Cashin Comments

FAIR VALUE = -240 BUY PROG = -140 SELL PROG = -340
CASHIN'S COMMENTS
MONDAY, MAY 4, 2009
[AN ENCORE PRESENTATION]
On this day in 1626, a Dutch explorer stepped out of a long-boat onto an island teeming with rich green vegetation and local fauna. The explorer was Peter Minuit and the island was Manhattan. Three days later Minuit would begin a 300 year tradition in Gotham by trying to buy wholesale. He paid a group of Indians about $24 (or 60 Dutch Guilders) in shiny trinkets for the whole island.

Little did Peter realize that the Indians were starting another New York tradition - selling something they didn't own. Rather than being the locals, the group that sold the island was a tribe from Long Island called the Canarsees. They were only in Manhattan on their way to the huge and rich oyster beds which lay where the Statue of Liberty now stands. And the chief of the Canarsees, one Seyseys, was not going to let a simple thing like not owning the property get in the way of a good sale. So he took his loot and went home - - leaving Minuit to renegotiate with the Weckquaesgeeks, the tribe that really owned the joint. (Actually a subdivision of the Weekquaesgeek tribe called "the Manhattes".) Chronicles do not say if the Canarsees introduced Minuit to another New York tradition involving a cardboard box and three bent playing cards.
To celebrate have a Manhattan or twelve and ponder the fact that if the Indians had invested the trinkets at a nominal compound rate you would now have ten times more money than Donald Trump regardless of which source you cited. (Invested at 6% compound interest the value today of the $24 would be approximately 75 billion dollars.)
Traders continued to be somewhat suspicious of the beads they saw on the tape. Friday was a good example.
Market Swings Unevenly Through Day, Only To See Bulls Bailed Out On Bell – The stock market spent most of the morning in negative territory as traders tried to weigh the data against the postponement of the stress test report. There was a rather tepid rally attempt in mid-afternoon but it couldn’t attract follow-up.
In the final thirty minutes, the indices vacillated wildly back and forth between mild plus and mild minus. It looked like a frenzied, but contained, battle to see if they could finally close the S&P above the 875 level which had eluded them all week. In the final three minutes, the bulls rushed the barricades. The bears appeared to give up and the S&P closed above 875 settling at 877.52.
We’ll watch this week to see if there is any follow-through to this psychological victory for the bulls. The skeptics, including yours truly, still think this looks like a rolling, or canopy top formation. The next few weeks may clarify.
The Week Ahead – Based upon published data, the watercooler wizards are guessing that this week’s calendar may look something like this:
Monday: Tokyo Closed
London Closed
(10:00) Construction Spending -1.8%
Pending Home Sales N.A.
Tuesday: Tokyo Closed
South Korea & Thailand Closed
Australia CB Opines
Chain Store Surveys
(10:00) ISM Service Index 41.5
Bernanke Speaks
(11:30) One Year Treasury Auction
(1:00) Three Year Treasury Auction
(5:00) ABC/Washington Post Confidence Index
(7:30) San Francisco Fed’s Yellen
Wednesday: Tokyo Closed
Norway’s CB Opines
FDIC’s Bair
President Meets Pakistan & Afghan Leaders
(1:00) Ten Year Treasury Auction
(7:00) Mortgage Data
(8:15) ADP Payroll Est.
(10:35) Crude Inventories N.A.
Thursday: ECB Opines
BOE Opines
Fed Stress Tests Results
(8:30) Initial Claims +14K
Non-Farm Productivity 0.0%

Cashin’s Comments Page 2
Monday, May 4, 2009
Unit Labor Costs 3.2%
(10:35) Natural Gas Invent. N.A.
(1:00) Thirty Year Treasury Auction
(3:00) Consumer Credit -$5.4B
(4:30) All The M’s
Friday: (8:30) Non-Farm Payrolls -635K
Unemployment Rate 8.9%
Average Work Week 33.2 hrs.
Hourly Wages 0.2%
Cocktail Napkin Charting – As noted above, the bulls finally managed to close the S&P above 875. If the bulls want to build on that, their next challenge should be the area around 888/893 which had contained them in recent breakout attempts. Should they be able to punch through there, the ultimate challenge may be the early January high which was around 950.
In the near-term, traders will look to resistance at that 888/893 level. The support on the napkins looks like 857/862 with a default to 846/851. Another thing traders will note is that on May 7th, the rally will have been two months old (bottom March 6). That’s a folkloric cycle span.
Away from the napkins, Mark Hulbert researched “bullish levels” in the early stages of bull market bounces from the “bottom.” He used 52 days as the timing marker. He chose four measures of sentiment. Two were in line with levels at bull turns. The other two showed this has move prompted far more bullishness. That suggests the caution light is still on.
Don’t Bank On It – In his comments this morning, the sharp-eyed T.J. Marta points to the failure of Silverton Bank over the weekend. Here's what he wrote:
Silverton Bank Fails - Yet Another Black Swan? Federal Regulators shut down Atlanta-based Silverton Bank this past weekend. With $4.1bn in assets, Silverton was the 5th largest bank to have been closed by regulators since 2008. More important than its sheer size, however, is the bank's place in the financial system. Rather than being a retail bank, which would have put it on the outer fringes of the financial system network, Silverton represented a "correspondence bank", or a bankers bank. Its clients included roughly 1,500 other banks, or 1/5 of the US banks. Consequently, its failure will reverberate throughout the US banking system and economy. Some who argued against letting Silverton fail warned that its collapse could take down 8 to 12 other banks. Regulators downplayed the potential impact of Silverton's failure on the system, although these are the same regulators who failed to adequately assess the risk to the system from either sub-prime mortgage derivatives or the collapse of Lehman Brothers. The failure of Silverton has much smaller immediate market ramifications than did the demise of Lehman Brothers, which caused capital markets to lock up. However, the impact will certainly be a negative one for financial intermediation to the "real" economy going forward.
We'll be watching for fallout.
Sunspot Scarcity – An Old Friend Revisits, Briefly – Our ham radio pal passed along the latest radio data. It contained a slight correction of the previous week’s data. Originally, it had been reported that a lone, weak, spot showed up on April 22nd. It actually appeared on the 21st and was gone by the 22nd.
Recalling that 11 is the lowest value that can be given to a visible sunspot, we can report that a very weak spot was sighted and lasted two days before disappearing. The disappointing part of even that minor sighting was that it appeared to be a remnant of the last 11 year cycle. As such, it was not a promising harbinger of more to come, but an echo of things past.
The numbers for April 23rd through the 29th were 0, 0, 0, 0, 0, 0, and 15. The bad news is that the 15 seemed to weaken to a 12 on the 30th and was gone by May 1st. Strange dormancy continues on our friend, the sun.
Consensus – The bulls got their close above S&P 875 but several of the market internals show weariness. We suspect the rolling top should be topping out in the next few days. As noted above, May 6th is the two month anniversary of the March low. Key week likely. Be wary and stay nimble.
Trivia Corner
Answer - Don would be 54 and Pete would be 45.
Today's Question - An old saw - Farmer Brown hired two workmen who together could saw 5 cords of wood in one day. They could split 8 cords of sawn logs in 1 day. Since Farmer Brown could only pay for one day's work, how many cords must they saw to keep them busy splitting for the rest of the day?