August 17, 2011

Market Commentary
By Art Cashin
Statistics
Fair Value Buy Program Selll Program = = = -230 -130 -330

Prepared by UBS Financial Services Inc.

Cashins Comments An Encore Presentation
On this day in 1824, a large number of workers and spectators gathered at Spring Street in New York City. They were there to launch a magnificent feat that many thought would save Manhattan. By some reports there was even a band playing. For years locals had worried that so much building had been going on at the southern tip of the island (particularly from Wall Street to the Battery), that the sheer weight might tip the island over. Then in the spring of 1824, came "the plan." A retired craftsman waxing poetic in a tavern (where else) allowed as how the solution was simple. Naturally, the boys bought him a few rounds to pry out the secret. After a few more shooters, he revealed his secret. They could just saw off the island like at a soft point (around 14th Street), north of most developments, tow the bottom half into the harbor, turn it around and reattach at the former southern tip--thus, the buildings would be in the middle -- well almost....but at least the island wouldn't tip over. Whatever they were serving that night, it struck most listeners (even some of those still standing) as a good idea. Over the next few months, many brought friends to listen to this genius. And since they all had the price of a drink, he was willing to share. Soon folks were commissioning giant saws, dredge boats and even a giant block and tackle to re-affix the island when the task was done. But on this particular morning, the guy who had the plan, a man named Losier, did not show up. He realized the plan was a scam and thus he was hiding in Brooklyn fearing the mob would kill him. Naturally, the whole scheme collapsed, the island did not. Luckily, history rarely repeats and Americans would never again get caught up with any guys with vague ideas to turn things around and, who keep proposing grand schemes that don't work. (Right?) It was the possible proposal of grand schemes that held traders attention throughout Tuesday morning. In the afternoon, however, the grand deteriorated into the granular. Anticipation, Analysis, Acceptance And Anxiousness - That, pretty much, was the process the U.S. equity markets followed yesterday. Stocks opened down as the pundits began to lower the expectations and rhetoric about the outcome of the Merkel/Sarkozy financial summit. The opening selloff ended about 9:50 as the weak European markets seemed to find a bottom. Markets on both sides of the pond began to float higher in anticipation of the noon (EDT) press conference after the summit. When the conference began, U.S. and European markets seized on the cooperative, linked step, tone of the opening remarks. That allowed the S&P to momentarily spike up to match Mondays closing highs. That spike lasted a nano-second as a quick analysis revealed that the summit had basically produced an empty box. The EFSE rescue fund was big enough said Sarkozy. Youve gotta be kidding replied the markets.

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Then they dropped the other shoe. They would propose a financial transaction tax. European banks began to selloff smartly as did publicly traded exchanges. (Some pundits cheered that this could hobble, or even end, the accursed High Frequency Trading. Traders reminded that such would contract trading in the current market structure. They also noted that hobbling HTF in Europe might drive more of it here.) At any rate, the post summit disappointment selloff lasted until a bit after 1:00. From high to low, it dropped the Dow about 136 on increasing volume. Traders looked to see if there were any new raids on any European bonds. There was no visible panic and, in New York, the bulls began to tiptoe out of the storm cellar. As I told Bill Griffeth, on CNBCs Closing Bell, the final hour was a tug of war between fears of overnight risk and a rather whacky rumor that the ECB would announce vastly expanded funding for its rescue pot. On Wall Street, we know that a rumor without a leg to stand on, will find some other way to get around. This one seemed to. It kept the late day damage to a respectable -77 points. Given last weeks volatility, that was relative calm. Mining Mumbles For Money - Social Networking types know that Twitter is restricted to 140 characters per message. That makes for brief, albeit sometimes frequent communications. Now we have a group of folks who think that an amalgam of the mood on Twitter may give you clues about the direction of the stock market. Heres a bit from Financial News: A hedge fund that uses Twitter data to drive its trading strategy returned 1.85% in its first month of trading, according to an investor in the fund, in the first sign that social media data can be used successfully to enhance electronic trading techniques. Derwent Capital, which finished its first month of trading at the end of July, beat the S&P 500 which fell 2.2% in July, while the average hedge fund made 0.76%, according to Hedge Fund Research. The fund, which declined to comment, uses sentiment data mined from millions of Twitter messages, or tweets, to predict market movements. The strategy is based on research published by the University of Manchester and Indiana University in October which demonstrated that the number of emotional words on Twitter could be used to predict daily moves in the Dow Jones Industrial Average. Derwent Capital scans a selected 10% of available tweets at random and will then categorise these messages into one of a range of mood states, which could include 'alert', 'vital' or 'happy' from which the firm's technology will make predictions about potential stock movements. The initial research showed that the algorithm predicted movements in liquid stocks with 88% accuracy. Well try to follow up on this for more details. Ill Worry About That Tomorrow - That, as film buffs will recall, was the phrase repeated by Scarlett OHara with each new problem she encountered in the 1939 movie classic Gone With The Wind. Unfortunately, it also appears to be the policy adopted by too many of our elected officials as they postpone addressing problem after problem. One such problem is the looming explosion in retirements among Baby Boomers. We may get a small peek at one facet of those problems in a speech today by New York State Comptroller Tom DiNapoli. Here, courtesy of Politicos Morning Money is a snippet of his remarks: Instead of focusing on pension costs, we should be more concerned with our new problem of retirement -Millions of Americans whose retirement savings consist of 401ks with an average balance of $46,000. Twenty years from now, we could have an entire generation of retirees who don't have enough money to get by -- and who are dependent on government. We can't afford to walk away from this problem. Perhaps it's time for a national commission to talk about ways to address the retirement security challenge facing those with inadequate retirement resources. Were sitting on a virtual cluster-bomb of aging and retirement related challenges. Lets not follow Scarlett. Cocktail Napkin Charting - The mid-day pullback stopped right at the 1179/1183 support band in the S&P (low 1180.53). For today, the napkins see support again at 1179/1183 and then 1168/1172. Resistance looks like 1200/1204 and then 1209/1213 and 1218/1222.

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Consensus - Relative post-summit calm in Europe surprises some. Test of wills will likely resume shortly. Watch the newstickers and stay very nimble. Trivia Corner Answer - There are 20 quarters, 20 dimes and 20 halves. Today's Question - If three workers pack three boxes in seven minutes, how many boxes can six workers box in 70 minutes?

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