What Happened at the German Open?

Hannelore Foerster | Bloomberg | Getty Images

Flash crash in Germany? Well, not quite.

The German DAXX dropped about 180 points in less than 10 minutes just after opening this morning, it's fourth decline in as many days. It was a rapid, unusual decline, and there were plenty of rumors floating around, none of them verified.

France also dropped, now down 1.6 percent, while Germany is down 1.7 percent.

Meanwhile in the ping-pong U.S. stock market—down 234 points on the Dow Jones Industrial Average Monday, up 160 points on Tuesday—it's not good for active traders. These ping-pong moves strip daily traders from their protection. You can't hedge yourself very easily when the market ping-pongs like this, so what happens is the long-term investor usually ends up doing better than the short-term investor. Of course, you can just get out, but no one is paying you two and 20 to sit in cash.


1) Big week for IPOs continues. New York grocer Fairway (symbol "FWM"), which focuses on organic and natural foods, priced 13.7 million shares at $13 each, above the price talk of $10 to $12. The company first filed for an IPO last September, but delayed the offering for months after super storm Sandy, which closed one of the company's store location until just last month. FWM will debut on the Nasdaq and plans to use proceeds to expand store growth.

2) Multi-industry giant Textron down 10 percent pre-open. Textron was light on both top and bottom line. Textron operates in aircraft and defense (Cessna planes and Bell helicopters, armored security vehicles), and industrial space. The company reduced full-year guidance (to $1.90 to $2.10 a share from $2.10 to $2.30 a share) partially on weak demand for business jets. Bell helicopter sales also declined. It looks like Cessna deliveries might decline this year; there had been expectations of modest growth.

Fellow multi-industry giant Dover beat, but revenue was also light. Dover is big in consumer electronics, pumps and compressors, and printers. It reiterated its 2013 guidance.

3) Is margin debt flashing a warning? Based upon statistics from the New York Stock Exchange, margin debt is approaching all-time highs. The last time margin debt levels were this high was the summer of 2007, according to Schaeffer's, just about the time the Dow industrial average and S&P 500 hit new highs.

This is a source of potential de-leveraging, because the more the market goes down, the more margin calls result. Still, I'm not sure how predictive this is as a market timing tool. I'd love to see some data on this.

4) Gold stocks upgraded at Deutsche Bank. With gold stocks down some 20 percent this week, little wonder someone has upgraded them. Deutsche Bank upgrades two South African gold miners, Gold Fields and AngloGold Ashanti.

The problem: These are two of the highest-cost producers of gold in the world, even analysts admits that at $1,300 an ounce "a sustained period of gold prices at that level will make life extremely difficult for the SA gold miners."

I've been asked what this drop in the price of gold means for people investing in gold miners, either directly or through exchange-traded funds such as the Market Vectors Gold Miners or the Market Vectors Junior Gold Miners.

The answer is, the drop in the price is important because it is now approaching levels where some gold miners could be losing money.

The average cost of gold production, according to Nomura (citing GFMS), is $1,150 an ounce in 2013. It's been going up because costs (labor, taxes) has been going up. Gold is trading at $1,390 an ounce today.

But there are tremendous extremes in costs for miners ... some, according to Macquerie, can produce for as little as $844 an ounce, while others are producing for as high as $1,900 an ounce. It depends on the country, the cost of labor, and the cost of acquiring the mine, and its operations.

Lower-cost producers include Yamana Gold, AuRico Gold, and Goldcorp. Higher-cost producers tend to be the smaller miners, including Kirkland, Elgin, Golden Star.

By CNBC's Bob Pisani

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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