Happy Valentine's Day everybody!
This is the 79th anniversary of the St. Valentine's Day Massacre when Al Capone's "South Side" gang, dressed as cops, rousted a garage run by Bugs Moran's "North Side" gang and had them stand against the wall and then executed all 7 men. They shot them 70 times with machine guns and made their escape by using the Capone men dressed as cops to "arrest" the other Capone men and drive them away from the scene in broad daylight.
Today, the Bush gang (known as "The Gang That Couldn't Talk Straight") faces off against the Senate Banking Committee (known as "The Gang That Allowed This Whole Mess To Happen And Are Looking To Blame Someone Else") this morning on Capitol Hill. If we get a gunfight at high noon, we can expect blood on the Street but if we get an uncharacteristic love-fest, with everyone congratulating everyone else on what fine Americans they are and how hard they are all working to steer this country through this difficult period (which they caused), then I imagine we could get a strong relief rally into the weekend.
It will be much better for us if the Senate does ask the tough questions and airs out the issues as the market needs to make a "trial by fire" so we can make sure we have real buyers out there who are aware of the issues but remain bullish, rather than our typical bunch of manic-depressive trend jumpers. Barry Ritholtz made the depressing point this morning that, if you strip out inflation, retail sales are clearly down and, even with inflation boost, the majority of our gains are coming from the sale of gasoline. Spending more money on the same gas you used to make the same trip you made for 70% less money 3 years ago is NOT a sign of a healthy economy. This isn't the case of the devil being in the details, the devil is right there in the big picture!
Energy costs are my big picture concern for the global economy but the rest of the world seems to be taking it in stride and a slowdown in the US that cuts our piggish demand (we are 5% of the world's population using 25% of the world's fuel) and keeps prices down is a total boom for the rest of the world. This will effectively force the US to get their energy conservation efforts in gear or we will find ourselves unable to compete as the average person in Europe, where they have a fleet average of 35 mpg, can go 75% further than the average American (fleet average 20 mpg) on the same tank of gas. You can be the most productive worker in the world but if you and a European both have to drive 100 miles to work and you each have $10 – you're not even going to make it to the door!
Gas lines in China make having a high-mileage vehicle a convenience (less annoying fuel stops) and other countries tax fuel to keep and maintain high mileage standards to keep consumers motivated to conserve. The same US companies that lobby to defeat measures to raise fuel efficiency here so they can keep dumping profitable gas guzzlers on our market have no trouble complying with 35 mpg new car standards that have been in place in the rest of the civilized world for years.
Asian markets, where they know how to build fuel-efficient cars, had a great day today with Japan jumping 4.3% as their economy grew at a very surprising 3.7% annualized pace in Q4, way up from 1.3% in Q3. Exports are up 2.9% and household consumption is finally turning up, a very big deal with spendthrift Japanese consumers. Love was in the air in Hong Kong, who gained 852 points this morning, finishing nicely just over the 24,000 mark.
Europe is loving it too as the markets there are up half a point ahead of our open EVEN THOUGH UBS reported $13.7Bn in subprime losses and warned that it wasn't expecting things to get better anytime soon. "That's what you get for doing business with Americans" is the new European attitude as they are beginning to shrug off these losses and treating it like a big mistake that they are putting behind them.
Like we have here, there were plenty of good earnings reports in Europe outside the financial industry so it seems the whole world may escape this mess with the only lasting damage being and even lower degree of confidence in bankers than we had before (if possible after the first S&L crisis).
We'll have wait and see how the market spins today's Senate Testimony but we had a nice rally after Clemens was there yesterday so we'll see if Bernanke and Paulson can put on a Cy Young performance today! Our deficit was down a bit and that's always nice but I'm not expecting much movement until we get past the testimony so stay tuned for the fun. The bond insurers are also testifying today so that's two tracks we need to keep tabs on.
Let's be careful out there.
