Faced with a crashing market, potential sanctions on companies and individuals, Vladimir Putin decided to back off from his war footing and return 150,000 troops to their bases.
Putin gave a rambling 90 minute press conference and ratcheted down the intensity of the Ukraine invasion. His said he had no plans of using military force in the Ukraine but he reserved the right to do so if Russian citizens in the Ukraine asked for his help. His interview was widely seen as a capitulation of sorts and the markets rebounded in a monster short squeeze. Putin still talked tough but said just enough of the right things to defuse the situation.
The say "Buy on threats of war and sell on actual war." Anyone that took that to heart on Monday made a lot of money today. Putin probably backed off because of the growing move towards sanctions on Russian companies and on the tens of billions of dollars held by Russian oligarchs in banks outside Russia. I am sure Putin's rich friends were burning up the phone lines to his office on concerns their money would be seized. Every millionaire and billionaire in Russia does not keep their money in Russia where it can be seized by the government on a whim. It is all kept offshore in Europe and other countries.
Putin himself is thought to be the richest man in the world as a result of deals done on the side to allow major business deals to get done as well as money pilfered from the Russian treasury. Because this money is also hidden outside Russia it is impossible for researchers to confirm the amounts but he is thought to be the richest man in the world. Considering Bill Gates was given that title officially last week with a net worth of $72 billion that means Putin is sitting on a serious pile of cash. I am sure he did not want the European nations to start seizing his accounts.
Russian stocks were also plunging with the MICEX index falling -9.1% and the RTS losing -10.3%. Rich Russian investors were most likely angry at the decline.
Putin warned that any sanctions against Russia could cause the country to drop the dollar as a reserve currency and for the country to sell the $139 billion in U.S. Treasuries is already owns.
The U.S. markets dipped at 1:45 when news broke that Russia had launched an Intercontinental Ballistic Missile (ICBM). Suddenly the showdown in the Ukraine was about to take on a new dimension with Russia launching nuclear missiles at somebody. The missile was launched from a site near the Ukraine border. The dip was short lived once the U.S. Defense Dept confirmed that the test launch had been scheduled for a long time and had all the approvals to comply with the START treaties. The missile with its dummy warhead hit the target on a weapons proving ground in Kazakhstan. U.S. National Security Council spokeswoman Caitlin Hayden called it a "routine launch of an ICBM." The SS-25 Sickle is 60 feet long and designed to carry a nuclear warhead up to 6,125 miles. There are 70 known SS-25 missiles in the Russian arsenal. Fifty-two are silo based and 18 are in mobile launchers that are moved routinely to new locations. Russia and the U.S. routinely test launch about 2-3 missiles each every year.
The defusing of the Ukraine situation provided all the motive power for the market because there was little in the way of economic reports to provide fuel. The weekly chain store sales snapshot rose from -0.6% to +0.3% thanks to warmer weather in parts of the country. The report was ignored.
The Intuit Small Business Employment Index was flat for February with no material gains or losses in jobs at firms with less than 20 employees. The index rose only +.01 point from 95.86 to 95.87. Employment did decline in New England, Mid Atlantic, South Atlantic and West North Central. Employment rose in the East North Central, East South Central, West South Central, Mountain and Pacific regions.
However, worker compensation rose +0.5% and the largest monthly gain since December 2007. The average employee worked about 25 hours a week, up +7 minutes from January. As expected analysts blamed the weather for the weak employment growth.
Lastly the ISM-NY rose slightly from 622.6 to 626.1 for the slowest pace of growth in five months. The current conditions component declined from 64.4 to 57.0 but all the other components posted gains. Job gains in the New York market have slowed significantly now that the rebuilding effort from Hurricane Sandy has faded. Major banks and brokers have thinned the ranks thanks to cost cutting efforts and new regulations about trading.
The calendar heats up on Wednesday with the ADP Employment and the Fed Beige Book. The ISM Services is probably going to be ignored after a better than expected ISM Manufacturing number on Monday. The guesstimate for the ADP is now 140,000 new jobs. The official forecast for the Nonfarm Payrolls on Friday is still 165,000 but the generally accepted whisper number at 125,000. That makes the ADP number critical for market sentiment for the rest of the week. That number will allow analysts to make one final revision before Friday's jobs report.
Fed speakers clump up over the next two days so there is always the chance for a market moving comment.
I seriously doubt the Nonfarm Payroll number will depress the market. The weather excuse is already factored in and almost any bad number will be considered weather related. The payroll survey week was a bad weather week in February so expectations are very low.
It was a light day for earnings since the cycle is nearly over for Q4. Radio Shack (RSH) reported earnings or actually a lack thereof with a loss of -$1.29 compared to estimates for a loss of 14 cents. Revenue was $935 million compared to estimates for $1.12 billion. Same store sales were down -19%. The chain blamed "a holiday season characterized by lower store traffic, intense promotional activity particularly in consumer electronics, a very soft mobility marketplace and a few operational issues."
To stop the bleeding they are closing 1,100 stores or about 20% of their total with 4,000 left. I may be crazy but I don't see a future for Radio Shack. The 1980s are gone and anything you can buy at Radio Shack you can get at Amazon with free two-day shipping to Prime members. The days of the electronics parts stores are over. They tried to remake themselves as a mobile phone store but they lack a following and sales are declining at a rapid rate. Kevin Oleary, a Shark on TV, said Radio Shack shares are going to zero. They have too much overhead and not enough sales and the end result is going to be bankruptcy. With a -17% decline on Tuesday they are not far away from zero already. I hear the fat lady tuning up off stage in preparation for the last song.
Autozone (AZO) posted earnings of $5.63 compared to estimates of $5.57. Revenue of $1.99 billion was slightly ahead of estimates for $1.98 billion. The company said the extreme weather actually helped their business because of certain failure related hard part categories. I am assuming they meant things like water pumps, hoses, windshield wipers and probably antifreeze and windshield washer fluid. However, they said the "deferred maintenance" categories were challenged as consumers put off working on their car in the cold wherever possible. Same store sales rose +4.3%. They opened 28 stores in the U.S. and 4 in Mexico to bring their total to 4,871 in the U.S. and 371 stores in Mexico and Brazil. Shares declined -$2.67 on the news.
Facebook is making another acquisition but it was pocket change of only $60 million. Readers will probably be surprised to hear they are buying a company that makes solar drones. Titan Aerospace is a private company that makes a lightweight drone aircraft that is solar powered with a 160 foot wingspan and can stay aloft for up to five years with a 250 pound payload without having to land. According to notes from TechCrunch Facebook would start by building 11,000 of the Solar 50 drones to orbit at 20 kilometers (12.5 miles or 65,500 feet) above land and provide wireless Internet to people below. Africa is the first targeted area for this application. Who knew the African people were so desperate to get Facebook?
The larger Solar 60 model can perform other duties including weather monitoring, disaster recovery, earth imaging and communications.
Another bitcoin site bites the dust. The bitcoin bank Flexcoin.com posted a note on its site saying, "On March 2nd Flexcoin was attacked and robbed of all bitcoins in the hot wallet. Since Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately." The term hot wallet refers to the online wallet connected to the Internet where users store their coins. Flexcoin said 896 coins worth over $600,000 were stolen. Users with coins in cold storage will be contacted by Flexcoin and their bitcoins will be transferred free of charge. Users are directed to the Terms of Service on the Flexcoin website which says Flexcoin is not responsible for loss or theft of any coins deposited into their bank.
We have taken every precaution to defend your bitcoins from hackers and/or intruders. However, Flexcoin Inc is not responsible for insuring any bitcoins stored in the Flexcoin system. You are entering into this agreement with Flexcoin Inc. You agree to not hold Flexcoin Inc, or Flexcoin Inc's stakeholders, or Flexcoin Inc's shareholders liable for any lost bitcoins.
Flexcoin knows where the coins went and published the identification numbers for the two bitcoin wallets the coins were transferred into. However, since there is no tracking for a bitcoin owner there is little chance authorities can recover them.
Tesla (TSLA) shares closed at a new high at $255 after they said they would open 30 stores in Europe and build a supercharger network. They are debuting a right hand drive Model S in the U.K. along with financing and leasing programs tailored for Europe. Obviously this will help future sales in Europe and continue the momentum in Tesla production. Tesla said combined sales in Europe and Asia will be nearly twice that of North America in 2014. Tesla said it expects a 55% jump in global sales this year. Once it completes its $5 billion giga-factory to build batteries it expects to cut costs dramatically and boost car production significantly. That won't happen until 2016 but that is not keeping Tesla from making new highs.
Move over Siri, there is a new personal assistant in town. Microsoft Windows phone 8.1 will have a personal assistant named Cortana. That names comes from the artificially intelligent character in the Halo video game series. During game play in the Halo series she provided backstory and tactical information to the player. In the game her original design was based on the Egyptian queen Nefertiti and was recognized for her sex appeal, believability and character depth. Microsoft can only hope the Windows phone personal assistant version of Cortana develops a following as well. Apple's Siri has developed a loyal following and a hate group as well. It seems you can be everything to every user. Siri has a big lead over Cortana so it might take a couple generations of the phone to bring her up to speed.
Microsoft shares have rallied to a three month high on the dramatic personnel changes underway at Microsoft. The new CEO is cleaning house and trying to put in some new blood in an effort to bring Microsoft back as something besides a stodgy operating systems company. One of his moves was to elevate the person that created the "Scroogled" ads in charge of marketing. The campaign by Mark Penn was a hit and we can expect the future of Microsoft ads to develop an edge that makes them memorable. Penn was known before he joined Microsoft as a "political brawler" known for his brusque personality and scorched-earth tactics. That is exactly what Microsoft needs is a tactic to get out from under the shadow of Google. Shares are moving higher as investors begin to get excited by the potential for a new Microsoft.
Chevron (CVX) won a crucial victory in a New York court over a $18 billion judgment against the company in Ecuador. The claim began after Chevron acquired Texaco. Sometime prior to 1992 Texaco reportedly polluted a site in Ecuador. Texaco eventually cleaned up the site and received a letter from regulators removing Texaco from all liability. The site was turned over to the state owned oil company. Fifteen years later a New York attorney, Steven Donziger, prosecuted a "Robin Hood" case against Chevron for the original pollution. The case was tried in a one horse town in Ecuador and the judge was bribed, the testimony faked and witnesses paid off to give false testimony. Everyone was promised a piece of the pie if Chevron was found guilty. The judge rendered a $18 billion verdict against Chevron and everyone in the process thought they had won the lotto. Chevron continued to appeal all the way through the Ecuador Supreme Court but lost in every case because of the carefully constructed false testimony and bribed witnesses. Also, Ecuador was drooling over the potential for an $18 billion windfall. Ecuador tried to seize Chevron assets in Canada, Argentina and Brazil.
Fast forward ten years and Chevron had Donziger brought up on racketeering charges in New York. Using the RICO statutes they pressured their case and presented numerous witnesses who claimed they lied in the original trial, presented evidence the judge was corrupt and Donziger team had provided him with all the case materials, judgments, precedents, etc with a promise of a big payday. The New York judge ruled against Donziger saying the team used "bribery, fraud and extortion" in getting the original verdict. Now Chevron can use the New York case in "any court that respects the rule of law to find the Ecuador judgment to be illegal and unenforceable" according to Chevron. Ecuador saw the writing on the wall in late 2012 and reduced the judgment to $9 billion in an effort to get Chevron to settle. Now they will get nothing. Chevron shares have been beaten up multiple times over the last several years as these cases wound their way through the courts with that $18 billion liability hanging over their head. Shares only rallied slightly today but now that the cloud has lifted we should see further gains.
The market rebound today left no doubt that investors are looking for better days ahead. The S&P blew past new high resistance and closed at 1,873. The Dow added +227 points and completely erased the -153 points lost on Monday. The Nasdaq closed over 4,350 and a new 13 year high. The biggest gain was a +2.74% run by the Russell 2000 to a new high at 1,208 and over the round number resistance at 1,200.
These were blowout numbers across the board and volume was strong at nearly 8 billion shares. The breakout by the S&P puts it on track for a test next level resistance of 1,900 in the very near future. It would not be out of range to see a gain to 2,000 in the months ahead.
The weather ate my earnings excuse is alive and well and almost any bad news is going to be ignored. The S&P consolidated in a narrow range from Valentine's Day until Friday and now that consolidation is going to pay off. The breakout over 1,850 that halted the advance in January is complete and 1,900 is going to take over that focus level in the future. Support is well back at 1,840.
He recent high priced additions to the Dow helped to power it higher but nearly 50% of the components gained more than $1. Big gains in Visa, Goldman Sachs, American Express, Disney, IBM and Boeing pushed the index back to uptrend resistance at 16,400. The Dow is only 181 points below a new high a 16,577. While nobody expects +200 point days very often it won't take long to reach that new high with just a couple decent days. The downward trend in many of the components has been broken.
The Nasdaq broke out to a new 13 year high with a +75 point gain to 4,351. Losers were rare as you can see by the list below. The 20th biggest loser only gave back .69 cents. There were plenty of winners but surprisingly Apple (AAPL) did not make the list with only a +3.48 gain.
The Nasdaq still faces long term uptrend resistance at 4,375 but the 4,400 welcome mat is out and very inviting. The Nasdaq is still a long way from the 5,048 high close from 2000 but it is on the right track. I don't want to jinx it by predicting when we will see a new Nasdaq high but 600 points is not very far away.
Support is 4,250 and the lows from Monday.
The big winner for the day was the small cap Russell 2000 with a whopping +32 point gain of +2.74%. I can't say enough about this gain and market sentiment. This shows that fund managers and individual investors alike are no longer afraid of a pending correction or the weak economics. Small caps have taken over the lead from the Nasdaq and this is very bullish. The Russell IWM ETF traded 2.5 times its normal volume.
I don't see any potholes ahead for the market. As long as the Ukraine situation continues to improve the events here at home will be ignored. Weak payroll reports will be blamed on the weather and warmer weather is about to arrive with only 16 days left until the first day of spring.
Normally I can find something negative to caution about but other than errant Fedspeak over the next two days or fighting breaking out in the Ukraine I don't see any negative hurdles. Obviously I am missing something and it will probably jump up to bite us later this week.
Enter passively, exit aggressively!
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