Testy Tuesday Morning

What a fantastic week we had!  Or did we?

I was pulling out the Big Chart to do some updates and I was pretty surprised to see how poorly we have performed since last Wednesday morning, after the Fed goosed the markets with a $200Bn interest rate giveaway in exchange for nothing more than then integrity of our currency:

Whatwhatwhat?  Is that it?  I bet you thought we were doing better than that didn’t you?  That’s why I stopped doing daily charts, they are just a lot of noise but look what a great perspective we get after a week.  Well, one day less than a week, but what we see across the board is a drastic slowdown IN EVERY SINGLE INDEX COVERED and even some clear reversals in momentum in the US and European markets.

The prior week had given us TREMENDOUS gains in virtually every index, except the SOX which I warned at the time would be a harbinger of doom if it didn’t catch up.  The Dow had gained 612 points, the Transports 112, S&P 68, Nasdaq 92, SOX 3, Russell (another danger zone) 37, Hang Seng 1,602, Nikkei 504, BSE 780, DAX 257, CAC 225, FTSE 198.  The huge loss of momentum in Asia and the reversals in Europe are very telling as those indices reflect action AFTER the fed raised rates as they were closed by the time we got our boost last Tuesday.

So the rest of the world was very non-plussed by Bernanke’s power move just as GM workers were non-plussed about the company investing Billions to build overseas plants while shutting down plants in the US and simultaneously asking the UAW to make additional concessions so they could shut down more US plants and pay phenomenal bonuses to the management.  If this blog were properly indexed I would go back and find my ancient rants where I predicted labor uprisings as the disparity between rich and poor in this country expands to record levels but I didn’t expect it to get so bad that we’d already have our first national labor strike in decades.

Do the bulls really think that China and India and Indonesia and North Korea can all grow their economy at a 10% rate at no one else’s expense?  When is the last time someone has even mentioned global competition?  While I’m a great advocate of the global economy and all the great things that come from it, even within our own country jobs move from one city to another and from one industry to another – why are we so shocked when it happens on a global scale?  Despite the long-term benefits of reallocating resources (including labor) an a global scale, it’s pretty damn painful to the human resources that are being reallocated.

That pain is exacerbated when we close our boarder to foreign investment (Dubai port scandal) and to foreign labor resources (immigrants) both of which were the engines of growth that made America great and are responsible for making China great today.  While China does not have a lot of outside immigration, they do have 1Bn farmers who are immigrating to the cities, providing them with an endless source of cheap, available manpower to populate any capital investment they choose to make.  It’s like America in the 1900’s on crack!

Asia had mixed results last night with Japan coming back from a Monday holiday to catch up 89 points against the Hang Seng’s 700-point Monday but the Hang Seng dropped 121 points, continuing to top out at the 26,600 level.  Commodity prices led the rally over in the Nikkei while the financials sold off as Japan confirmed Yasuo Fukuda, who favors a stronger Yen, as Prime Minister.  This is certain to worry the carry traders as Fukuda said he would "thoroughly deal with problems that resulted in areas such as pensions, elderly care, rural communities and smaller companies."

Europe is way down today with markets trading off 1% so far and I AM AMAZED that Mr. Murdoch’s Wall Street Journal could completely fail to mention something that headlined in Bloomberg – the fact that the British Pound sold off on concerns that THERE IS NOT ENOUGH MONEY IN ENGLAND TO PROTECT DEPOSITS.  How much is not enough?  Try $9 Million (yes, Million – not a typo) in what is aptly called the UK’s "Financial Services Compensation Scheme" vs. the equally unimpressive but impressive by comparison $49Bn set aside by our own FDIC.

The International Monetary Fund said yesterday global economic instability as a result of credit-market turmoil in the U.S. is “likely to be protracted.” Five months ago, the IMF said there was little chance of a “major dislocation.”  A decline in the financial industry, which accounts for 10 percent of Britain’s gross domestic product, may slow the U.K.’s economic expansion. Growth may decelerate to 2.2 percent next year, the Confederation of British Industry said Sept. 20, cutting its prediction from 2.4 percent.

LOW gave us some bad news last night and TGT followed up this morning, also lowering guidance so we’ve got a big wall of retail worry to overcome today.  HD trades with LOW and HD is a Dow component so that’s where today is going to go.  LEN also had DREADFUL earnings, writing off what amounts to 10% of their market cap, taking an $847.5 million charge "related to valuation adjustments and write-offs of option deposits."

"It is already well documented that the housing market has continued to deteriorate throughout our third quarter.  Heavy discounting by builders, and now the existing home market as well, has continued to drive pricing downward," said CEO Miller. "Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself, creating higher cancellation rates."

There’s some major data coming out today including Existing Home Sales at 10 am along with Consumer Confidence, both of which are more likely to push us down than up.  Anything below a 5.6M pace on home sales will be a major disappointment while it would be amazing if Consumer confidence hold’s last month’s very suspicious 105 level.

We really don’t want to see the S&P or the SOX fail our comfort zone levels of 1,505 and 490.  A failure by one of the other indices on the Big Chart would be catastrophic so let’s just hope it doesn’t come to that but there’s plenty to worry about and not enough to celebrate so far this week.

Oops, more bad news just in:  The S&P/Case-Shiller Home Price Index fell to -3.9% in July, officially giving us the worst 12-month decline since 1991.  “Declining home prices are largely a function of the huge imbalance in the housing market,” said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, before the report. “Home prices are likely to continue to decline probably through the end of next year and that rate will actually accelerate.”

This is not good people!

Hey this will be fun to watch!  Let’s see how a political candidate becomes corrupted by big oil as he seeks election.  Our class case study will be Rudy Giuliani who is holding (but not attending) a fund-raising event in Kazakhstan, where his law firm does a lot of business already, so his staff can suck up to that country’s thriving energy industry.  Rudy already leads all candidates in reported contributions from oil and gas interests.

According to the WSJ: "After leaving office as mayor of New York in early 2002, Mr. Giuliani went into various businesses, and, among other things, became a partner in a Houston-based law firm that changed its name to Bracewell & Giuliani LLP. The firm has long done a lot of work in the oil business, in the U.S. and abroad. Since 1997, Bracewell has had an office in Kazakhstan, a Central Asian country that controls oil deposits in the Caspian Sea.

"Mr. Giuliani’s partnership agreement guarantees him a minimum income of $1 million a year from the law firm. His firm’s close ties to Kazakhstan, meanwhile, have generated some controversy, because the country’s president, Nursultan Nazarbayev, has been accused of antidemocratic practices. Questions have also been raised by U.S. prosecutors and good-government groups about whether Mr. Nazarbayev has taken kickbacks related to oil-industry deals. Mr. Nazarbayev has denied such allegations."

You know, it’s not the fact that politicians can be bought that surprises me, it’s HOW CHEAPLY THEY CAN BE BOUGHT – that really scares me!