THURSDAY 3/13/14; Retail Sales; Business Inventories; Markets Sell Off on Geopolitical Events

The Flight 370 mystery continues. Search crews comb the area of satellite imagery that showed objects in the water but find nothing. The direction of the aircraft remains unknown and the search area now extends to the Andaman Sea. The airplane has vanished. Two die in Turkey as tens of thousands of protestors took to the streets. PM Erdogan assumes no responsibility for the unrest and controls the rioters with tear gas and water cannons. Local elections occur on 3/30/14, two weeks away, and will test Erdogan’s popularity.

The dollar/yen drops to 102.54 so NIKK finishes negative. Japan core machinery orders are better than expected. India’s second largest software company, Infosys, sees slower growth ahead and drops -7.4%. South Korea central bank maintains the 2.5% interest rate as expected. The KOSPI gains +0.5% recovering from the recent lows and -1.6% drop yesterday. Asian markets are flat with the SSEC jumping +1.1% and Australia up +0.5%. Commodities and China have been beaten in recent days so a relief bounce is in order. Copper and iron ore markets are attempting to stabilize after the recent drubbing.

Chinese banks bounce. China retail sales and the industrial output data is weaker than expected. The National People’s Congress draws to a close with China vowing to address the risks in the economy while remaining flexible on the 7.5% growth target. Premier Li says China must ensure financial risks do not become systemic creating long term problems. Marc Faber of the Gloom, Boom and Doom Report says China’s growth rate is currently at 4% well below the 7% plus the government touts.

Europe’s second largest airline, Lufthansa, beats on earnings and provides an upbeat forecast. Lufthansa pops +5.6%. European markets open flat to higher. The euro continues higher to 1.3955 as shorts are squeezed. Draghi remains on course with current ECB policy. The 1.40 psychological level is within sight. European manufacturers and exporters face a tougher road ahead with each tick higher in the euro. Food retailer Morrison plummets -10% which creates doubt in the UK growth story. Tesco loses -3.7%. J Sainsbury drops -6.4%. Home Retail pops +4.7%.

Merkel speaks concerning Ukraine and repeats the words from other Allies that the Crimea succession vote this coming Sunday is unconstitutional and invalid. Merkel says “Europe must stand up to Russia.” The West is ratcheting up the rhetoric. Journalists now refer to the Crimea and Ukraine situation as “Russian roulette.” The Russian 10-year yield catapults higher signaling increasing concern over the aggression in Crimea and Ukraine. At 4:15 AM, the US futures remain buoyant. S&P futures are +3. Dow +15. The 10-year yield is 2.72%. Dollar/yen 102.55.

At 8:30 AM, Retail Sales are up +0.3% higher, better than expected, but the prior months numbers are revised lower taking the wind out of the sails of the happy headline number. Jobless Claims drop 9K. The dollar/yen moves higher to 102.71 which provides lift to the US futures. The 10-year yield is 2.75%. DG earnings beat but it is sold off -2%. WSM is +7% higher due to the stellar earnings from last evening. Amazon increases the price of Prime from $79 to $99. The projected price increase was in the range of $20 to $40 so Amazon selected the lower price hike and kept the total cost under $100. Traders like the move and AMZN pops +1.6%. GOGO earnings beat but it is slapped -8%......

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LMCA is restructuring its shares and abandons the bid for Sirius. SIRI drops -0.5% and LMCA pops +0.8%. JPM announces the surprising exit of chief strategist Thomas Lee that appeared on television this morning. During the interview this morning, Lee said “see you soon” so obviously he did not see what was coming. Lee advised investors to buy stocks with both hands this morning; now he is out from JPM.

In the evening, both Kenneth Heebner of Capital Growth Management and permabull Jack Bouroudjian say “buy the dip.” Even after today’s selloff, most traders remain bullish and consider the selloff a great buying opportunity. Ma and Pa Kettle, and Joe Sixpack, believing all the bullish hype on television, both took their entire life savings and invested it in the stock market yesterday.

The US, Europe and other Allies join together in providing an ultimatum to Russia. If the Crimea succession vote occurs this weekend, the West will announce and implement serious sanctions against Russia on Monday. Secretary Kerry meets with his counterpart, Russia’s Lavrov, tomorrow in a last ditch effort to find common ground. If the meeting does not bear fruit, the stock market may take another strong move lower since this sets the course for an announcement of sanctions on Monday as well as heightened hostilities.

The US politicians will be cheer leading LNG (liquefied natural gas) during the months ahead that takes advantage of the plentiful gas in the US while helping our friends in Europe break free from Russia’s energy chokehold. Companies involved in design and construction of natural gas liquefier plants, LNG terminals, LNG ships, and associated equipment, such as CBI, MTRX, LNG, GLNG and GTLS, to name only a few,  provide interesting areas to explore for potential long plays for the months and years ahead. Keep an ear out for any news on legislation that encourages the exporting of natural gas from the US.

An LNG liquefier plant transforms the natural gas from the gaseous state to the liquid state by maintaining a temperature of -260 F (-162 C). The liquid takes up only one-six hundredth of the space that gas does allowing it to be transported across the ocean on LNG tanker ships (at 600 times the volume, gas cannot be economically transported long distances, hence, the gas must be liquefied to reduce its volume). LNG terminals unload the ice-cold LNG liquid into storage tanks at the terminal and the temperature of the liquid is then raised to re-vaporize back into natural gas and send the gas into pipelines for use. The US is bringing new liquefier plants on line in late 2015 and 2016 to produce LNG for export.