WEDNESDAY 7/9/14; Portugal Bank Misses Note Payments; 10-Year Note Auction; FOMC Minutes

China June CPI misses forecasts showing a decrease in inflation to an annual 2.3%. Estimates were for 2.4% and the previous month was 2.5%. Producer Prices decline continuing the over two-year trend lower. Asia trades lower across the board following the US negative session. Internet stocks trade lower. Chinese stocks are beaten. HSI collapses -1.6%. Tencent is beaten -3% lower. SSEC -1.2%. Australia is pushed lower with the SPASX200 down -1.1% despite improving consumer sentiment.

The NIKK drifts lower overnight. Shamefully, the BOJ prepares to buy more stocks and ETF’s to pump the Nikkei Index and Japan markets higher. The BOJ plans to buy ETF’s based on the Nikkei 400 Index under the guise that this action will boost the economy. It is absolutely shameful what the central bankers are doing to global markets. Typhoon Neoguri hits Okinawa with 100 MPH winds (161 KPH) causing 600K people to leave their homes and seek more stable shelter. The typhoon moves towards the Japan mainland creating power outages and floods in its wake.

Indonesia’s Jakarta Index is closed today for the presidential elections with the pro-growth market fave Joko “Jokowi” Widodo claiming victory but shortly thereafter, the former general and wealthy Prabowo Subianto claims he won. Indonesia is thrown into uncertainty until the official results are released in two weeks on 7/22/14. Indonesian Rupiah 11120. The KOSPI drops -0.3%. Korean Won 1012.05.

The Israel tensions grow as 150 Hamas targets are hit in Gaza killing 25. Israel is posturing for a move with 40K ground troops. Despite the growing Middle East tensions, WTIC oil drops under 103 to 102.80 and Brent is under 109 to 108.64.

European indexes open higher but drift to the flat line. Euro remains sticky at 1.36. The MIB is up +0.5%. Germany uncovers a second spy in the latest US-Germany spy game saga which will further hurt relations. Insurer Admiral drops -5% creating a negative vibe in the UK with the FTSE -0.5%. Portugal Telecom collapses -7.2% after the BNDE, Brazil’s state development bank, criticizes a debt deal.

Banco Espirito Santo SA (Portugal) misses note payments. Perhaps this is the new financial crisis shot heard round the world. Portugal government bonds drop. The 10-year yield jumps to 3.85%. Banco Espirito Santo’s parent company faces a serious financial situation that is quickly creating concern and worries in the financial and trading community. Moody’s rating agency steps in and places the bank under immediate review for a downgrade.  Portugal’s stock market drops -2%. Pandora’s Box is open once again as talk of future bank bailouts begin.

[Text is Redacted: Purchase July 2014-07 to Read the Complete Chronology]

At 1 PM, the 10-Year Note Auction is not as well received as expected. The 10-year yield is buoyant today at 2.59% sitting between the 20 and 50-day MA’s deciding which way to turn. CMG jumps +2.4% after Wonderlich raises Chipotle’s price target.

At 2 PM, the FOMC Minutes reports that QE will end in October with a $15 billion taper. The QE easy money printing presses continue currently at a $35 billion per month rate so in August this will decrease to $25 billion per month, then $15 billion per month in September, then the remaining $15 billion balance will go to zero in October. Fed Chair Yellen has telegraphed the October time frame as the end of QE so the minutes simply set this QE tapering process in concrete. The Fed says rates will remain on hold continuing to try and create the mood that rates will remain at ZIRP well into 2015 and perhaps late 2015. The ZIRP keeps the long traders happy so they take another sip of Fed wine and buy more stocks.

Equities move sideways after the Fed minutes then catch a bid moving higher into the closing bell. The 10-year yield is the big story plunging from 2.61% down to 2.55% a remarkable move lower with yield rejected from the 20-day and 50-day MA resistance levels at 2.58%-2.60%. Yields are likely headed to 2.50% and lower next.

The Fed says they were surprised by the Q1 GDP at -2.9% but they expect a pick-up in Q2. Soft housing numbers are a worry. The Fed is concerned over possible down side risks due to Ukraine and Iraq. The minutes are more of the same from the Fed with no real surprises. The QE taper timeline is the key news. When prior QE programs came to an end, the stock market began selling off about four to six weeks ahead of time. If QE ends in October, softness should be expected in equities from August-September forward.

The session ends with the SPX up 9 points, +0.5%, to 1973. The INDU is up 79 points, +0.5%, to 16986 unable to poke back above 17K today. The Nasdaq is up 28 points, +0.6%, to 4419. The RUT gains 2 points, +0.1%, to 1174, unable to regain the 20-day MA. The Russell is a broad market leader and it continues to want to lead lower. People are moving money into the perceived safety of dividend stocks such as utilities and consumer staples but they will have their heads handed to them in a market sell off like everyone else. Traders are not concerned about geopolitical events with WTIC crude oil dropping under 102 to 101.75 and Brent oil down to 107.80.

Drones are in vogue these days. AVAV flies +13% higher. Lumber Liquidators warns of weaker sales numbers moving forward and the insiders obviously were told ahead of time since LL loses -8% today. COH pukes -1.4% after a downgrade by Buckingham. Coach is the worst-performing stock in the S&P 500 this year that analysts love to beat. Speculators, knife-catchers and bottom-pickers will be moving into COH on the long side at these levels. WFC downgrades VMW which drops -3%. CAVM pops +1.6% on an upgrade.

The bears remain as rare as hen’s teeth although Dr Marc Faber of the Doom, Boom and Gloom Report says a -30% stock market drop is coming. Faber is beaten-up by interviewers for predicting a major correction and bear market since 2012 and he concedes this point to his critics. Aside from Faber, there are no bulls looking for a serious correction, or crash, and zero traders expect a multi-year top to print currently like the 2000 and 2007 tops. Even the couple of analysts now waxing concern of a few percent pull back immediately state in the next sentence to “buy the dip.” The boat remains fully loaded on the bull side with the party in full gear. The Fed punch bowl is overflowing with easy money booze. Come take a drink and listen to the siren song and become intoxicated on the stock market upside joy.

A high-priced 26-year old prostitute faces charges for murdering GOOGL executive Forrest Hayes on his yacht seven months ago. She allegedly injected Hayes with heroin and left him to die stepping over his body to finish a glass of wine as he lay dying. Hayes was the father of five.

The battle between AMZN and the Hachette Book Group continues over the pricing of ebooks and assignment of ebook revenue. The decisions made now will create a lasting impact on writers, publishers, booksellers, Amazon and of course, readers.