The Mole says he mainly trades currencies but, as the markets are so closely related, he keeps a close eye on stocks and Oil too.
Does The Stock Market Rally Have Legs?
Equities finished up on Friday for the fourth straight session as sentiment about the ailing US financial sector improved. But the big question remains does this equity bounce have legs? Sure the moves are chart-friendly but investors remain dubious. Since January it’s largely been the case of one step forward and the two quick steps back. For example Deutsche Banks respected equity team released a downward revision to their outlook for US corporate earnings which they now see declining some 24.5% in 2009. Their outlook for underlying S&P 500 EPS has been accordingly marked down from $72.5 to $58.3.
Today’s Markey Moving Stories
The outcome of the OPEC meeting came as a surprise with officials surprisingly leaving output unchanged in contrast to expectations of a small cut. OPEC officials agreed instead to follow strict adherence to output targets previously announced. The decision resulted in a sharp drop in oil prices, and pressure could be sustained over the near term. The ultimate aim appears to be to avoid pushing prices up too rapidly in order to avoid further demand destruction. The outcome was relatively good news for oil consumers and highlights a less aggressive shift in the aim of getting prices back up to the $70-$80 range desired by many OPEC members. OPEC will meet again in May in order to determine policy in case prices drop more than anticipated.- Ben Bernanke says the end is near and the US economy is set to recover in 2010 with the biggest risk being shortage of “political will”. So that’s all right then given how spot on his crystal ball gazing has been over the last two years plus! Watch him on CBS 60 minutes.
- So now we have the names of the counterparties for AIG and it shows that the US taxpayer has possibly prevented the bankruptcy of Deutsche Bank, Société Générale and Barclays by bailing out AIG. AIG paid out $22.4bn to meet obligations under credit default swaps, $27.1bn to help cancel swaps and another $43.7bn to satisfy the obligations of its securities lending operation. European banks used CDS for regulatory relief (another term for legal cheating). Specifically they used AIG’s credit insurance to stop having to hold capital against their long-term securities holdings. What is clear from this debacle is that none of the world’s largest banks and investment banks are solvent without government help. And it shows that credit default swaps are probably the largest taxpayer fraud in history.
- Much weekend speculation and a short press statement this morning confirming that Barclays is in talks to dispose of its iShares business. Rationale is simply that Barclays needs capital. Barclays also slipped in that it has had a strong start to 2009. Vague but this will gee up the stock price. It should also draw the eye away from the other weekend news of whether Barclays had underpaid corporation tax. Clever PR as usual. The stock was up 11% plus at the open.
- Strong moves by financial stocks on the Asian bourse overnight after news that the Bank of Japan is considering purchasing subordinated debt issued by banks.
- Foreign investment in China fell 16% yoy in February, the fifth consecutive decline.
- China’s Citic Securities to set up M&A venture with US investment bank Evercore that will make direct investments and advise clients on both sides of the Pacific.
- Don’t tell the children – layoffs on Sesame Street.
The G20: Divided We Stand
Much ado about nothing – just a bunch of Statesmen like stooges talking globally but acting locally. The G20 meeting failed dismally to produce agreement on anything that will make any difference. I have highlighted before that the hope of a unified plan emerging from the G20 meeting was receding rapidly in the face of a split in opinion between the US and the Eurozone. At the heart of the dispute lies the issue of the need for another global fiscal stimulus plan, an idea promoted by the US. The response from the Eurozone to these calls has been unambiguously frosty. This appears driven by entirely understandable concerns about the potential scale of the spending and is a measure of their continued commitment to defending the underlying principals behind the monetary union.
It was imperative that some progress was made on the topic of increased funding for the IMF, something that Eurozone finance ministers have been keen on promoting in the face of the developing problems in Eastern Europe. However, if increased funding was to be forthcoming from reserve rich nations such as China then the quid pro quo would have to be an increased role for these nations within the Fund. This appears to be pretty much how events played out. The Daily Telegraph said that the agreement reached could mean more than doubling the fund, potentially increasing it threefold to up to $750 Bn. In return the ministers agreed that “emerging and developing economies, including the poorest, should have greater voice and representation.” In short, China and other emerging market economies will gain greater influence over the IMF’s activities.
Potential Market Movers Stateside This Week
In the week ahead, investors will watch for any new methods the Federal Open Market Committee may use to bolster the weak economy. With the Fed Funds Rate target already near zero, analysts are expecting that the Fed will hold rates steady at the end of the two-day meeting on Wednesday. Both analysts and investors will be looking for signs of any other measures the Fed might take to loosen credit markets, such as buying up long-term US Treasuries to keep long term rates anchored and encourage refinancing.
Investors will also be looking for more comments next week from regulators on mark-to-market accounting. Some on Wall Street have called for the accounting rule, which requires assets to be valued at current market prices, to be suspended or modified as it would destroy banks’ balance sheets by forcing them to write their assets down to fire-sale prices. The top US accounting rulemaker, the US Financial Accounting Standards Board, will discuss mark-to-market guidance at its board meeting. A modification of the mark-to-market accounting rule could drive a rally in banks’ stocks, which have been hammered by worries over the deteriorating prices of their assets.
The possibility of reinstating the uptick rule, designed to slow the pace of short selling, will also be on the radar after Rep. Barney Frank said he is hopeful the SEC will bring back the rule within a month. The rule, which allowed a stock to be sold short only when the last sale price was higher than the previous one, was repealed by the SEC in 2007. Frank’s comments last Tuesday helped extend the market’s rally.
Data Today
February US industrial production is out at 13:00 GMT. Production should slide by about 1.1% as firms continue to realign inventories with weaker demand. US NAHB survey is released at 17:00 GMT. Despite things being grim, the good news is that things aren’t getting worse in housing with the index likely to tick back to 9.
Disclosures = None
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March 16th, 2009 at 2:57 pm
Looks to me like a good time to be shorting some of the Banks though I take your info about the “up-tick” rule and “mark-to-market” accounting changes. I belive it’s partly baked into prices for now. I’d say go in light with maybe half your intended line of stock. If the view is confirmed short some more. There could be rotation into the energies this week and/or the market may take a breather and go sideways to down. With the financials having done so well last week perhaps they would be vulnerable. I see the US markets are up now and the news is that Barclays is selling it’s Ishares unit. I have put my toe in and shorted BARC at £0.88. If we have a down day and the US futures look bad and it falls below £0.85p I’ll think about adding to the short. I’d stop out at £0.95 if I was wrong.
Thanks for the analysis,
Gary
March 18th, 2009 at 5:41 pm
President Barack Obama
Office of the President
C/o the American Embassy
24 Grosvenor SQ
London W1A 1AE
12 February 2009
Urgent and Confidential
Mr President,
Please accept our Ras Tafari greetings and best wishes, in the name of His Imperial Majesty Emperor Haile Selassie I. King of Kings. Lord of Lords. Conquering Lion of Judah . Defender of the Faith. Father of African Unity. Ras Tafari.
Please refer to our previous correspondence, concerning the G20 meeting this April in London, and to update your office of the planning objectives, unless changing circumstances cause you to abort the planned meeting in April, it is of the utmost urgency that you do not leave London empty handed and unable to agree a correct policy to impact upon the global economic events, and to plug the dangers of a whirlpool effect should one or more of the G20 economies become victim like the banks in London and America of the failed enforcement system leading to the ongoing convulsions started in London and America affecting the global economic community and the reason for this G20 meeting.
Measures must also be agreed to protect the smaller economies who are more vulnerable to failed economic systems exposing again the unacceptable face of capital only based systems who quickly become victims of predators from within.
T combat this present crisis before your meeting in April, we recommend you cause to be audited the resources of the World Bank, I.M.F., and E.C.B, and to establish the strength of the economies untainted by deliberate action. Through agreed procedures we wish to establish early warning of any major economy in need of supportive action, we do not support the “Bail out” policy current for the London and American Banks, as a way forward for national economies, you are able to measure the public distaste even among elected representatives of your own Country for that policy.
In the absence of any agreement from the policy coordinators and G20 secretariat, we submit direct and sustained Government supervision of the financial sector, within and without the G20 area be considered as an agreed way forward, this policy can be applied to others sectors in isolation or as required, that a strengthened global enforcement regime under the authority of the Secretary General of the United Nations be authorised to conduct an effective audit of all the U.N. economies and to apply new standards and enforcement procedures to the same.
The complicity of the host, who would normally Chair such a meeting gives us cause for concern, as national self interest is not in order, a joint or independent chairman is recommended.
That you do not leave London completely empty handed, our spiritual and cultural policy objective is that you will be presented with digital copies of six of the Ecclesiastical manuscripts from the Royal Library as an act of faith, Her Majesty the Queen will receive you at Buckingham Palace, that your leadership be fortified by faith, hope and confidence during these changing and testing times.
A copy of this correspondence will be forwarded to all G20 members, World Bank, I.M.F., E.C.B. and European Union attending the meeting.
And so, Mr President, assuring you, your officers and your peoples of America of our highest consideration we recommend you to the protection of the Almighty.
I am Ras Seymour Mclean