The pre-markets have already gone from up 75 to down 75 between 7:30 and 8:00!
The Congressional Budget Office said the U.S. budget deficit for fiscal 2008 — $407 billion — will be more than double the deficit for 2007, hit by the wars and a weak economy, and predicted it is likely to rise further in fiscal 2009. "The figures make it challenging to avoid playing the dismal economist," said CBO director Peter Orszag in a statement. How dismal? Well, Warren Buffett has told his Kansas Bankers Surety Co., to notify about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds." This forces the banks to keep all accounts below the $100,000 FDIC limit ($250K for some retirement accounts).
The S&P is dropping FRE and FNM from it’s list at the close of today’s trading, replacing them with CRM and FAST, both of whom should get a pop off that announcement. Meanwhile, the EU is cutting their 2008 economic forecasts and we are waiting on LEH’s earnings report at 7:30 to see if their sell-off yesterday was as ridiculous as UAUA’s was on Monday (now blamed on "computer error").
On the brighter side, China’s exports are up 23.1% in August and inflation came down to an annualized 4.9% from 6.3% last month, a very quick turn and in-line with my premise that last month was a snap-shot of the worst possible data. The rapid decline of oil and other commodities is having a very immediate impact on the global economy – now we just have to get consumers to believe it! The headline in the WSJ is "OPEC Will Curtail Production" but they are not actually cutting production targets, just asking members to comply with existing production quotas. We’ll see if the WSJ and CNBC’s spin will win today. Oil is back around $103 pre-market, not too exciting. FDX is happy about oil prices and is raising guidance for the quarter and TXN also raised guidance slightly but they will have a very hard time moving the pathetic SOX.
Speaking of pathetic, now at 8 am LEH reported a $3.9Bn loss, far worse than estimated yesterday and 72% of their entire market cap. They slashed the quarterly dividend to .05 from .68 (why bother paying it at all?). I’m watching Bill Ackman on CNBC and I have to say he is not dancing on their graves – this is a very sad moment in our economy and not even the bears can be happy about the extent of the damage revealed in these numbers as LEH took mark-to-market losses of $7.8Bn in a single quarter.
Just the rumor of LEH sent the Hang Seng down 491 points this morning, leaving them at rest on 19,999, down from 32,000 last October. The Nikkei recovered from a 250-point gap down open to finish the day down 50 at 12,346, down 28% from the 7/5/07 high of 18,221. Europe cut the 2008 forecast for the EU and said both Germany and Spain will be in official recessions in Q3 &4. Overall EU growth for 2008 is now projected at 1.4%, down from 2% predicted in April and the Commission expects to cut 2009 forecasts as well when they are released in November. As with China, inflation hit 4% in July but pulled back to 3.8% in August. EU forecasts are based on the assumption of $114 average oil.
Now, at 9:15, the markets have turned back up, led by the Nasdaq at the moment. The way this market is going, this is certainly one Wednesday when I have no idea which way we will end up.
