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Gary Smith’s Market Take

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Here’s my take on the markets today, August 8, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly deteriorating today. The Libor-OIS Spread is falling -1.0% to 29.2 bps and the TED Spread is falling -1.8% to 33.53 bps. However, the 2Y Swap Spread is rising +1.9% to 20.13 bps. The 3M EUR/USD Cross-Currency Basis Swap is falling -1.1% to -38.18 bps. The European Investment Grade CDS Index is gaining +1.7% to 150.58 bps. The European Financial Sector CDS Index is gaining +2.2% to 250.78 bps. The France sovereign cds is rising +1.4% to 148.0 bps. The Spain sovereign cds is gaining +2.7% to 520.12 bps. The Italy sovereign cds is rising +2.7% to 463.66 bps. The Spain 10Y Yld is rising +.6% to 6.9% and the Italian/German 10Y Yld Spread is gaining +.59% to 451.26 bps. The Emerging Markets Sovereign CDS Index is gaining +2.8% to 233.69 bps. The Russia sovereign cds is jumping +4.3% to 163.12 bps. The Spanish 10Y Yld is getting uncomfortably close to the danger zone again and overall gauges remain at stressed levels despite recent improvements.

Major Asian indices were mostly higher overnight, led by a +.8% gain in Japan. Major European indices are lower today, led down by a -1.5% decline in Spain. The Bloomberg European Bank/Financial Services Index is gaining +.5%. Brazilian shares are gaining +1.6%.

The weekly MBA Home Purchase Apps Index fell -1.4% this week, the fourth consecutive weekly decline, and remains in the same range it has been in since May 2010. Lumber is rebounding +1.3% today, but continues to trade poorly(-12.3% since 9/9/11) given global central bank stimulus hopes and the belief that a major US housing recovery is underway. Copper also continues to trade poorly. The China Iron/Ore Spot benchmark index is falling another -1.1% today and is down -36.5% since 9/7/11. Last night, the Shanghai Securities News reported China is considering setting up a new iron-ore pricing mechanism amid declining ore prices and falling earnings at domestic steelmakers. Oil looks better technically and is gaining +.7% today, despite early euro/equity weakness. The UBS-Bloomberg Ag Spot Index is falling -.5% today but is up +23.6% in about 7 weeks.

The euro currency remains technically weak despite investor perceptions of another debt crisis can-kicking. The Transports continue to lag the broad market badly during this recent rally. I am still positioned 50% net long.

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Gary D. Smith

Gary D. Smith

Gary Douglas Smith actively trades his portfolio as well as the portfolios of family members. In addition, Mr. Smith maintains Between the Hedges, an investment-oriented blog. Previously, he was founder and managing member of Olympus Capital Management, an alternative investment firm. Olympus consisted of a long/short diversified hedge fund and a long/short technology sector hedge fund. Prior to the formation of Olympus, he spent five years as Vice-President of Research and Portfolio Manager for an independent money management firm. Mr. Smith has been engaged for the past 23 years in the analysis and selection of equity and other investments. His expertise is in long/short U.S. equity investing across all market sectors with an emphasis on technology stocks. He uses a top-down investment approach, investing in securities at a reasonable price relative to their growth prospects. As well, technical analysis plays a role in the timing of his investment decisions. He received his undergraduate degree from the University of Tennessee and subsequently received an MBA, with a concentration in finance, from Vanderbilt University’s Owen School.
Gary D. Smith

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