

Empire State Mfg Survey is 4.48 below last month’s 12.51. Analysts keep blaming the weather but the bad winter has been battering the States since December. Futures keep drifting above and below the flat line. The Presidents Day holiday sales should have unloaded more merchandise but retail sales remain challenged. The promotions and sales will increase further which is deflationary. Stores have already placed spring merchandise on the shelves but very few in the US are ready for spring as they shovel snow each day. Marc Faber warns that the US stock market upside may come to an abrupt end and to stay away from stocks.

The opening bell rings and US markets stagger out of the gate sideways with the Nasdaq up, Dow down and SPX flat; something for everyone. Materials, consumer discretionary, tech and industrial sectors are strong. Dollar/yen 102.37. Ukraine violence grows ugly with fires openly burning in Kiev. Buildings are set on fire. US equities are unaffected by the Ukraine images on television. The bullish euphoria continues uninterrupted and the major indexes all turn positive. The SPX attacks the strong 1843 resistance level. Oddly, volatility moves higher as well with the VIX above 14. One of them is wrong.

European auto sales beat expectations earlier but upon closer inspection and applying seasonal adjustments actually shows negative sales. NAHB Home Sales fall down the steps with a very weak housing report so the homebuilders sell off about -1%. Trannies are dragged lower by the railroads. Kansas City Southern is downgraded. KSU -5.3%. Biotech and healthcare run higher due to the ACT and FRX joy. MYL +5.7%. HUM +2.1%. AGN +0.8%. Safeway is exploring strategic alternatives, magic words for stock traders, so SWY bounces +2.4%. Utilities are strong.

UAL is grounded losing -1.2% after announcing that computer glitches are causing system delays. Flights are cancelled and travelers take to Twitter to voice their frustration. UAL is working to restore service. Activist investor Dan Loeb buys BBRY which leaps +7% higher. The session continues with the bulls battling to move the SPX up through 1842-1843 resistance that will unleash strong upside while the bears battle to push the VIX above 14 to unleash strong market downside. Neither side is able to attain their respective goal as yet. Copper strength is helping the bulls as well as WTIC crude oil now at 102.

Ukraine riot police set a time deadline for protestors to vacate the encampments in Kiev. Time expires and tents are set ablaze escalating the violence. Iranian computer hackers have infiltrated Navy computers accessing information for the last few months. The Navy says classified information was not hacked. Stocks sputter along sideways as the holiday-shortened week begins at a lazy pace. KO is knocked-out losing -4.1%. Dollar/yen is idle at 102.30. The CBO says 500K jobs would be lost by 2016 if the $10.10 minimum wage is implemented and 100K jobs would be lost if the minimum wage increased to $9.00 per hour. The current US minimum wage is $7.25 per hour. The higher minimum wage would lift 100’s of thousands of people out of poverty as long as they did not lose their job as a result of the rate increase.

At the closing bell, the SPX is flat at 1841. The Dow is a few points lower at 16130.  The Nasdaq gains +0.7% to 4273 printing new 13 year highs. The RUT gaps higher today leaping +1.1% to 1161. Tech and small caps lead mainly by healthcare, biotech and pharma. Volatility moves higher with equities which occurs only about 10% of the time, indicating that markets are likely at an inflection point. Traders ignore the Ukraine violence even as it streams on television before the closing bell. Flames rise from the protest camps. Early reports indicate that 4 police are killed, another 40 are shot and about 100 are injured. Real bullets are flying in addition to the rubber bullets, water cannons, tear gas and other mayhem. The Ukraine crossed the Rubicon today. The country is forever changed and there is no turning back. Kiev burns. A Ukraine revolution begins.

After the bell, PNRA provides stale earnings and loses -2% in AH trading in addition to the -3% during the regular session. HLF beats on earnings and pops +2% adding to a +4% gain today. ADI beats by only a single hair on both the EPS and top line revenue and gains +1.5%. NBR gains +2.4%. LZB misses on earnings and is dumped out of the easy chair losing -9%. Weak furniture sales are a negative sign for the housing sector. PBPB loses -3% on weak earnings. Potbelly develops a potbelly from eating the sandwiches that the customers are no longer eating.

The Ukraine death count increases to 18. Global social unrest breaks out in the Ukraine, Syria, Venezuela, Brazil, Thailand and Egypt, to name only a few of the hot spots. Traders are not pricing in geopolitical risk. This was easily visible late in the trading session as Kiev burns but traders yawn only asking each other what was on tap for dinner this evening. The Ukraine is the size of Texas, USA, and has a population of 50 million people, about one-seventh the population of the US. The Ukraine is more similar in size to Spain and other European countries. One-half of the country favors the Russian approach to government, politics and economics while the other half of the country wants to move in the direction of the West and hook up with a European style of rule and economics. The Ukraine violence today may be the shot heard round the world that begins a civil war. President Viktor Yanukovych and the opposition leader Vitali Klitschko agree to meet tomorrow. Yanukovych will likely have to make concessions to restore peace. The Ukraine situation is very fluid. At 2 AM local time, Kiev is lit up like day time as the city burns. Australia shares trade flat in early trading.