A friend of mine sent me a fascinating article recently from www.zerohedge.com with the tag headline “As Budget Deficit Hits Record High, Interest on US Public Debit Hits Record Low.” Usually, such ‘scare’ articles don’t have a lot of merit, but this one holds a lot of water. I’ll give a few highlights. The February budget deficit was $220.9 billion with $107.5 billion coming in and outlays of $328.4 billion going out. However, in a rather fascinating development, the interest on said debt was a relatively small $16.9 billion because as TreasuryDirect notes, the interest rate on public debt hit an-all time low of 2.55%. I mean, think about that- an increasing supply of debt is resulting in declining interest rates with bid to cover ratios at Treasury auctions at all-time highs! This is totally out of whack with regard to normal market action in which the more you borrow and the riskier the debt, the higher the interest rate you pay. Thus, the obvious question to ask, posits the author of the piece is: “When will rates start to rise and what will happen?” As recently as the last quarter of 2007, the interest rate on marketable debt was 5%. Well, the total debt is supposed to hit just over $14 trillion within the year as this was the target for the new debt ceiling by Congress not long ago. The marketable debt would be about $10 trillion. Thus, a rise from 2.5% to 5% would mean there’d be an additional $250 billion of additional debt each year. Thus, “when” is the true issue as it is apparent from studying this analysis why the Fed is campaigning to keep rates low- it’s not the worry over popping an excess liquidity bubble per se as much as it has to do with hoping rates don’t go to, say, 10% at which point the interest on the debt alone would be $1 trillion annually! Thus, while admittedly the excess liquidity can be an issue obviously, the real issue which is very much controllable is the fact that the ink continues to flow from DC. For day traders, quite admittedly, this is not a problem in the immediate-term. Very few people pay attention to the debt/deficit figures and that is not likely to change any time soon. People expect the numbers to be bad so they largely ignore them as do the markets. But, this is a burgeoning problem- certainly one that could affect all of us over time- and one that will eventually affect the markets with the advent of any headline such as the story from China over the weekend concerning its currency which kept futures under pressure the entire night.
Markets in Asia were mixed overnight with Tokyo flat but Hong Kong down 0.6%. In Europe, prices are marginally lower. The dollar is steady overall, but the pound is notably weak. Gold is up slightly with oil down slightly. Futures are down modestly. The main trigger is some talk out of China that the Chinese Finance Ministry feels that the yuan does not need to appreciate against the dollar so worries over U.S.-Sino relations are present anew. But really- it’s still quiet and likely to remain so. Notable, however, is that big cap tech and financials are lower so look for a modest downside bias on continued low volume. Focus on some of the biotechs in the news, the aforementioned techs and financials, and relative strength/weakness plays.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
ATPG- closed near a high after posting great earnings
SHO- mentioned on “Mad Money” on Friday night
GHL- had a strange move on the close upon going into the S&P 400; traded higher after-hours as well
CBEH- closed higher after posting good earnings
ULTA- closed higher after posting good earnings
IPCI- closed near a high after it noted NVS, CELG, and ELN have settled their patent suits with IPCI over a generic version of the Attention Deficit Hyperactivity Disorder drug Focalin XR
ZQK- closed near a high after posting good earnings
AMLN, ALKS, LLY- received complete response letter from FDA for Exenatide in which no requests were made for new pre-clinical trials
Bad-The following stocks have bad news and/or a weak technical pattern
ATV- closed near a low after posting poor earnings
BWEN- closed near a low after posting poor earnings
CAGC- share offering
GOOG- there are reports out there that GOOG is going to have to leave China; could be good for BIDU though
BSX- rumors according to Bernstein that BSX has suspended sales of all of implantable cardioverter defibrillators
Earnings:
MON MAR 15 BEFORE
BPZ JST
MON MAR 15 AFTER
ATHN SQNM
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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