BNY On PHYS

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.
com
Christine Clark: 212 448 6085 or cclark@convergex.com
Beth Reed: 212 448 6096 or breed@convergex.com
Stocks gave up earlier gains in an afternoon selloff to close down on the day, as the Dow and Nasdaq Morning Markets Briefing
lost 0.7%, while the S&P 500 fell 0.6%. A couple of positive U.S. economic reports spurred the earlier
rally. New home sales increased almost 15% in April to an annualized 504K, much higher than the
Market Commentary: May 27th, 2010
425K the market had expected, resulting in the biggest ever drop in supply (down 7% to 211K).
Following a revised no change in March, new orders for durable goods surged 2.9% in April, almost A snapshot of the markets through the
double the predicted 1.5% increase. Excluding the transportation component, orders slipped 1.0% after lens of ConvergEx.
adding 2.8% the prior month, largely due to a swing in civilian aircraft. Last week mortgage purchase
applications hit a deeper 13 year low.
Getting Physical With Gold, GLD and PHYS
Summary: Gold’s move higher in recent years is one of the most controversial – but important - macro trends of the decade. Worries over rapid inflation – or deflation -
play a critical role in demand for gold as a hedge, of course. One level up from there is the entire “fiat currency”/ monetary policy debate, where gold becomes a de facto
currency. Now, a new investment product – the Sprott Physical Gold Trust (symbol PHYS) - allows the market to isolate one specific aspect of gold’s appeal – its physical
nature. The Trust is structured as a closed end fund, with just over $700 million in assets after a follow-on deal priced this week. The unique twist to the fund is that as a
shareholder you can take delivery of the underlying physical gold. Since the number of share is fixed (barring secondary deals such as the one this week), this “call
option” on physical delivery pushes the price of a PHYS share above spot gold prices. How much? Since inception, the median premium has been 7-8%, or $90 an ounce
at current prices. The volatility in European debt markets through the month of May moved this premium even higher, to 18-20%. Whether you think gold is “cash or
trash,” keeping a tab on the premium in PHYS is a great way to understand gold prices in the context of market confidence in currencies and financial assets.
I have been doing these notes for about 18 months at ConvergEx, and it is safe to that no topic gets more comments/return emails than gold. We understand the
fascination – it is one of the oldest stores of wealth known to man, and its resurgence during a period of global economic uncertainty just adds luster to its long reach into
human history. That is maddening to some, and heartening to others. We hear from the whole spectrum of emotion on this topic as regularly as we publish a note on
the subject.
Market Commentary – Pages 1-4, Equities/Conferences & Earnings – Page 5, Fixed Income – Page 6, Options – Page 7, Exchange-Traded Funds/Indexes – Page 8, Social
Media & Internet Blogs Top Stories – Page 9
11
Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com
One of the more difficult aspects of trying to value gold is precisely that emotional draw. Even gold bugs will admit that gold just pretty much sits there – it doesn’t
pay a dividend or interest. The price of gold can vary widely in just a generation, as it has in the past 20 years when the range has been $250 to +$1,200 an ounce. So
with none of the classic tools of financial analysis at our disposal, the value of gold becomes an economic Rorschach test (that’s one where you tell a shrink that the
inkbot she is showing you looks like a chicken salad sandwich). What do you see in a gold coin? Freedom from government? A store of wealth in a crisis? The last
vestiges of barbaric forms of wealth accumulation? All of the above?
We recently did some work on a new closed end fund – the Sprott Physical Gold Trust (symbol PHYS) – that can actually help to answer one question – how
much of the current demand for gold is tied up in worries over sovereign debt/currency crises? But before we explain how we interpret the price action of this
product to address that question, let’s quickly review what PHYS is – and isn’t.
• PHYS is an exchange traded closed end fund that invests primarily in unencumbered, fully allocated, physical gold bullion. The physical gold is stored at the Royal
Canadian Mint, which is responsible for its safekeeping.
• It is listed both at NYSE Arca and the Toronto Stock Exchange.
• The trust has approximately $700 million in assets as of today. The initial offering back in February 2010 raised $443 million, and a follow-on done earlier this
week added $243 million.
• Unitholders have the ability to redeem their shares for physical gold. If you feel like looking at your gold instead of an entry in a brokerage statement, just notify
the trust by the 15th of the month. Your gold bars – weighing between 350 to 430 troy ounces – will be on their way to you via armored transportation. Yes, you
have to pay for delivery. And yes, you have to have a large enough investment to cover the value of the bar. But if you want the gold, you can have it.
That delivery feature is unique in the world of “paper gold” investments traded on major exchanges. The SPDR Gold Trust (symbol GLD) doesn’t have it, and nor do
the iShares COMEX Gold Trust (symbol IAU) or event the Swiss-deposited ETFS Physical Swiss Gold Shares (symbol SGOL). Those products – all quite popular – leave the
gold in vaults around the world. The fixed number of shares in PHYS makes it relatively straightforward to offer redemption rights. The open-ended nature of an ETF, by
contrast, would make it mechanically much harder to guaranty delivery, particularly in a chaotic market.
So what is physical deliver worth, as a premium to spot prices? The good people at Sprott track that for us, and the information is available both in graphs following
this report and at the following website: http://www.sprottphysicalgoldtrust.com/Net-Asset-Value/default.aspx. We see three points bubbling up from this data:
• Since the inception of the Trust (we are using Trust and fund interchangeably here) on February 25, 2010, the median premium to spot prices as been 7-8%.
Assuming an average spot gold price of $1,150, that would be $86.
• During the month of May 2010, that premium exploded, with the median premium between 17-21%. Spot gold has been pretty close to $1,200 an ounce recently,
so that is a $228 premium per ounce.
2
• This week’s secondary share offering has pulled this premium down to 13.1% yesterday, or $158/ounce.
Now, before you start thinking “bubble”, take a step back and think about what these prices are really saying. This fund is now over $700 million in total asset size
and trades over 1 million shares per day. There are plenty of alternative investment choices – we have listed the ETFs, but there are also other ways to buy and store gold
that do not carry these premiums. And yet, the premiums persist, even after a sizable secondary offering. There is always some background concerns about the market
for gold – and plenty of places on the Internet if you want to learn more about these. But these issues were no greater in May then they were earlier in the year. So that
doesn’t explain the recent bump in premium.
We would propose that the premiums here are the most direct and traceable proxies for confidence in the global monetary system. Yes, that’s a big statement.
But consider that these premiums expand when events like the crisis in the Euro flare up. And they do not entirely disappear even when substantial supply comes along.
We are not saying that an investment in PHYS is a good or bad idea – frankly we have no idea. But we do know that when market “anomalies” arise in well-followed
assets such as gold, investors and market watchers do well to pay attention.
3
4
U.S. EQUITIES
AEO (-16.6%) forecast second quarter profit excluding some items of 12-16 cents a share, missing the average analyst estimate of 21 cents. UNH (-0.3%)
announced it will raise its annual dividend to 50 cents a share from 3 cents a share. BA added 0.8% after it was lifted at Morgan Stanley to “Equal
Weight” from “Underweight,” while NVDA was up 0.5% on a FBR Capital Markets upgrade to “Outperform” from “Market Perform.” For the first time in 16
quarters, TOL (+0.8%) increased its land holdings in the quarter ended April 30.
Important Earnings Today (with Estimates) From… S&P Futures

BIG: $0.67 HNZ: $0.59 One Day (High – 1089.50; Low – 1062.75):
BGP: $-0.14 JCG: $0.57
DMND: $0.20 NOVL: $0.06
GES: $0.49 TIF: $0.36
HGG: $0.25 Source: Bloomberg
Important Conferences/Corporate Meetings Today:

Barclays Capital Communications, Media and Tech Conference
Citi Global Healthcare Conference – New York, NY
JP Morgan HVAC Conference – New York, NY
UBS Global Oil and Gas Conference - Texas
Prior Day SPX (High – 1090.75; Low – 1065.59; Close – 1067.95): Three Day (High – 1089.50; Low – 1036.75):
Source: Thomson ONE

5
FIXED INCOME
Treasuries fell as positive reports on new home sales and durable goods weakened demand for government debt. The government’s $40 billion offering
of 5-year notes drew a yield of 2.13 percent, compared with a Bloomberg survey forecast of 2.11 percent. Coverage was 2.71 times versus an average of
2.57 times over the prior 10 auctions, while indirect bidders purchased 40.6 percent of the notes, compared with an average of 48.0 percent over the past
10 sales. Moody’s said the United States’ AAA rating continues to be stable, indicating the rating agency believes the AAA rating will not come under
pressure for at least the next 12 to 18 months.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events:

GDP: 3.5% SAAR
GDP Price Index: 0.9% SAAR
Jobless Claims: 450K
Corporate Profits
EIA Natural Gas Report
James Bullard Speech – 2:30pm
6
U.S. EQUITY
OPTIONS
SPX: The index moved higher to start the day, reaching the high of the day mid-morning +1.6%. Although the market remained in positive territory through most of the day, it sold off
late, to a low of -0.8%, ending the day -0.6%. The early gains in the Index were matched with sharp declines in option premium as noted by the low in the VIX of 29.39 (-15.6%). This
contraction in implied volatilities also reversed late in the day with the VIX ending close to unchanged on the day. Option trading largely repositioned risk protection to different levels and
longer dated maturities. There was a sizable (20,000) risk reversal in June with the June 1000/850 put spread sold and the 1150 calls bought. There was also a 950/1000/1050 put butterfly
bought in June 10,000 times. In December the 975 puts were bought over 5,000 times vs. a sale of more than 10,000 1200/1300 call spreads. There was also a late buyer of 10,000 August
900 puts.
ETFs: Trading in the ETF space was once again mixed as the overall market was consistently up before finishing down on the day. In GLD, we saw bullish flow in Dec and Jan through a
buyer of 10,000 Dec 112/135 call spreads as well as another investor who sold 5,000 Jan 115 Puts vs buying 5,000 Jan 150 calls In SPY, we saw one investor establishing downside
positioning through buying 30,000 Sep 104/87 put spreads. We saw a continuation of bullish call buying in the front month in XLK through 40,000 Jun 23/24 Call spreads; however one
investor sold volatility further out in the term structure in selling 25,000 Jan 21 puts, delta neutral. Finally after seeing a seller of 20,000 Jun 39/41 put spreads in XOP on Tuesday, investors
were again active on Wednesday when a big 3-way spread traded where they bought 20,000 Jul 38/ Jun 39 put spreads and sold 20,000 Jun 42 Calls.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Rank 5/20/2010 5/21/2010 5/24/2010 5/25/2010 5/26/2010
1 MIL MIL MIL MIL MIL
2 GENZ SJM SJM SJM SJM
3 SJM GENZ LLY LLY MDP BIGGEST MOVERS
4 LLY LLY GENZ BIIB LLY Top 10 Bottom 10
5 MDT MDT TSS FMC SAI
6 ARG FMC MDT EFX BIIB MDP 26.46% FIS -38.29%
7 FMC VZ FMC SAI KG Q 16.01% EFX -31.25%
8 CPB CPB CINF CPB ED
9 CPWR ED BIIB MDT FII
SCG 6.22% NI -29.19%
10 VZ T SAI T CPB PBCT 3.10% PKI -28.46%
11 RSH ARG ARG XTO CPOST MIL 3.04% ETFC -25.53%
12 CSC DGX CPB ED FMC
13 XTO COST FII COST BSX CINF 1.54% MRK -22.37%
14 MCO NUE FDO FII FDO SEE 0.89% MSFT -22.32%
15 COST BIIB VZ VZ MDT
16 BIIB SAI RSH BSX STJ MCO 0.52% EQT -20.56%
17 NUE CNP KG KG ZMH BJS 0.00% MKC -20.36%
18 SAI RSH COST AVP MCO
19 ABT ETR STJ MKC TSN
JNS -0.34% SLE -19.56%
20 ED BSX T NI VZ
21 AKS AKS XTO FDO BIG
22 T PEP MDP ZMH PBCT
23 PEG BDX NUE NUE T
24 KG XTO AZO RSH RSH Above we ranked the S&P 500 from highest 30 day implied/historical volatility
25 CVS ABT CNP XOM SRE ratio to the lowest. We then identified the most significant positive and
negative movers.
AZO CVS BDX AZO XOM
WMT PEG PEP MDP NUE The table to the left represents the 25 highest 30 day implied to historical
CELG MCO ETR STJ NI
volatility ratios within the S&P 500. The green represents names new to the list
DGX CSC BSX CINF MKC
BSX CPWR AKS TSS AVP
and the red represents names that have fallen out.
BDX KG DGX CNP XTO
GME ED ARG EFX
ABT GENZ 7
Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets S&P 500 Sector ETFs
Name (Net Assets*) Ticker Category Daily Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf
SPDRs (66.71B) SPY Large Blend -0.60% Energy XLE -0.23% -9.03% Telecomm IYZ -0.83% -4.20%
SPDR Gold Shares (38.54B) GLD N/A 0.95% Health XLV -0.63% -8.53% Technology XLK -0.99% -7.94%
iShares MSCI Emerging Markets Index (36.02B) EEM Diversified Emerging Mkts -0.08% Industrials XLI 0.21% 4.43% Consumer Discretionary XLY -0.31% -6.58%
iShares MSCI EAFE Index (33.64B) EFA Foreign Large Blend -1.48% Utilities XLU -0.04% -9.25% Financials XLF -0.69% -0.28%
iShares S&P 500 Index (20.86B) IVV Large Blend -0.66% Consumer Staples XLP -0.54% -2.00% Materials XLB -0.79% -8.73%
*As of January 31, 2010
Prior Day Top Volume ETFs Currency ETFs
Name Ticker Category Shares Traded Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 303,365,940 Australian Dollar FXA -0.17% -8.37% Mexican Peso FXM 0.18% 0.12%
PowerShares QQQ QQQQ Large Growth 129,052,124 British Pound Sterling FXB 0.00% -10.98% Swedish Krona FXS -0.38% -10.79%
Financial Select SPDR XLF Specialty - Financial 118,110,014 Canadian Dollar FXC 0.11% -1.83% Swiss Franc FXF -0.26% -10.82%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 113,569,601 Euro FXE -1.13% -14.92% USD Index Bearish UDN -0.73% -11.00%
iShares Russell 2000 Index IWM Small Blend 87,088,181 Japanese Yen FXY 0.22% 3.34% USD Index Bullish UUP 0.67% 10.36%
Prior Day Top Performers VIX ETNs Fixed Income ETFs
Name Ticker Category Daily Return Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf
ELEMENTS CS Global Warming ETN GWO Misc Sector 15.89% iPath S&P 500 VIX VXX -1.99% -8.92% Aggregate AGG -0.11% 2.59%
iShares MSCI Indonesia Invstble Mkt Idx EIDO Diversified Emerging Mkts 9.71% Short-Term Futures ETN Investment Grade LQD 0.07% 1.92%
Jefferies TR/J CRB Wildcatters Exp&Pr Eq WCAT Equity Energy 9.57% High Yield HYG -1.20% -5.15%
B2B Internet HOLDRs BHH Technology 8.31% iPath S&P 500 VIX VXZ -1.85% 19.51% 1-3 Year Treasuries SHY -0.08% 0.94%
Market Vectors Indonesia Index ETF IDX Diversified Emerging Mkts 5.00% Mid-Term Futures ETN 7-10 Year Treasuries IEF -0.20% 5.61%
20+ Year Treasuries TLT -0.28% 9.34%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD 0.95% 10.40% Crude Oil USO 2.32% -17.03%
Silver SLV 1.14% 7.26% EAFE Index EFA -1.48% -15.61%
Natural Gas UNG 1.14% -29.37% Emerging Markets EEM -0.08% -12.00%
SPDRs SPY -0.60% -3.83%
Major Index Changes:

DGIT will replace ZNT in the S&P SmallCap 600 after the close. ZNT was acquired by Fairfax Financial Holdings Limited.
ETFs in the Headlines and Blogs:

Gold ETFs Keep Their Calm in Crisis - http://www.etftrends.com/2010/05/gold-etfs-keep-their-calm-in-crisis.html
Gold climbs as ETF demand picks up - http://www.ft.com/cms/s/0/5703a152-689f-11df-96f1-00144feab49a.html
8
Top Online Social Networking Stories
Latest Popular Digg.com Business Stories:

AT&T, Verizon dominate wireless… Is it time to regulate? - http://arstechnica.com/telecom/news/2010/05/att-verizon-dominate-wireless-is-it-time-to-
regulate.ars
Starbucks Hits McDonald’s with Seattle’s Best - http://www.time.com/time/business/article/0,8599,1990813,00.html
The Cost of Retirement - http://www.time.com/time/business/article/0,8599,1990813,00.html
U.S. National Debt Clock Rolls Over to 13 Trillion ($117,978 per taxpayer) - http://www.usdebtclock.org/
Calculated Risk
New Home Prices: Median Lowest since 2003 - http://www.calculatedriskblog.com/2010/05/new-home-prices-median-lowest-since.html
New Home Sales increase to 504K Annual Rate in April - http://www.calculatedriskblog.com/2010/05/new-home-sales-increase-to-504k-in.html
MBA: Mortgage Purchase Applications at 13 Year Low - http://www.calculatedriskblog.com/2010/05/mba-mortgage-purchase-applications-at.html
The Big Picture

Comparing World Indices - http://www.ritholtz.com/blog/2010/05/comparing-world-indices/
4 Easy Ways to Improve Financial Reform - http://www.ritholtz.com/blog/2010/05/4-easy-ways-to-improve-financial-reform/
Positive Sign: Worker Mobility - http://www.ritholtz.com/blog/2010/05/positive-sign-worker-mobility/
DeepWater Horizon - http://www.ritholtz.com/blog/2010/05/deepwater-horizon-2/
Bespoke Investment Group

Emerging Market vs. G7 Public Debt Levels - http://www.bespokeinvest.com/thinkbig/2010/5/26/emerging-market-vs-g7-public-debt-levels.html
Sector Performance since Tuesday’s lows - http://www.bespokeinvest.com/thinkbig/2010/5/26/sector-performance-since-yesterdays-lows.html
Fear Index Settles as Stocks Continue to Fall - http://www.bespokeinvest.com/thinkbig/2010/5/25/fear-index-settles-as-stocks-continue-to-fall.html
March S&P/Case-Shiller Housing Numbers - http://www.bespokeinvest.com/thinkbig/2010/5/25/march-spcase-shiller-housing-numbers.html
Robert Reich’s Blog

Wall Street’s Political Poison Is Still Camp for Many Incumbents - http://robertreich.org/post/631622147/why-wall-streets-political-poison-is-still-catnip-for
The Baseline Scenario

The Last Hold Out: Senator Blanche Lincoln Against 13 Bankers - http://baselinescenario.com/2010/05/26/the-last-hold-out-senator-blanche-lincoln-against-
13-bankers/
Wall Street CEOs Are Nuts - http://baselinescenario.com/2010/05/26/wall-street-ceos-are-nuts/
9
GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is
provided for general informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a
recommendation or investment advice, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC (“ConvergEx”)
product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other
needs of any specific client or potential client. Please consult with your financial and other advisors before buying or selling any securities or other
assets. This presentation is for qualified investors and NOT for retail investors.
Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document
please contact the ConvergEx Compliance Department at (800) 367-8998.
The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or
changes to such opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect
actual performance. Such assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range
of possibilities. They are subject to significant revision and may change materially as market, economic, political and other conditions change.
Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments
can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do
not provide any assurance or guarantee as to returns that may be realized from investments in any securities or other assets.
The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates.
This material has been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx
Group, LLC and its affiliates.
10

BNY On PHYS

Enviado por

Dados do documento

Descrição original:

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

BNY On PHYS

Enviado por

Direitos autorais:

Formatos disponíveis

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

Getting Physical With Gold, GLD and PHYS

• It is listed both at NYSE Arca and the Toronto Stock Exchange.

Important Earnings Today (with Estimates) From… S&P Futures

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events:

CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

Latest Popular Digg.com Business Stories:

The Big Picture

Bespoke Investment Group

Robert Reich’s Blog

The Baseline Scenario

Você também pode gostar