DARTLINE INVESTOR

November 19, 2009, 4:05 pm … Closing Thoughts … The Standard & Poor’s 500 index closed down 14.90, as the Chicago Board Options Exchange’s Volatility Index, also known as Wall Street’s fear gauge, rose more than 9 percent. As stocks fell, traders flocked to the dollar and Treasurys. The ICE Futures US dollar index, which measures the dollar against other major currencies, gained 0.3 percent, weighing on commodities prices. Gold prices inched higher, while oil prices dropped $1.97 to $77.61 a barrel on the New York Mercantile Exchange. The yield on the three-month T-bill, considered one of the safest investments, tumbled to its lowest level since last December. Overseas markets were also down sharply. For much of this year, traders have been selling dollars and putting their money in assets like stocks and commodities that have the potential to earn higher returns, believing that the economy was recovering. Commodity producers and other companies with major export operations have been among the biggest beneficiaries of the dollar’s slide.

On the fundamental front: The Mortgage Bankers Association said more than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September. Pundits are worried that loan defaults could continue to rise as long as unemployment keeps rising. The government said Thursday that the number of newly laid-off workers seeking unemployment insurance was unchanged last week at 505,000, in line with expectations, but wait — the figure remains above the level that would indicate the economy is losing jobs.

Noise of the Day: Treasury Secretary Timothy Geithner said Thursday the government’s $700 billion bailout program will end “as soon as we can,” and that part of it will be used to lower the soaring federal debt. Apparently, if you start with printing a pile of dollars and don’t spend them, you can trade them in for real money? Geithner — stop smelling the bullshit, it’s doing to your head! … During a sometimes contentious Joint Economic Committee hearing that included one lawmaker calling on him to resign, Geithner was pressed to disclose the administration’s plan for dealing with the unpopular financial rescue program. “We are winding it down and will close it as soon as we can,” Geithner said of the $700 billion bailout fund, known as the Troubled Assets Relief Program. Congress approved TARP at the height of the financial crisis in October 2008 as a way to supply banks with fresh capital. Geithner said “substantial resources” remaining in the fund would be used to pay down the national debt, which is being pushed higher by record deficits including a $1.42 billion imbalance for the budget year that ended Sept. 30. Even hundreds of billions of dollars would be a tiny fraction of the $12 trillion debt, but it could lessen political unhappiness if portions of the bailout program are allowed to continue. While pledging to end TARP as quickly as possible, Geithner also said the administration did not want to repeat the mistake of other countries by ending government support too fast and derailing a fledgling economic recovery. But Rep. Kevin Brady, R-Texas, said the economy was such a mess that Geithner, as the Obama administration’s chief economic spokesman, should resign immediately. “Mr. Secretary, the public has lost all confidence in your ability to do your job,” Brady said. … Geithner, who headed up the New York Federal Reserve Bank before being tapped by Obama to be Treasury secretary, countered that the economy was in significantly better shape today than it was a year ago when Republicans controlled the White House, a view that was supported by a number of Democrats on the committee. … Democratic Sen. Charles Schumer of New York did criticize Geithner for not pressing China forcefully enough to allow its currency to rise in value against the dollar. American manufacturers blame a significant portion of the U.S. trade deficit with China on an undervalued yuan, which makes American products more expensive in China and Chinese goods cheaper in America. “Today millions of Americans are out of work because the Chinese are manipulating their currency,” Schumer said, urging the administration to impose trade sanctions on Chinese products if the Chinese government did not stop controlling the value of the yuan. … Geithner said the Chinese government has indicated that it plans to allow its currency to be set by market forces and he predicted that it would not be long before China resumes allowing the yuan to rise in value. BULLSHIT – China never offer that!

November 19, 2009, 6:30 am … The Standard & Poor’s 500 index futures down 9.20 to 1099.23, as Britain’s FTSE 100 down 0.2 percent, Germany’s DAX off 0.2 percent and France’s CAC-40 off 0.4 percent. Asian stock markets were mixed as signs of weakness in the U.S. economy aggravated worries about the strength of the global recovery. It was the second day of middling trade in Asia and followed modest losses on Wall Street. Oil and gold prices were down slightly, while the dollar fell against the yen and rose against the euro. … Fundamentals remain weak, while liquidity bubble supports higher stock values. Commonsense should win this game, but who knows when U.S., carry trade still rules. … Gold prices eased after a strong run, losing $2.94, or 0.3 percent, to $1,137.76. The dollar fell to 89.11 yen from 89.34 yen. The euro was lower at $1.4875 from $1.4961. … In London, Brent crude for January delivery dropped 42 cents to $79.05 on the ICE Futures exchange. Meanwhile, Benchmark crude for December delivery was down 53 cents to $79.05 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 44 cents to settle at $79.58 on Wednesday. Apparently, the resistance to oil sustaining above the $80 level is very strong as the fundamentals are starting to be considered. The signals have been mixed and the sustainability of the recovery is uncertain to warrant slight pullback. The U.S. Energy Information Administration reported that the country’s stockpile of crude oil fell by 900,000 barrels last week. But the drop was hardly a sign of a recovering economy. American petroleum consumption has fallen to the lowest level since July 17, and oil companies are importing much less oil as they scale back their refining operations. The Commerce Department separately said construction of homes and apartments fell 10.6 percent in October to an annual rate of 529,000 — well below the pace of 600,000 that economists expected. However, despite weak demand from consumers and doubts over the economic recovery, crude prices are expected to remain within the low $70 and high $80 range. meanwhile, a weak dollar continued to be a boost for the crude price as investors seeking a dollar hedge and better returns will continue to buy commodities such as oil and gold. The price of crude, which is traded in the U.S. currency, tend to rise as the dollar falls and investors holding strong international currencies get more buying power. … The Organization for Economic Cooperation and Development predicts 2010 growth at a 1.9 percent pace in its 30 member countries, which include the U.S., Japan, Germany and the United Kingdom. The prediction is more than twice June’s forecast of 0.7 percent, but growth will likely remain fragile, the group said. “In most OECD economies, growth is likely to fluctuate around a modest underlying rate for some time to come,” said the organization’s top economist, Jorgen Elmeskov, in an editorial. “It is being held back by still substantial headwinds. It is only some time down the line that the recovery will become sufficiently strong to begin to reduce unemployment.” … Standard & Poor’s 500 index requires to maintain a closing above 1,100 to warrant further gains. However,, noise is starting to chime-in that fundamental are being consider going into 2010. Continue to maintain support at 1081.10. A break below that level suggests closing out long positions and to remain defensive.