What a morning already!
The futures were drifting along until 3 am and the Shanghai Composite had closed down 2.3% at 2,897. At 3:23 the Hang Seng was looking to close down as well but then Gordon Brown, the UK Prime Minister, on his way to the G20 meeting in Pittsburgh this week said:
The stimulus that we have still got to give the world economy is greater than the stimulus we have already had. What we want to do is safeguard a recovery from a recession we feared would develop into a depression… By meeting at Pittsburgh, we are looking at how we can put in place for the future the mechanism or path that can lead us to either making decisions about better ways of creating growth that is sustainable in the future, a better early warning system for the world economy about potential crises, a better way of resolving difficulties or imbalances around the world.. I have been talking to many countries in Asia as well as in Europe, and I have been talking to President Obama and others, and I believe that there is support for that framework.
WooEee! More free money!!! No sooner did the words come out of Mr. Brown's mouth than the Hang Seng began to climb, reversing a down day to finish up 228 points, right at the 21,700 line they have been struggling to hold since last Thursday. Gold flew up to $1,020 and oil jumped to $71 worthless-looking dollars and, as usual, once Asia closed, the dollar was free once again to drift down to 91 Yen (Japanese markets were closed today). But, despite his performance, Gordon Brown may not win today's Globey Award for blatant market manipulation.
Brown's performance was great – make a bold statement that indicates another $13Tn or more may be dumped on the Global economy and insinuate the the whole G20 is behind him before jumping on a plane, leaving the British tabloids (owned by Gang of 12 member Rupert Murdoch) to boost the market for 2 days in a row – BRILLIANT!
But, he does have serious competition this morning by not one, not two but THREE Gang of 12 members as UBS, GS and JPM triple teamed up and all issued reports saying "Russian stocks are poised to surge, extending an 88 percent rally this year, as the economy’s recovery spurs profits." "Earnings growth is set to be explosive,” wrote UBS’s Moscow-based economist Clemens Grafe, who predicted profits will exceed analysts’ estimates by about 30 percent as companies cut costs and revenues rebound. “The market rally is fundamentally justified. Some scope for multiples expansion still remains, given attractive valuations." In a supporting role, the IMF also issued a statement saying it expects Russia will see a “fairly rapid recovery."
Surely this can't be the same Russia that's making headlines this morning as their government is selling off assets to cover their budget deficit? The public deficit, the first since 1999, may reach 8.9 percent of gross domestic product, or about 3.4 trillion rubles ($112 billion) this year, the Finance Ministry said on Aug. 18.
Russia’s economy shrank a record 10.9 percent in the second quarter as industry floundered and companies struggled with slumping demand for the their products at home and abroad. Retail sales fell 9.8% in August and disposable income shrank. Overdue bank loans reached 5.5 percent of total lending in July, compared with 5 percent a month earlier, according to the central bank. Overdue corporate loans jumped to 5.3 percent in July from 4.8 percent in June. Well, at least they are in much better shape than we are in that regard…
This folks is news. Despite the cynicism, THESE STORIES are moving the markets today but if you look at Mr. Murdoch's Journal or watch CNBC you won't even know they happened because they don't fit the current story that our economy is recovering and doesn't need more stimulus. We won't say the nonsense was unexpected by us though – At 10:51 yesterday the combination of a low volume and holding our Tuesday levels led me to say to Members:
Note to all. If you are up 20% on a bearish position then you need to be satisfied with it and either lighten up or set stops. You can always get back in if we break through (in this case last Tuesday’s closing levels) but don’t assume the entire market will now turn on a dime and go down for days… Make sure you are balanced above all other things and knnow which bullish or bearish positions are your favorites – so you can press the right buttons as we get a better sense of direction.
We caught that just right as the market headed straight up from there and now the futures are testing last week's highs. And all it takes is a few kind words from the British Prime Minister and some emerging market cheerleading from the Gang of 12. This has given the emerging markets a positive move for the first time in 3 days as investors scramble to guess who the upgrade fairy will visit next. Of course it's a powerful thing to have the G20 (through Brown) promise Trillions of additional stimulus, which inflates commodities at the same time as the IBanks are upgrading commodity producing countries – not a train we want to stand in front of this morning. Later, on the other hand, we may want to get back into EDZ (Emerging market ultra-bear) as a nice hedge, just in case all this turns out to be BS…
EU markets got off to a rockin' start but haven't done much since and are drifting back down to about +1% with an hour to go before the US open. "Policy makers remain in a 'do-whatever-it-takes' mode to stimulate the economy and the financial markets, and we believe it is safe to say that the risk of sinking into a depression has been taken off the table," said Bob Doll of Black Rock – spreading the word for the Gang of 12 in Europe.
We wisely picked up long positions on CAT and VZ yesterday. This is the norm for us in early bargain-hunting mode as we're happy to buy more of quality stocks like those if the fall lower, plus we are hedged for 20% drops anyway so we're happy to add a few quality names. The only other play we made was shorting GLD and that will hurt this morning but we planned on rolling into a higher strike if gold rose and now, painful though it may be, we'll already have that opportunity this morning.
LOW did not have good things to say in their outlook this morning ahead of an analyst meeting and the CEO of French luxury-goods maker Hermes says he isn’t optimistic about the next six months because of a delayed economic recovery in Japan, their biggest market. “I’m not expecting to see the light of the tunnel before 2010,” Thomas said in a telephone interview yesterday from Milan, where he reopened a flagship store for the Paris-based company. The global financial crisis has a “good year to go, maybe more,” and he was “not optimistic at all” about the world economy, he added. “The Japanese economy is not good and we all feel it.” I guess he missed Gordon Brown's little pep talk this morning….
However, Hermes may know what they are talking about as the ICSC Chain Store Sales Data shows that sales fell 2% last week (ending Sept 19th), erasing all the gains of the past month and then 100% more (less) than that! Of course, no mention of this on CNBC or in the WSJ as it's not good news so nobody wants to hear it. Isn't it nice that you are protected from this nasty data by the people you turn to for investing information?
The Goldman Sachs sponsored ICSC index has been "surprisingly" more positive than the independent Johnson Redbook index all summer and has really helped to boost the retail sector despite the really poor actual numbers coming from the retailers themselves as statistics – even bogus ones – trump fundamentals in this market hands down. The Redbook sales are out as well and they are headlining a 0.3% rise over the first 3 weeks in August, which sounds good but that's because of back-to-school shopping and the seasonally adjusted number is -2.3% from last year, so a little worse than the GS-sponsored version of sales. Redbook said sales weakened in the latest week as back-to-school boosts faded. It noted discounters continue to perform well amid food and household-supply sales. In general, apparel remains weak as such chains and department stores saw "thin" traffic and "disappointing" volume.
We are waiting on the Richmond Fed at 10am and at 5pm we get the Consumer Confidence numbers from Disney/ABC (aw gee fellahs, I wonder what they'll say). The Fed begins their secret 2-day meeting at noon and they should be feeling good after telling our government to piss off when it was suggested by Congress, the President and Treasury that it would be a good idea to conduct a public review of the central bank's structure and governance. I mentioned this yesterday but it's good to keep in mind who's wearing the pants in this relationship…
Don't worry though, my favorite story of the morning is a happy one as the banks that we bailed out with Trillions of dollars of loans and guarantees are now going to return the favor and bail out the government!
Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks. The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune. Bankers and their lobbyists like the idea because it is more attractive than the alternatives: yet another across-the-board emergency assessment on them, or tapping an existing $100 billion credit line to the Treasury.
“Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help,” said Camden R. Fine, president of the Independent Community Bankers. “She’d do just about anything before going there.”
“Borrowing from healthy banks, instead of the Treasury, has the advantage of keeping this in the family,” said Karen M. Thomas, executive vice president of government relations at the Independent Community Bankers of America, a trade group representing about 5,000 banks. “It is much better for perceptions than having the fund borrow from somewhere else.”
Since January the F.D.I.C. has seized 94 failing banks, causing a rapid decline in the deposit insurance fund. Despite a special assessment imposed on banks a few months ago to keep the fund afloat, its cash balance now stands at about $10 billion, a third of its size at the start of the year. The fund, which stands behind $4.8 trillion in insured deposits, could be wiped out by the failure of a single large bank, although the deposit insurance corporation could always seek a taxpayer bailout by borrowing from the Treasury to stay afloat.
So you see – everything is just fine! The government goes $1.5Tn into debt and prints $2Tn in new money and takes on $8Tn in loan obligations and then the banks turn around and lend our government some of that newly printed money at a huge profit. CAPITALISM – how could Michael Moore not love it?
