Asia was flat as the BOJ finally said they will, in fact, cancel their zero-interest rate policy “before the end of the summer.” It remains to be seen how devastating this will be to the global economy but the scale goes from bad to total economic meltdown – there is not even a spot for good as a possible outcome. The only rainbow I can see is that this move, like our own Fed, has been anticipated to the point where it may already be baked into the market prices and could even explain the global correction we’ve been having.
Europe is not taking the news well and is off about a point. Sentiment is so bad over there that AHO sold off this morning after reporting a Q1 profit increase of 76%, 15% ahead of estimates.
Sentiment is so negative on the semis that PHG should get a huge bump today on news that they are selling off their semi-conductor division!
If we are going to have a turn, today would almost have to be the day as further deterioration could lead to total capitulation by the bulls. Another day from the Dow that ends below 10,900 will certainly lead to another test of 10,700 in short order. The S&P is also more likely to test 1.220 again than it is to retake 1,260 and the Nasdaq could literally gain 50 points in one day and still be considered a lost cause.
FDX had great earnings but left guidance flat but flat is up 25% from last year so anything less than $112 today will be a major disappointment and yet another sign that there is no way to win in this market.
It’s oil inventory day and the reaction of the oil sector will probably set the tone for the markets after 10:30. I pointed out over the weekend how ethanol is actually adding .25 per gallon to the price of gas but it is now up to $5.75 per gallon, a 15% increase in just 2 days! That is the wholesale price!!! The wholesale price of gasoline is $1.94 a gallon, pre-tax, pre-mandatory ethanol blend – plus we subsidize the ethanol with our taxes so about .50 per gallon can now be blamed on idiotic policy makers.
The ethanol market is so out of control right now that you can buy it in Iowa (where there is a lack of available transport) for about $4 a gallon and load up an 8,500 gallon transport truck and sell it in New York (where there is a lack of supply) that night for $5.50, a $13,000 profit (less about $500 for gas)! The whole ethanol supply/demand picture is total chaos and will probably continue that way through the summer. Expect an accident soon as inexperienced drivers jump on this opportunity.
Bush is in Europe talking to global leaders and that usually pumps up the price of gold as it terrifies the Europeans whenever he is allowed to speak off the cuff. Any downward movement in gold today will spell big trouble for that sector.
With Iran and Korea on the agenda there should be plenty to worry about but we can also expect charges of human rights violations to be levied against —— US, for Guantanamo Bay! The Europeans are fed up with it and intend to call us to task but you won’t hear about it in the mainstream news unless it is allowed to blow up into something big (which won’t surprise me).
Airbus is really falling apart as the A380 is turning into a real disaster for the company. This was my premise for buying BA back in the fall and it’s turning out much worse than I thought for Airbus.
======================================
Another day to watch from the sidelines:
Monday’s pick MS also had very nice earnings, more than double last year’s and should put the $55s firmly in the money. Unless the whole market is responding I would take advantage of the morning run-up to take them off the table.
MOT got an MER upgrade so we will have to see what the response is today. The $20s are .70 (down 20%).
I will be watching AAPL, TXN and GE today to get a sense of direction but staying out until the S&P crosses 1,260 and, even then, very very careful!
