The Yellen Effect

Correlation moved to 1.0 across the spectrum of investment classes Tuesday, save bonds, thanks to the testimony of Janet Yellen before Congressional members. First and foremost, she reinforced equity investor confidence in the Fed. The market had become dependent and confident in Ben Bernanke, so any change would have been questioned. Yellen confirmed that the transition would be continuous and that markets should note no difference in Fed flow. However, I have my doubts about how the Fed might function under a crisis of the sort Chairman Bernanke was thrown into. In those dark days, there was a moment when all the men in the room looked to Ben, and he basically led the country. I’m not sure Yellen, or any other Fed member for that matter, are as capable a leader, but hopefully the precedent set by Bernanke provided a model for future reference. Certainly, the Fed and government have set in place rules to prevent future crises, but crises have a tendency of coming in different forms. Follow us at the blog.

Yellen Effect

Market ETF	February 11	YTD	Last 12 Mos.
SPDR S&P 500 (NYSE: SPY)	+1.1%	-1.5%	+19.9%
SPDR Dow Jones (NYSE: DIA)	+1.3%	-3.5%	+14.5%
PowerShares (Nasdaq: QQQ)	+1.1%	+1.0%	+30.6%
SPDR Gold Shares (NYSE: GLD)	+1.2%	+7.1%	-22.1%
iShares US Real Estate (NYSE: IYR)	+0.3%	+5.7%	-2.0%
United States Oil (NYSE: USO)	+0.0%	+0.9%	+1.5%
PowerShares DB US$  Bullish (NYSE: UUP)	+0.0%	+0.5%	-1.3%
PIMCO Total Return ETF (NYSE: BOND)	-0.3%	+1.6%	-2.6%

Stocks rose across the board Tuesday, but gold matched them; so what gives here? Well, Fed Chair Yellen said the central bank would not react to the last two months worth of weak jobs data, and instead wait it out through the March monetary policy meeting. The reason was the same one that I recently cited, which is the likelihood of this winter’s extraordinary weather affecting the economy. It’s a temporary factor that means things should show better in a few months, and in some industries, be made up in spring. Even where sales are lost for good, for instance in retail, the forward economic repercussions are not sustained where companies can stay solvent.

So if the economy is okay, then stock investors can see value where before they saw pariah. With the Fed keeping to tapering though, bonds are right to retreat. My guess is that something else is driving gold, because if stocks are rising and the dollar strengthening, it should have been backing down. I would have looked for bets against the China trade data as the culprit, but that was just reported strong, with import growth touching a six-month high. Gold and the SPDR Gold Trust (NYSE: GLD) are higher today along with stocks again, so something else is at play.

There are questions about the validity of the Chinese data, so wouldn’t it be something if the Chinese were buying the gold against manipulated data. Gold is up this year, but it’s still relatively cheap when matched against its peak. There are all sorts of geopolitical mines to mind as well, and those are partially behind the gains in both gold and oil of late. I’m talking about Iranian warships headed toward the Eastern U.S.; President Obama’s words regarding Iran spoken during the joint press conference with the French leader; and the Iranian stubbornness. What if the Israelis were the ones buying the gold along with the Saudis? We need to keep a close eye on this anomalous action, as it may be warning us of something important about the Middle East and you know what I mean.

Economic Events

ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior	Expected	Actual
TUESDAY
ICSC Weekly Store Sales	+0.3%		-0.3%
-Year-to-Year Pace	+0.0%		+2.3%
Redbook Store Sales	+2.7%		+2.8%
NFIB Small Business Optimism	93.9	93.4	94.1
Wholesale Trade (Inventory)	+0.5%	+0.6%	+0.3%
-Wholesale Sales	+1.0%		+0.5%
JOLTS Index	4.001 M	4.033 M	3.990 M
Janet Yellen Testimony
Charles Plosser Speaks
Jeffrey Lacker Speaks
Richard Fisher Speaks
Japan Markets Closed

Economic data was strong Tuesday as well, with small business confidence improved and sales seemingly better. Fewer job openings could be a good or a bad thing, depending on if its driver is jobs being filled faster or less job openings coming to the labor market. It would seem more likely to be the latter unfortunately.

Overseas Markets

EUROPE	CLOSE	ASIA/PACIFIC	CLOSE
EURO STOXX 50	+1.5%	NIKKEI 225	+1.8%
FTSE 100	+1.2%	Hang Seng	+1.8%
CAC 40	+1.1%	S&P/ASX 200	+0.6%
German DAX	+2.0%	Korean KOSPI	+0.5%
Athens ASE	-1.1%	BSE India SENSEX	+0.1%

The international gains were surely on Monday’s U.S. market guidance, and in Europe, on the supportive comments of Bernanke’s female twin.

Commodity Markets (2:15 PM ET)

WTI Crude	+0.0%
Brent Crude	+0.1%
NYMEX Natural Gas	+5.5%
RBOB Gasoline	+1.3%
Gold Spot	+1.2%
Silver Spot	+0.6%
COMEX Copper	+0.1%
CBOT Corn	-0.3%
CBOT Wheat	+0.9%
CBOT Soybeans	+0.7%
ICE Cocoa	-0.3%
ICE Sugar	-1.1%
ICE Orange Juice Conc.	-1.0%
CME Lumber	+1.4%
CME Live Cattle	+0.9%

See that natural gas spike? That has everything to do with the latest greatest storm storming up the East Coast. Why orange juice concentrate is not spiking probably has to do with temperatures and weather striking further north than feared. I’m not sure if the action in corn, wheat and soybean has anything to do with Ted Cruz’s planned voyage into Iowa to test electoral waters or what.

Corporate Events

You’ll find the day’s earnings reporters and most active list here. I suppose it’s too early to tell what CVS has planned for its shelf space where tobacco used to be. What do you think - electronic cigarettes?

HIGHLIGHTED EPS REPORTS
Company	Ticker
TUESDAY
Arch Capital	Nasdaq: ACGL
Argo Group	Nasdaq: AGII
Black Diamond	NYSE: BDE
Barclays	NYSE: BCS
Calix	Nasdaq: CALX
Cambrex	NYSE: CBM
CBIZ	NYSE: CBZ
Charles River Labs	NYSE: CRL
Ciber	NYSE: CBR
CNO Financial	NYSE: CNO
comScore	Nasdaq: SCOR
Control4	Nasdaq: CTRL
Conversant	Nasdaq: CNVR
Cornerstone OnDemand	Nasdaq: CSOD
Corperate Executive Board	NYSE: CEB
Covanta	NYSE: CVA
Cutera	Nasdaq: CUTR
CVS Caremark	NYSE: CVS
CYS Investments	NYSE: CYS
Danaos	NYSE: DAC
Dean Foods	NYSE: DF
Demandware	Nasdaq: DWRE
Diodes	Nasdaq: DIOD
Energen	NYSE: EGN
Entergy	NYSE: ETR
Federal Realty Investment	NYSE: FRT
Fossil	Nasdaq: FOSL
Genesee & Wyoming	NYSE: GWR
Guidance Software	Nasdaq: GUID
HCC Insurance	NYSE: HCC
Health Net	NYSE: HNT
Henry Schein	Nasdaq: HSIC
Huntsman	NYSE: HUN
Ingersoll-Rand	NYSE: IR
Intercontinental Exchange	NYSE: ICE
Jive Software	Nasdaq: JIVE
Kforce	Nasdaq: KFRC
Ligand Pharmaceuticals	Nasdaq: LGND
LPL Financial	Nasdaq: LPLA
Marketo	Nasdaq: MKTO
Marsh & McLennan	NYSE: MMC
MoneyGram	NYSE: MGI
Mosaic	NYSE: MOS
Navios Maritime	NYSE: NNA
NGL Energy	NYSE: NGL
Packaging Corp	NYSE: PKG
PG&E	NYSE: PCG
PHH	NYSE: PHH
Protective Life	NYSE: PL
ReachLocal	Nasdaq: RLOC
Reynolds American	NYSE: RAI
Service Corp.	NYSE: SCI
Sprint	NYSE: S
Tanger Factory Outlet	NYS:E SKT
TripAdvisor	Nasdaq: TRIP
USA Truck	Nasdaq: USAK
ViaSat	Nasdaq: VSAT

YESTERDAY’S MOST ACTIVE STOCKS
BIGGEST GAINERS	% Gain
CombiMatrix (Nasdaq: CBMXW)	+78%
Ocean Power Technology (Nasdaq: OPTT)	+54%
China Digital TV (NYSE: STV)	+32%
Dehaier Medical (Nasdaq: DHRM)	+30%
Galectin Therapeutics (Nasdaq: GALTU)	+27%
Cadence Pharmaceuticals (Nasdaq: CADX)	+26%
Innovative Solutions (Nasdaq: ISSC)	+22%
UBIC, Inc. (Nasdaq: UBIC)	+19%
Relypsa (Nasdaq: RLYP)	+19%
Model N (Nasdaq: MODN)	+19%
BIGGEST LOSERS	% Drop
Infoblox (Nasdaq: BLOX)	-48%
NanoViricides (Nasdaq: NNVC)	-24%
Rackspace Hosting (NYSE: RAX)	-19%
Alphatec (Nasdaq: ATEC)	-18%
River Valley Bancorp (Nasdaq: RIVR)	-17%
Desarrolladora Home (NYSE: HXM)	-15%
Compugen (Nasdaq: CGEN)	-14%
Cambrex (NYSE: CBM)	-14%
Insperity (NYSE: NSP)	-14%
Alexco Resource (NYSE: AXU)	-14%

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