Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

S&P Above 900 As Stock Markets Dismiss Stress Tests

Stock-Markets / Financial Markets 2009 May 07, 2009 - 04:59 AM GMT

By: PaddyPowerTrader

Stock-Markets

Best Financial Markets Analysis ArticleAnother day and another 100 points (plus) rise for the Dow, easy isn’t it? The U.S. Government could not have choreographed this better, for the market is now surely inured to the drip-feed of stress test leaks that presumably put the bad news up front. If the stress tests are to be successful, they need to be credible, and they need to impart a message that the financial sector’s capital demands are manageable. On the latter, the aggregate sum looks easily to be within the bounds of the deep pockets of Uncle Sam, and thankfully so, for if we were dependent on private capital it would be a very different proposition.


This is my running tally of capital needs of the U.S. banks participating in the stress tests:

  • Bank of America - $35bn
  • Wells Fargo - $15bn
  • GMAC - $11.5bn
  • Citigroup - $10bn
  • Goldman Sachs - $0
  • Morgan Stanley - $0
  • American Express - $0
  • JP Morgan - $0
  • Bank of New York - $0
  • Metlife - $0

An overriding concern many have about the stress tests, is that they needed to be credible: a realistic assessment of the state of bank balance sheets. The results aren’t that surprising but the question remains if the numbers being reported will convince the market that the tests were credible?

Today’s Market Moving Stories

  • Japanese banks soared overnight as Mitsubishi UFJ Financial revised its forecast of a loss in the previous financial year turned out better than expected.
  • The US Monster index improved to 120 from 118 in April confirming evidence in other proxy measures that this Friday’s nonfarm payrolls is unlikely to be as weak as initially forecast. The Obama administration said it will trim $17bn from the full year 2010 budget.
  • The FT reports that the IMF may have got its sums wrong when calculating debt ratios for Eastern European countries - this is potentially very positive for Emerging Markets. Has been getting a good bit of attention this morning.
  • In contrast Société Générale are under pressure this morning after posting an unexpected loss of €278m after writedowns associated with US monoline bond insurers and higher provisions for loans.
  • One of the “Big Three” Irish dairy processors – Dairygold – reported a collapse in pre-tax profits from €15.9m to €1.3m in 2008 and warns that tough market conditions in 2009 will make it an even more challenging year. Reflecting the problems already highlighted by Glanbia, Dairygold is suffering from a mis-match between market returns and the price paid for raw milk to farmers.
  • “New Prosperity, the New Bull Market Magazine” celebrates the recovery of the U.S. economy and the return of the 26-year Bull market after an annoying 7-month long recession and Bear market.
  • El Pollo Loco has accused KFC executives of ‘pathetic’ prank calling. I’m sure it seemed like a good idea at the time but these things have a habit of back firing.

e-CON-omy
The uniformity of the ‘sucker’s rally’ consensus is beginning to fragment. Believers in a new bull market driven by economic recovery are starting to emerge. Could this be a sign that the bear market rally is successfully completing its unpleasant task of sucking everyone in? The good news is that markets outside of the US remain distinctly undervalued. However, the US is already back to fair value.

Bill Hester of Hussman Funds has done some intriguing work on the nature of bear market bottoms. He observes that bear market lows are not generally the result of rapid plunges followed by rapid recoveries. Instead, they are usually characterized by relatively moderate declines and matching recoveries as investors have generally given up hope. Hester also argues that sustainable recoveries are usually accompanied by increasing volume (as opposed to the current contracting volume).

So how does an investor protect oneself against the idea that this is a suckers rally? Société Générale recommend construction of a portfolio of stocks to short that are overvalued, have poor fundamentals, poor capital discipline and dodgy accounting. They select such names as Anheuser-Busch InBev (mind you there stock is up 7% today), Ericsson, Cairn Energy, and Staples.

All Eyes On Frankfurt
We are often at our most vulnerable when the tension suddenly drops. There is a similar risk for the world economy as Q2 unfolds. Signs of recovery are becoming more widespread and convincing, bringing comfort to investors, households and policymakers after long months of stress and oppressive depression. The positive reaction of market players and, to some extent, consumers is an extremely welcome development that could accelerate the recovery. Policymakers, however, must not let their guard down. The “green shoots” suggest policy efforts are working - they should be sustained and intensified, as the recovery is still extremely fragile and uncertain.

Against this background, the ECB faces its own stress test today. Under a self-imposed deadline, it will have to decide whether a move to direct asset purchases is warranted. The recent stronger data have increased the risk that the bank will settle for a more prudent approach, not going beyond a 25bp cut in rates and an extension of liquidity operations to twelve months. This would be a mistake. With growth set to contract sharply this year and stagnate next year, the output gap is widening rapidly, and risks of deflation outweigh any risks of inflation at this stage. The war against the financial and economic crisis is not won yet.

Data Ahead Today
At 11:00 German factory orders for March are released. After steep falls in recent months, orders should be up by 1.5%, the first rise since August.

The Bank of England has an interest rate decision at noon. With the initial phase of Quantitative Easing drawing to a close, the MPC should commit to further asset purchases of around £25bn. This is the first MPC meeting after the Budget, but self-interest is likely to temper any criticism of fiscal policy: Quantitative Easing is designed to lower borrowing costs and BoE warnings about ballooning Gilt supply would risk pushing yields higher still.

Later at 12:45, the ECB are up with their interest rate decision. Signs of stabilisation are no reason for inaction and rhetoric suggests that a 25bp cut in the rate to 1% is a safe bet. Cacophonic communication on unconventional measures reflects Trichet’s managerial style and the ECB should hint that rates should remain steady over the coming months. The maturity of longer-term refinancing operations should be extended and a private debt purchase programme should be announced. If the ECB only announces longer-term refinancing to banks, the chances of moving into Quantitative Easing could diminish significantly.

In the U.S., Q1 non-farm productivity is out at 13:30. Productivity should be up by 0.6% as job losses overtake the decline in activity. Then at 20:00, U.S. consumer credit numbers are due. Credit should drop $4bn. Total debt probably needs to fall by $3-4tr to bring debt-to-household income levels back into line with history. The bulk of this can be accomplished in three years.

And Finally… Goin’ to the C.P.A. (The Tax Song)


Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

© 2009 Copyright PaddyPowerTrader - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

PaddyPowerTrader Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules