Good Evening: Keying upon a positive earnings announcement this morning from JP Morgan, stocks were able to overcome some mixed economic data and two fairly large corporate bankruptcies to once again post solid gains. Believers that the worst is now behind us still hold sway in our capital markets, and their presence could be seen if one peeks at the internal characteristics of today’s trading. As they have so often since the March lows, advancing issues outpaced decliners by a substantial margin ( today it was 4 to 1), and volume, while still not heavy, is picking up. The bulls have come out of hiding and now easily outnumber the bears — confirmation of which has been evident in the continuing slide in the volatility index, or VIX. Against this seemingly happy backdrop for investors is the mounting frustration many others feel as they eye the mountains of debt piling up in Washington, D.C.
Stock index futures were on the defensive this morning until JP Morgan reported its first quarter results. Jamie Dimon took on all comers during the ensuing conference call, and investors celebrated by pushing stock index futures back into the green. Interestingly, JPM’s opening print of 34.01 (+ 6%) proved to be its high for the day. Jamie Dimon’s pride and joy did finish more than 2% to the good, but it could not spark anything more than grudging gains among the rest of the financial stocks. Since the financial names have been the leaders since the March 6 low point, it will be interesting to see whether they are becoming winded after the 100% sprint in the BKX over the last six weeks.
After opening 0.5% higher, the major averages settled into a fairly narrow range around the unchanged mark. The economic data released this morning was less than helpful to those who like clarity (see below). A large drop in jobless claims and a decent rise in continuing claims were interpreted to be somewhere on the positive side of inconclusive. The teeter-totter went up and down again with a Philly Fed survey that was less bad than expected, while the housing starts figures fell well short of expectations. Perhaps tempering investor enthusiasm during the first half of the trading session were Chapter 11 filings by General Growth Properties and AbitibiBowater (see below). For readers who remember the 1990-1991 period, I’m sure they’ll agree with me that no real recession is complete without prominent casualties in the commercial real estate and the paper industries.
And yet, despite these bankruptcy filings, the mixed economic data, and the desultory action in the financial stocks, the major averages refused to venture very far into red territory. Whether they were comforted by the firm technical underpinnings described above or were just operating on the theory that won’t go down must go up, market participants sent stocks soaring during the final two hours of trading. Google was quite firm ahead of its earnings release tonight, and the NASDAQ was an obvious beneficiary.
The Dow Transports (+2.9%) snuck past the NASDAQ and Russell 2000 to finish as Thursday’s leading index, while the Dow Industrials (+1.2%) hung back a bit. Treasurys were on the heavy side and yields rose between 5 and 7 bps across the coupon curve. The dollar tacked on 0.5%, while commodities were moribund. Except for the precious metals, most sectors within the CRB had rising and falling components. Gold and silver, however, were smacked in the wake of another call to have the IMF liquidate its gold holdings, this time by officials in both China and India. Both nations have an interest in seeing the IMF dump its gold; India’s jewelry industry would benefit from any drop in the price of the yellow metal, while China would like to see the proceeds flow into the global economy via loans that could help revive their sagging exports. Even though any such sales are a long shot and months away at the earliest, it wouldn’t shock me a bit if China tapped the IMF on the shoulder and said “mine” to any bullion sales. The Mandarins in the People’s Bank of China might see such a move as a good way to hedge its large holdings of U.S. debt obligations. In any event, today’s drop in the precious metals were the difference maker in the 0.25% drop in the CRB index.
In closing let me share with you an interesting experience I had while trying to mail off my tax returns over the lunch hour yesterday. As I wandered over to the downtown post office, I ran smack into Chicago’s version of the “Tax Day Tea Party”. Having its praises sung by none other than CNBC’s Rick Santelli earlier that morning, this “tea party” swelled to fill most of the Federal Plaza around the post office. This was no dull gathering of a few disaffected rabble-rousers, either. The 2000 or so I saw were young and old, male and female; and looked like they came from different backgrounds. Though some wore suits and some wore hard hats, all of them were appalled with the amount of spending going on in Washington. If you’ve ever wondered how Ross Perot garnered 20% of the vote in the presidential election of 1992, the “tax day tea party” will help you understand.
It didn’t seem to matter to them whether the money gushing forth as if the Potomac had sprung a giant leak was earmarked for stimulus programs, loan guarantees, the TARP, or the PPIC — this crowd decried them all as wasteful bailouts. None of them enjoyed the prospect of paying higher taxes down the road to pay for it all, either. When I returned to my office with cheers from the Chicago Tea Party ringing in my ears, I decided to check the internet to see whether this gathering was simply a local phenomenon or something more. As you will see if you click on the final link below, there were “tea parties” taking place yesterday in every state in the Union. Curious to find out just how many cities were involved in each state, I clicked on South Dakota and saw tea parties planned for 3 different cities in the state Tom Daschle calls home. And despite the attention crowds like this are receiving from the Fox network, the crowd I saw was clearly displeased with politicians from both major parties. The root of the frustration I saw on display yesterday was fiscal, not political.
I’ve consistently agreed with those who’ve remarked that “the prudent are bailing out the reckless”. And the money is indeed leaving some wise pockets and winding up in the hands of those who took on more risk than they could handle. Unfortunately, without the TARP and some of the earlier programs, the financial system would likely have imploded. The whole mess is causing some of these prudent folks to find ways to vent their frustration. No doubt inspired by Rick Santelli’s famous rant on CNBC earlier this year, many of them are using the internet to organize. Below is a list of some of the more humorous signs I saw being hoisted in Chicago. The most prevalent aerial display was the old yellow flag with the coiled snake on it that says, “Don’t Tread on Me”. The prudent are starting to find their voices; let’s hope they don’t become reckless.
— Jack McHugh
Signs seen at the Chicago “Tax Day Tea Party”:
“I’ve listed the federal government as a dependent on my tax return”
“If Our Treasury Secretary Doesn’t Have to Pay His Taxes, Then Why Do I Have to?”
“You can’t borrow your way out of debt”
“Jesus Saves — Obama Spends”
“Read My Lips — No New Bailouts!”
“Free Markets, Not Freeloaders”