All Signs Are Pointing Down

Includes: COP, CVX, FB, MS, PBY, TLB
by: Bret Jensen

As we approach the end of the miserable month of May, it is getting downright ugly out there. Spanish and Italian 10 year debt yields are both north of 6%, which is unsustainable. As a result, the euro is in a free-fall. I wish I could be more optimistic here and advocate "backing up the truck" rather than taking minor positions on pullbacks, but all signs are pointing to more short term pain.

10 disturbing signs in the markets

  1. Private Equity seems to be in retreat. Both Talbots (NYSE:TLB) and Pep Boys (NYSE:PBY) stocks have gotten hammered this week by the withdrawal of PE interest.
  2. Thanks to the greed of Facebook (NASDAQ:FB), the incompetence of Morgan Stanley (NYSE:MS) and the technical glitches at NASDAQ; the most anticipated IPO this decade has turned into a debacle eroding small investor confidence and clouding the future of the IPO pipeline in the near term.
  3. Oil is getting hit hard by concerns around worldwide growth and the strong dollar. WTI is now below $88/barrel which is causing energy stalwarts like Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) to sell off despite their low valuations and good dividend yields.
  4. 10 year treasury yields just hit record lows as the flight to safety continues to accelerate.
  5. In Germany, the yield on the 2-year German Schatz falls to 0% as European shares hit session lows.
  6. Europe closed sharply lower today as a plan to have the ESM directly recapitalize EU banks produces only a 30 minute rally after Germany renounced the plan almost immediately.
  7. Spanish Finance Minister De Guindos also says Spain's banks will be asked to make provisions of €84B to cover potential real-estate losses. Anyone know how they will raise the capital to do so?
  8. Stock buyback announcements fell to a combined $1.1B a day during the April-May earnings season, the lowest since mid-2009.
  9. The May Consumer Confidence Index fell much more than expected Tuesday.
  10. Homebuilders are dropping hard today as home sales dropped for the first time in four months. Rather than a real housing recovery, warm winter weather probably distorted buying patterns and no rebound is in the works.

Be careful out there. There will be lower entry points by summer.

Disclosure: I am long CVX, COP.