Thursday, February 18, 2010

February 18, 2010 Market Commentary By Art Cashin

Cashin’s Comments

On this day (approximately) in 791 A.D. (approximately), a highly placed Arabian named Scheherazade (approximately) found herself in a precarious position (certainly).
It all involved the ruler of Iraq and the need for delay. Scheherazade needed to buy time, to delay a deadline. To buy that time as Iraqis sometimes do she made up some fabulous stories. The first of these concerned an Iraqi who left Basra and in seven
journeys became involved with pirates, shipwrecks, bottled genies, flying carpets and terrorism. This guy's name was Sinbad and amazingly even he didn't trust the ruler of
Baghdad. By making up stories, Scheherazade was able to hold off her adversaries
and re-solidify her position.

To celebrate drop by the "Magic Lamp Lounge" and tell Aladdin, the bartender, that -
"That was then and this is now." Telling tales may not delay history from happening.
Currency Concerns Turn Comparative – The dollar (DXY) rallied and the Euro fell in
Wednesday’s trading. So, you might expect that stocks, oil and gold got pummeled.
Well, that’s not what happened.

Recalling the late Gerald Loeb’s caveat (whenever you find the key to the market –
they change the locks), you might think the dollar dominance has faded. That might
be a hasty judgment. It may be that the markets are looking less at the direction of
the greenback and more at comparative levels.

While it was true that the dollar (DXY) rallied sharply Wednesday, it failed to get back
to the high levels of Friday when stocks, oil and gold got slaughtered.
Traders had noted some spread, or minor disconnect, between the dollar movement
and its impact on other assets over the last two weeks. At first they thought it might
be about the level of velocity in the dollar move. That turned out to be a bit of a force
fit. Yesterday, it looked like the dollar influence may have depended on absolute

In Friday’s dollar spike, the DXY rose to 80.748. Yesterday’s dollar rebound got the
DXY back to 80.528. The failure to punch through Friday’s high appeared to mute
the influence of the dollar rally on other assets.
The net result of the minor dollar disconnect was a day of mild moves in extremely
dull trading.

Cocktail Napkin Charting – In Wednesday’s Comments, we said the napkins
suggested resistance in the S&P at 1103/1108. Yesterday, the intra-day high was
1101. To us that underscores the potential struggle the bulls may face as we churn
into the very heavy resistance that stands between 1100 and 1130. For today, the
napkins suggest support at 1087/1092 with backup at 1074/1077. The resistance
levels look to stay at 1103/1108 with backup at 1113/1118.

How Real Is The Greek “Thirty Day Window” – European authorities tried to buy
some time in the Greek Crisis by announcing that Greece would have thirty days to
develop a workable plan to address its problems. That window is based to some
degree on the fact that the visible trigger of an implosion would be the Greek debt
rollover that is due at the end of those thirty days.

Here’s a take from Bloomberg:
Feb. 18 (Bloomberg) -- Credit-default swaps on sovereign debt rose on investor concern that Greece may be
unable to borrow unless it gets a pledge of financial support from the European Union.
Greece needs to raise 53 billion euros ($72 billion) this year and faces about 16 billion euros of bond
redemptions by May as it struggles to narrow a budget deficit that’s more than four times the EU limit. A political
ally of German Chancellor Angela Merkel said yesterday that “not a single euro” should go to help Greece.
“It feels a bit like we are in the Twilight Zone,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in
London, wrote in a note to investors. “We are left with a stand-off that probably has to be resolved before
Greece next comes to the market.”
The article then goes on to note the pressure on rates caused by the emerging crisis.
The yield on Greek two-year notes has remained above 5 percent, the highest in the euro zone, even after
officials urged the nation this week to reduce its deficit. The premium investors demand to hold the notes
instead of benchmark German securities has held above 4 percentage points, the most since the Mediterranean
nation joined the euro and more than 10 times its 35 basis point average the past decade.
Greek Bond Sale
Greece is likely to sell 10-year bonds by March, Spyros Papanicolaou, the head of the country’s debt agency,
said Feb. 2. The yield on the nation’s outstanding 10-year note increased 12 basis points to 6.5 percent as of
9:51 a.m. in London, after climbing to 6.55 percent, the most since Feb. 9. The 6 percent security due July 2019
fell 0.83, or 8.30 euros per 1,000 euro face amount, to 96.49.
So, hoping that the crisis would only turn critical when Greece tried to come to market in March, the authorities opted for
the thirty day window.
The window, however, is vulnerable to things other than refunding.
Social unrest and backlash seem to be growing within Greece to any extensive austerity moves. Additionally, Greece, as a
sovereign, has become disenfranchised. It will not be allowed to vote in any EMU councils until it complies with the
financial guidelines of the Union.
As the clock ticks, we expect the situation to deteriorate. And, if the European crisis intensifies, it may spread to Great
Britain and then, perhaps to the U.S. This could lead to round two in the financial crisis.

Consensus – They’ll still keep one eye on the dollar (watch combined action of oil, gold and stocks to gauge currency
impact). We’ll see how the bulls handle the proximate resistance. Stay very nimble.
Trivia Corner
Errata – Several readers were kind enough to point out that we puppied up to the Smarty Pants Division too easily and
erroneously. The SPD contended that I should have made it four in a row due to George Washington. The kind readers
pointed out that Washington was succeeded by a one-term John Adams. So take that Smarty Pants Guys.
Answer - If today is Tuesday, what is the day after the day before the day before tomorrow? Answer = Tuesday.

Today’s Question - Vanna say "Oh!" - While "E" is everywhere, the letter "O" can be prevalent. For example, Door to Door
and Voodoo Doll are two common phrases of 10 letters having only "o" for a vowel. Can you think of a 4 word phrase (15
letters) that has only "o's" and means thorough or thoroughly?

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