Gary Smith’s Market Take for December 19, 2024

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Here’s my take on the markets today, December 19, 2011. If you’d like to read more of my articles, click here.

Credit gauges are mostly worsening this morning. The FRA-OIS Spread is rising +4.5% to 61.25 bps. The 2Y Swap Spread is gaining +2.1% to 50.5 bps. The Europe Financial Sector CDS Index is gaining +1.22% to 303.10 bps. The Europe Investment Grade CDS Index is gaining +.66% to 181.93 bps. The France sovereign cds is gaining +.6% to 229.0 bps and the Belgium sovereign cds is gaining +1.44% to 326.17 bps. The Italian/German 10Y Yield Spread is surging +4.3% to 494.22 bps. The China Blended Corporate Spread Index is gaining +.76% to 793.0 bps. However, the 3M EUR/USD Cross-Currency Basis Swap is rising +3.8% to -117.12 bps. The Spain sovereign cds is falling -1.96% to 411.50 bps. Overall, gauges are still at stressed levels, which remains a large red flag for equities.

Asian equities continue to trade very poorly with most down around -2% before the North Korea news. Their averages cut losses into the closes after the initial swoon on the news. Taiwan shares closed down another -2.2% overnight(down -26.07% ytd) and are at the lowest levels since July 2009. The Citi Asia-Pacific Economic Surprise Index is falling another -2.6 points today to -27.70, which is the lowest level since April 2009.

Small-caps are relatively strong and banks are a big drag this morning. So far, the market is mostly ignoring quite a bit of negative news from over the weekend as US shares continue to massively outperform most overseas markets. I am becoming increasingly concerned by the macro landscape. A significant positive catalyst needs to emerge very soon to prevent more equity weakness during 1Q, in my opinion. I added to my trading hedges this morning and plan to cover some of them this afternoon barring the emergence of some new negative catalyst. I am positioned 25% 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.