Gary Smith’s Market Take

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Here’s my take on the markets today, September 17th, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mostly deteriorating today. The 2Y Swap Spread is falling -4.2% to 12.0 bps. The Germany sovereign cds is down -3.2% to 47.58 bps. The France sovereign cds is down2.2% to 95.59 bps. However, the 3M EUR/USD Cross-Currency Basis Swap is falling -11.8% to -18.64 bps. The TED Spread is gaining +.2% to 28.92 bps. The European Investment Grade CDS Index is rising +1.97% to 120.53 bps. The European Financial Sector CDS Index is gaining +2.04% to 188.81 bps. The Spain sovereign cds is jumping +4.96% to 359.29 bps. The Italy sovereign cds is rising +3.51% to 319.98 bps. The UK sovereign cds is gaining +2.66% to 44.27 bps. The Spain 10Y Yld is gaining +3.4% to 5.98%(+5.03% in 5 days). The Italian/German 10Y Yld Spread is rising +3.6% to 343.10 bps.

Major Asian indices were mostly higher overnight, boosted by a +.42% gain in India. However, the Shanghai Comp fell -2.1%. This index is down -2.64% over the last week despite sharp gains in the rest of Asia and is down -5.5% ytd. As well, the Shanghai Property Stock Index fell -3.8% overnight and is down -5.9% over the last 5 days. Major European indices are lower today, weighed down by a -.9% decline in Italy. The Bloomberg European Bank/Financial Services Index is down -.14%. Brazilian shares are +.4% higher today.

The euro is maintaining recent gains. Oil is slightly higher and gold slightly lower. Copper is falling -1.0% and continues to trade poorly(-4.9% since 2/9) given the perceived positive catalysts. The benchmark China Iron-Ore Spot Index is bouncing another +3.4%, but is still down -41.9% since 9/7/11. Retuers reported over the weekend that China ghost inventories will continue to weigh on pricing in the steel sector. The UBS-Bloomberg Ag Spot Index is falling -2.2%, but is still +25.2% higher since 6/1. The 10Y T-Note continues to trade too well, despite recent mild weakness, with the yield falling -3 bps today to 1.83%.

Singapore Electronics Exports, a gauge of overall tech demand, fell -11.0% in August versus a +2.0% gain in July. Empire Manufacturing hit the lowest since April 2009 in September.

I continue to believe that QE3 will be viewed in a very negative light over the intermediate-term despite being a near-term catalyst for stocks. Over the weekend, the chief economist at Industrial Bank Co. said that China needs to be more cautious with its monetary policy as QE3 in the US will create more pressure to control inflation. As well, the former chairman of the China Banking Regulatory Commission said QE3 is “irresponsible to the U.S. and also irresponsible to us.”

The Transports, Financials and Homebuilders are relatively weak today, while Biotech is relatively strong. Market leader Apple(AAPL) continues to trade very well, helping to boost the entire market. Long AAPL. Equity p/e multiples continue to expand despite the many and growing negatives on hopes that global central banks actions/stimulus will boost global growth meaningfully over the coming months. I have not traded today and I am positioned 50% net long.

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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.