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U.S. stock index futures were pointing to a flat open on Friday. The
Euro remained above 1.23 on the dollar. European stocks were slightly
higher. Asia was mixed.
News For Thought
Report: Heavy hurricane season expected. According to The
Wall Street Journal: "The coming Atlantic hurricane season could be one
of the busiest on record, with the possibility of the next six months
bringing nearly as many hurricanes as in 2005, when Hurricane Katrina
pummeled the Gulf coast, federal forecasters said Thursday. More recent
hurricane seasons have been relatively easy on the U.S. coast, but the
National Oceanic and Atmospheric Administration projected a 70% chance
of 14 to 23 named storms this season, with eight to 14 growing into hurricanes.
Three to seven of those hurricanes could be major, NOAA warned, citing
a brew of hurricane-friendly conditions, including warming ocean water
and a weakening El Niño system."
Report: Ford to drop Mercury brand. According to Reuters: "is considering
a plan to drop Mercury, a brand developed in the 1930s that has seen sales and
investment plunge in recent years, a person familiar with the discussions said.
Ford's global head of marketing, Jim Farley, has consulted a number of U.S. dealers
about dropping Mercury and a formal announcement could come at a dealer meeting
later this summer, said this source."
CNBC: Obama's drilling moratorium could raise oil prices. According
to the report: "The Obama Administration's moratorium on new offshore oil drilling
could have a serious impact on Gulf of Mexico production, resulting in a chilling
effect on the oil industry and strong fundamental support for crude oil prices." In
fact, "stand-down on 33 new rigs in the Gulf came as a shock to some industry
watchers."
In effect, there are 33 oil wells in the Gulf that are affected, many of which
were expected to start production within the next one or two years. That delay
could eventually hurt U.S. oil supplies in the future, in effect increasing U.S.
dependence on foreign oil sources, many of which are in countries that are openly
critical and hostile to the U.S., such as Venezuela. According to the report:
'"A 180-day halt in drilling activity would imply 200,000 barrels/day of lost
capacity!" or nearly 37 million barrels over the 180-day period, said Clearview
Energy's Kevin Book.' |
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Just 18 months ago, if you read most of the president's
media coverage, he had the answers to all of the world's ills. Now, it
seems as if he's a hapless bumbler, given the coverage he's getting.
According to The Washington Post, not exactly a bastion of right wing editorialism,
the president was "defensive" as he 'sought Thursday to quell doubts about his
handling of the Gulf of Mexico oil spill, insisting that his administration has
been "in charge" from the moment it began and bristling that critics who accuse
it of being sluggish to react "don't know the facts."'
Yet, in the next paragraph, it got worse, as the report noted: 'at times during
a 63-minute news conference in the East Room of the White House, the president
seemed to undercut his own argument. He enumerated a litany of fumbles and lapses:
that the government lacks resources and "superior technology" to respond to the
disaster; that he personally had assumed oil companies "had their act together
when it came to worst-case scenarios"; that his administration "fell short" with
its acceptance of BP's inaccurate estimate of the size of the gusher; that reforms
of the corruption-plagued government agency that oversees offshore drilling "weren't
happening fast enough."'
It seems as if Mr. Obama's fortunes have turned increasingly negative after the
BP oil spill. Even the White House's rats don't seem to be cowed anymore. Just
the other day a "rodent" of some sort ran in front of the president's podium
as he made a speech. Rumor has it that the White House press pool may have a
pool in which whomever guesses if it's a rat or a mole, will win the pot.
Yeah, it's come to that. The Pennsylvannia Avenue rats are upstaging the president.
And if you read the editorials on the more conservative side of the aisle, it's
even worse.
The Wall Street Journal's Peggy Noonan, who was hopeful sounding when the president
first took over, has now turned on him, noting: "don't see how the president's
position and popularity can survive the oil spill. This is his third political
disaster in his first 18 months in office. And they were all, as they say, unforced
errors, meaning they were shaped by the president's political judgment and instincts."
In fact, Noonan seems to be channelling The New York Times'Maureen Dowd, and
her scalpel pen, noting: "The president, in my view, continues to govern in a
way that suggests he is chronically detached from the central and immediate concerns
of his countrymen. This is a terrible thing to see in a political figure, and
a startling thing in one who won so handily and shrewdly in 2008. But he has
not, almost from the day he was inaugurated, been in sync with the center. The
heart of the country is thinking each day about A, B and C, and he is thinking
about X, Y and Z. They're in one reality, he's in another." Whoa! Them's fightin'
words in an election year, Ms. Peggy.
Noonan wonders 'if the president knows what a disaster this is not only for him
but for his political assumptions. His philosophy is that it is appropriate for
the federal government to occupy a more burly, significant and powerful place
in America—confronting its problems of need, injustice, inequality. But in a
way, and inevitably, this is always boiled down to a promise: "Trust us here
in Washington, we will prove worthy of your trust." Then the oil spill came and
government could not do the job, could not meet need, in fact seemed faraway
and incapable: "We pay so much for the government and it can't cap an undersea
oil well!"'
She also compares this event to the final event that precipitated president Bush's
complete fall from grace, Hurricane Katrina. Noonan notes that Katrina brought
together "everything people didn't like about the Bush administration, everything
it didn't like about two wars and high spending and illegal immigration, and
brought those strands into a heavy knot that just sat there, soggily, and came
to symbolize Bushism."
And here's what could carry the most weight in this analysis. As Noonan points
out: "What continues to fascinate me is Mr. Obama's standing with Democrats.
They don't love him. Half the party voted for Hillary Clinton, and her people
have never fully reconciled themselves to him. But he is what they have. They
are invested in him. In time—after the 2010 elections go badly—they are going
to start to peel off. The political operative James Carville, the most vocal
and influential of the president's Gulf critics, signaled to Democrats this week
that they can start to peel off. He did it through the passion of his denunciations."
What does this have to do with the market? Presidents tend to be summarized by
the action of the dollar. Clinton was a strong dollar president. Bush was the
opposite. As the markets began to smell an Obama victory, they started to bid
up the dollar. As Obama pushed his health care reform through, and Greece hit
the newsstands, the dollar rallied.
But, over the last few days, the Gulf oil leak has been hurting Obama. Opinion
polls have shown significant erosion in his popularity. And Republicans, the
party of the weak dollar, looks to be gaining in the race for key Congressional
seats.
On 5-27, as the stock market rallied, the dollar swooned.
Chart Courtesy of StockCharts.com
Conclusion
We've always said that the dollar is where the markets bet on the relationship
between political stability and the economy. A strong dollar tends to be a sign
that the market believes in the stability of the U.S. economy and of the White
House's ability to carry its agenda through.
The market gave President Obama his due when he passed his health care reform
bill, regardless of how he did it. It was a victory. It showed that he could
get things done. The dollar became more popular.
But as the White House has been seen as weakening, the dollar has begun to fall.
If the polls continue to worsen, we'll be watching the dollar for confirmation.
Remember, the Republicans are the party of globalization. And that means a low
dollar, so that U.S. exports are more attractive internationally. The Democrats
are the party of protectionism. They want a strong dollar so that unions don't
lose the purchasing power gained by politics moving toward their agenda.
Yes, it's simplistic analysis. But it holds together. Clinton was the prototype
strong dollar guy. Both Bushes, and Reagan, were low dollar administrations.
We think that a weaker dollar, if it persists, will be a sign that the market
is betting on a return to Republican power in 2010 and 2012.
We'll be on Twitter
some time today before the market closes with some updated comments.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Select Sector
SPDR Financial ETF (NYSE: XLF) crossed above its 200-day
moving average on 5-27.
Chart Courtesy of StockCharts.com
Bank stocks are back in bull market territory. By crossing
above the 200-day moving average, this ETF is technically
back in a long term up trend.
To be sure, a one day move above this line does not signify a total trend reversal.
But it is an event that is worth watching, over the next few days. In other words,
if it holds above this line, the bulls will be back in charge, until proven otherwise.
The ETF was down as much as 18.6% from its April 18, 2010 top. Most interesting,
XLF topped out some 12 days before the market, which means that it has some predictive
power about the future direction of the overall market.
In our view, if XLF continues to improve, it could be an excellent signal that
the worst may be over for those investors who favor the long side. At least for
a little while.
Follow Dr. Duarte on Twitter |
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