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Get It Off The Books! (The Cash That Is)

Daily State of the Markets
Wednesday Morning - March 21, 2012

Good Morning. The news greeting investors on Tuesday morning clearly wasn't good. There were problems in China, which in turn, meant problems for the global growth thesis. There were new worries about Greece (I know, how the heck is that possible?). There was a lot of chatter about Portugal becoming the next Greece and that EU leaders had best deal with this quickly before another round of debt restructuring begins. And with Shanghai, Hong Kong, and most of the European bourses down more than 1%, it looked like the bears might finally get back in the game yesterday.

Since China is the second biggest economy on the planet and the biggest consumer of energy in the world, any and all data relating to the growth outlook for the Chinese clearly warrants some attention. So let's run these stories down. First, there was word that China had increased gasoline and diesel fuel costs to its citizens. This caused concern about inflation and slower growth. Next there was a report that the Chinese equivalent of "corporate profits" had fallen for a second month in a row. Then there was deputy secretary general of the China Association of Automobile Manufacturers, who said that Chinese vehicle sales are likely to miss their 8% growth target in 2012. There were even rumors on various blogs regarding a possible coup in Beijing.

But the story that got the most attention was a PowerPoint slide in a BHP Billiton presentation. BHP, which is the world's biggest mining company, said in its presentation yesterday that growth in China's demand for iron ore will fall "to single digits, if it is not already there" as steel production is slowing and growth rates have flattened. Ian Ashby, the company's president of iron ore, also told reporters that "The big infrastructure build clearly will come to some end." Yikes, that can't be good, right?

In addition to all the less than cheerful news out of China and Europe, a fairly strong earthquake rocked the shores of Mexico City. There was a report that the good data in the U.S. economy can be attributed to the record warmth we've enjoyed so far in the spring, which, of course, has caused consumers to speed up their consumption. In case you're not sure where this logic is heading, this means that demand has been "pulled forward" and as a result, the economy will surely stumble going forward.

And what would a day be without some news relating to Apple? Late in the session yesterday, we got a report that the third generation of the iPad, with its amazing retina display and faster processor gets hotter than the last version. Really, an electronic device can heat up if things go faster and look brighter - shocking, I say! The response by Apple's stock wasn't exactly shocking however, as AAPL closed at a fresh all-time high of $605.96. (And yes, for disclosure purposes, I'm obligated to report that we own it - but then again, who doesn't?)

The point to this morning's meandering missive can once again be summed up with a fairly famous Wall Street-ism as "It's not the news but how the market reacts to the news" seems to fit perfectly. So, my take away from the session is despite the fact that there was fair amount of news that could have been construed as negative, the S&P's drop of -0.30% can't exactly be considered a wild collapse. And the fact that the NASDAQ was down just -0.14% tells me that there wasn't a lot of selling pressure (remember, when the bears really come to play, those four-letter names tend to get hammered).

And finally, the intraday trend of the 1-minute chart really said it all. After dropping for about 15 minutes, the market then began a steady climb throughout much of the day. Thus, we have to conclude that somebody somewhere is still accumulating stock.

How can this be, you ask? How can managers STILL be accumulating positions after a rally that has been running for the better part of 16 weeks? It's simple really. Remember, the vast majority of managers are behind in the performance race this year. And with the end of the quarter just eight trading days away, I'm guessing that fund managers don't want to report a large cash position on March 31st. As such, managers are likely screaming at their traders to get that cash off the books now - right now!

Turning to this morning... Oracle's earnings gave the overnight futures an early boost after the close yesterday and a note from Goldman Sachs this morning on an improving outlook for the economy and the stock market seems to have added to the modestly upbeat mood. However, U.S. stock futures are currently following Europe and pulling back toward breakeven. Thus, the open looks mixed at this writing.

On the Economic front... The only major report out today is Existing Home Sales at 10:00 am eastern.

Thought for the day... "A clever person solves a problem. A wise person avoids it." - Albert Einstein

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -0.43%
    • Shanghai: +0.06%
    • Hong Kong: -0.15%
    • Japan: -0.55%
    • France: +0.08%
    • Germany: +0.15%
    • Italy: -0.70%
    • Spain: +0.07%
    • London: +0.09%
  • Crude Oil Futures: +$0.12 to $106.19
  • Gold: +$2.30 to $1649.30
  • Dollar: lower against the yen higher vs. pound and euro
  • 10-Year Bond Yield: Currently trading at 2.345%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +0.63
    • Dow Jones Industrial Average: +16
    • NASDAQ Composite: -0.17

Positions in stocks mentioned: AAPL

For more of Mr. Moenning's thoughts and research, visit

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Disclosure: I am long AAPL.