Unlike yesterday, today there's quite a bit to cover, so let's get to it.
Overnight markets were a tad weaker, though the Spooz edged higher. However, once the market opened selling commenced, led by the high-flying tech stocks, and in the first 30 minutes the Nasdaq had dropped over 1%, with the Dow/S&P off about 0.75%.
The big loser out of the chute was Apple, which opened about $10 lower before cutting those losses more than in half. There was no proximate cause that I could tell, other than the chatter over Research in Motion's new tablet. But given that RIMM's new product doesn't look all that special and (in my opinion) won't be delivered on time, I can't see why that would pressure Apple. In addition, RIMM opened 3% lower, indicating that current shareholders weren't overly excited about its announcement. In addition, there were rumors of a large tech fund liquidation, and perhaps that was a factor. In any case, just as yesterday's initial action was very boring, today's was quite curious.
Maybe They'll Know What They're Doing By the Time They Do It
A wild card tossed into today's mix was the story in the Wall Street Journal by current Fed mouthpiece Jon Hilsenrath, who suggested in his article "Fed Mulls New Bond Approach" that the Fed had not decided exactly how it was going to implement its QE2. He seemed to be leaning toward the possibility that the Fed's actions would be on a smaller scale, yet over a longer period, versus "shock and awe."
I say this story is a wild card because one could interpret it as less stimulating than one might have imagined, albeit more permanent, and therefore actually more stimulative in the long term. Regardless, it wasn't particularly "asset-unfriendly," yet I would not be shocked to see some describe it as such (especially as "assets" were under pressure initially today).
Death By a Thousand Paper Cuts
More important than that was the above-the-fold headline in today's FT headlined, "Brazil in Global 'Currency War' Alert," in which Brazil's finance minister made the following serious accusation: "We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness."
The article notes various different countries (i.e., Japan, Korea, Taiwan) that have intervened to help weaken their currencies, and acknowledges the generalized weakness in the dollar.
Today's FT also covered a large related story, "Escalation of hostilities adds up to hidden currency war," so this is a phenomenon I suspect we will hear more about prospectively. What quaintly was referred to in the old days as "beggar thy neighbor" policies of weakening one's currency to benefit exports is certainly underway, and it will be illuminating to see what occurs at the G20 shrimp fest in November on this subject. My expectation would be that this will be a problematic issue, and it will be difficult for the attendees to put a smiley face on it. (Got gold?)
Back to the stock market action, after the early slide, stocks righted themselves and by midday were slightly green, with the Nasdaq lagging. From there the indices flopped around unchanged until the last hour when they managed to grind higher and close on the highs, sporting roughly 0.5% gains.
Away from stocks, one might have expected the stories I mentioned to have an impact, but it is hard to say for sure. The dollar was weaker, oil was flat, while bonds were higher once again. I would also point out to all the deflationists that this is still not your grandfather's deflation, literally, as yesterday the CRB Raw Industrials Sub-index traded at a 30-year high.
London Calling
As for precious metals, they were all weaker initially (despite the news). However, something occurred in the gold market that is definitely worth discussing. A very well connected friend of mine (and long-time commodity trader) called me this morning to point out that an unusually large trade had taken place very early in London to the tune of over 8,600 contracts, all within roughly a $12 range. As he noted, this was approximately a $1.1 billion sale, and it didn't really cause much price damage.
The reason he brought it to my attention is because many folks have felt that the gold market was crowded, and the first time a big seller appeared gold might crack for $25 or $30 on its way to an even bigger slide. Thus, the fact that this trade (and it was very large) could be absorbed so easily meant that the gold market was potentially deeper than a lot of people thought (him included).
These conclusions are all sort of theoretical, as is the thought that gold is crowded. Nonetheless, if a trade that size was on the up-and-up and not some completely coincidental bit of noise (which would be hard to imagine), it is bullish in the sense that it does show increased resiliency in gold, contrary to what used to be the norm.
In fact, after declining better than 1% overnight (as noted), in early New York trading gold rallied about $20 in a couple of hours to a 1% gain, where it traded for the balance of the session. Silver added 1.5%.
Gold stocks, on the other hand, were still being roughed up even as gold turned higher in the early going. They have not traded all that well as gold has been churning around $1300 and, as often happens, the second gold starts down the miners lose a few percent instantly (i.e., this morning) as if gold were headed to zero. However, as the gold rally "stuck," they managed to join it on the upside, though they remained pretty subdued. I delve into these details because I think the angst regarding gold stocks (and gold itself, for that matter) is not what I would expect to see if gold was as "popular" as the gold bears want to believe.
Just a Blimp on the Radar
Lastly, Jason Goepfert made an interesting point today about the Hindenburg Omen, which garnered so much fanfare last month. He noted in the past when that technical signal had occurred (it can be debated as to whether it was actually triggered this time), and the market did OK in the ensuing 30 days, the next six months were almost always higher. I am not sure exactly what to make of that, other than to say when that indicator appeared to have been triggered it caused quite a ruckus, yet the fact that it didn't work has been met with barely a peep.
