July 10, 2013 Update

DJIA:15,300 S&P 500:1,652 NASDAQ:3,504 Gold:$1,253 Oil:$104.84 EURO:$1.28 YEN:100.15

Buy the Blood, Sell the Greed

Nathan Rothschild said in the 18th century to, “Buy on the sound of the cannons, (and) sell to the sound of trumpets.” Rothschild, who made his fortune during the Battle of Waterloo in England, gave this advice to his investors and since then, it has been passed down from investor to investors for centuries. The brilliant point made is to enter the market when people are depressed and hopeless as a result of chaos (as many people are when the cannons begin to go off) and then exit the market once people begin to celebrate their victories and feel overconfident. Rothschild’s advice is brilliant and clear, but following it is not as straightforward as it seems. Strategically positioning oneself to enter the market when prices are the most depressed is difficult, since it is likely that the sound of the cannons today will lead to cannon eruptions tomorrow which will lead to more explosions the next day. So how can anyone really know when investors are the most hopeless? On the other hand, because most of us are always looking for a reason to celebrate, how does anyone know when the trumpets can truly be trusted? As the Fed hints that the music equities have been bullishly dancing to may soon cease, investors are becoming frightened about the chaos that could erupt. At the first real sound of tapering QE, investors immediately dumped positions and started to de-leverage their balance sheets. However, yesterday’s market behavior told a different tale as it portrayed the bullish outlook many investors seem to have regarding this earnings season, which was only based on Alcoa’s better-than-expected results. It seems to me that people are listening for even the most distant trumpet melody in order to mute the sound of the cannons exploding from Europe, China, the Fed, and the emerging markets. As a result of such irrational exuberance, people are investing in a market that I think is going to experience further turbulent explosions; so investor, beware.

Domestic News

• Market Update Futures are trading lower ahead of the release of the Fed minutes, which could reveal further news on the roadmap to tapering. 
• The FOMC will release the minutes at 2pm, Bernanke will be in a conference with 100 economists shortly after.
• The government will release data on wholesale inventories at 10:00, which is expected to have risen 0.2% in May. 

International Updates

Asia

• Market Update Markets mostly saw losses after China reported an unexpected drop in exports. 
• China’s trade data for June badly missed expectations as exports dropped 3.1%, analysts expected an increase of 1% from May and to reach +4% for June. 

Europe

• Market Update Markets took a tumble as investors feel less bullish from the Italian downgrade by S&P, Spanish stocks were under pressure.
• Political crisis in Portugal under control for the moment, but moved to Spain as the scandal over illegal payments made to Prime Minister Rajoy came back to the press.

Corporate

• Yum! Brands (YUM) Q2 earnings expected to be $0.52 per share. 
• Family Dollar Stores (FDO) Q2 earnings expected to be $1.03 per share. 
• Fastenal (FAST) Q2 earnings expected to be $0.41 per share.

 Commodities & Forex 

• Crude oil ripped after U.S. crude-supplies fell more than double the amount analysts had anticipated.