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
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Markets Grind Higher on More Upside “Surprises”

Stock-Markets / Financial Markets 2009 Jul 20, 2009 - 05:04 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleIt was a busy week for the bulls, who where urged on by almost obscene results from Goldman Sach’s. There was also what were perceived as respectable numbers from JP Morgan, BoA & Citi. Risk appetite returned last week, lifting stocks by 7% to their highest point in a month.

With the economic news relatively light this week, the big focus will be on earnings with some 28% of the S&P 500 slated to report, including 10 heavyweight Dow components (3M, American Express, AT&T, Boeing, Cat, Coke, Dupont, Merck, Microsoft, and Pfizer). Financials reporting this week include Morgan Stanley and Wells Fargo report. Other bellwether of the US economy and household names to watch out include Apple and Coca-Cola (Tues), Pfizer (Weds), and McDonalds.

With earnings expectation massaged to an easy-to-beat level, expect more of the “better than expected” results headlines. So, with the economy so weak, how are these companies “beating” analysts estimates? Well, two ways. Firstly, stock analysts are in the main about as smart as rating agencies, only duller and as far behind the curve, and secondly, by slashing costs. The hard bit comes next as one can only shave, squeeze and sweat the assets so far. This is not organic earnings growth

Today’s Market Moving Stories

  • The US National Association of Business Economists (NABE) reported its members expected the economy to stabilise over the second half of the year. However, it warned that members didn’t think that would extend to
    full blown recovery, and in fact job cuts were likely to continue for the remainder of the year. Industry demand was still negative, but the NABE said its index was up 9 points from the lows to -5.

    US regulators closed two banks taking the number of fails to 57 for the year.

  • The UK’s Rightmove reported house prices rose 0.6% mom in the month through mid-July, which put the yoy loss at 3.1%. That was the lowest annual decline in a year, and compared with -5.5% yoy in June. Rightmove noted that chain lengths are increasing, which indicated that the property market mechanics were beginning to work again. It said that showed up in mortgage approval and transaction numbers. Still, it said that lenders are nowhere near back to the kind of credit availability they once offered, while the market is in reality recovering from a total freeze. In that context then, the upturn is only slight.
  • Fed Chairman Ben Bernanke will take centre stage this week when he presents his semi-annual update on monetary policy and the economy to Congress. The markets will be looking for signs that the Fed might expand its quantitative easing programmes. However, the minutes from the last FOMC meeting suggest that the Fed is reluctant to do so.
  • Despite their spreadsheet woes, there was some good news for C&C in the latest Nielsen GB on-trade data for April and May, which showed improving trends for Magners. Magners volumes’ share of the on-trade cider market rose to 15.1% in May compared to 13.9% in April and March. Magners on-trade market share had been in steady decline since early 2007. Magners Pear reached 12% weighted distribution in May. This is a good number given that the brand was only launched in late March.

The View From The USA
US commercial lender CIT managed to get itself a rescue package over the weekend, providing it with the ability to roll its upcoming debt requirements. Its bond holders will provide $3 bln over 2-1/2 years, with the financing backed by CIT’s remaining unsecured assets (reported at $10 bln). CIT has around $40 bln of long term debt, with $1.1 bln due in August and then another $2.5 bln by the end of the year. By the spring of 2010 it will have total financing requirements of $10 bln. CIT is not a mega-bank, so its potential failure wasn’t a financial system risk in the same way Lehman was or Citi could have been. However, with a million loans out there with a huge chunk of that to the transport and retail sectors, CIT represented a massive economic risks. Many of its customers are in sectors that are at the forefront of recession and hence would struggle to receive financing from elsewhere. Pulling the plug on their loans would have had much greater consequences. It’s worth noting however that the approach of bankruptcy of CIT placed the firm and the economy at greater threat – many of CIT’s borrowers drew down whatever credit they still had available to them for fear of losing a lifeline. That puts CIT far more vulnerable to any further economic setbacks.

German Bank Crash Ahead?

While CIT may have achieved a reprieve, all remains uncertain at Germany’s Hypo Real Estate, which admits that even EUR10 bln might be insufficient to keep it afloat. In an interview with Germany’s Welt am Sonntag, Michael Endres, the head of HRE’s board said the bank ‘clearly has a solvency problem’. He said the bank had, in the past, expanded too quickly in foreign markets and especially into the US mortgage market. The newspaper noted that a leaked memo from Bafin suggested HRE was carrying problem assets of $268 bln.

This is a cracking story if true. German paper Sueedeutsche Zeitung reports this morning that the German government realises that its current bank rescue strategy is not working, and is considering to nationalise parts of the country’s banking sector by force. The change of mind appears to reflect acute fears by finance minister Peer Steinbruck in particular of a credit crunch to coincide with the general election. Germany’s bad bank scheme, which is essentially cost-free, stands no chance of increasing credit flows, the report says, so Germany is increasingly looking at the US and the UK of ways to make banks increase credit. The banks would receive new capital, whether they want it or not, in return for a government stake in those banks, which would allow the governments to influence banking policy.

Although earnings from IBM, Intel & Goldman’s caught the bulls’ eyes last week, the rest of the earnings were far less impressive, though. Friday’s news in particular looked unimpressive, though they had little impact on global equity indices. GE revenue fell 17%. Profit from continuing operations declined 47%. Equipment orders dropped more than 40%. Citigroup switched to a profit on the Smith Barney gain but reported a large negative impact from rising consumer loan losses and write-downs of the valuation of its debt. Bank of America profits were down 5.5% on continued credit woes too. BB&T profits plunged 52%. I note an interesting and sobering article in Barron’s Online this morning: “You Call This a Recovery? Not So Fast.” The article expands on the notion of results being achieved through lower costs and reports that, “there is simply no evidence yet that enterprise tech spending is picking up.”

European Movements
European stocks are looking perky this morning buoyed by Asian market (the Hang Seng was up 2.4% overnight). Early movers include mining stocks Rio Tinto, BHP Billiton & Xstrata as copper rallied to a nine month high and banking stocks such as Lloyds (which according to weekend press report might actually post a “profit” for 2009). Der Spiegel is reporting that VW is planning to buy all of Porsches sports car division. Oil companies could also get a lift from crude back above $64 barrel and news that Chinese refiners have boosted processing to a 16 month high. According to UBS and Guggenheim Partners, valuations in the oil sector are at 14 years lows.

Irish Interests Flying Low
On Friday (July 17th), Liam Carroll (Zoe developments etc)– one of the Ireland largest property developers – approached the High Court for court protection for six companies with combined debts of €1.2bn. The court heard that, if liquidated, the companies would have a deficit of €900m, which would imply a 75% write-down on the loans. The move by the developer to seek protection is a result of pressure from ACC bank, which is owed €131m. ACC, which is owned by its Dutch parent (Rabobank) has been taking a more aggressive tone with developers, while domestic Irish banks are believed to be awaiting the outcome of NAMA. However, the movement now for court protection threatens this NAMA process. Bank of Ireland is owed €489m, and it is owed €113m by the developer. In related news according to the Sunday Tribune, NAMA wants to apply haircuts (discounts) of 25-33% on the most impaired loans it will inherit from the banks.

The market seems to have taken the appointment of new Aer Lingus CEP Christoph Mueller well. He has an impressive CV with the kind of restructuring / M&A experience from his time at TUO Travel where he made his name

Economic recovery in UK ‘on hold’
The UK economy is set to shrink by 4.5% in this year, the biggest fall in a single year since 1945, according to an influential think-tank. The downbeat forecast is more pessimistic than the consensus view, and considerably worse than the 3.5% fall predicted by the government. The Ernst & Young Item Club also warned that hopes of economic recovery are “running ahead of reality”. It does, however, predict a return to modest growth of 0.5% in 2010.

‘Chance of relapse’
“Unfortunately, it is hard to see any very solid grounds for sustained optimism at the moment,” said Professor Peter Spencer, chief economic adviser to Item. It remains unclear how quick and complete recovery will be, and there is still a serious chance of relapse Professor Peter Spencer, Ernst & Young Item Club. “The economic patient has been in trauma, but thanks to the paramedics at the Treasury and the Bank of England who pumped billions of pounds worth of medicine into the economy, the patient has stabilised for now,”
he added. But any recovery could be short lived, he warned. “It remains unclear how quick and complete recovery will be, and there is still a serious chance of relapse.” Indeed some analysts believe that, despite hopes the worst of the downturn may be behind us, there could be a so-called “double dip” recession, where the economy stabilises before contracting again. The only “ray of hope”, said the Item Club, is a recovery in world trade, which UK exporters would be able to exploit due to the weak

Lack of lending
The main reason for the gloomy outlook, the club said, was the fact that banks are still not lending enough to boost the economy. “There is currently little sign of any extra lending to either companies or consumers. Banks are saying that they will expand lending more aggressively over the next three months, but it seems unlikely that they will be able to meet the demand for credit,” argued Professor Spencer.

The Item Club also warned of the threat posed to the economy from swine flu. If doomsday predictions do materialise, it forecast a further 3% contraction in GDP this year, on top of the 4.5%. The flu could also wipe out any growth next year, with a worst case scenario of a further 1.2% contraction. The Item Club also predicts that UK interest rates will be kept at their current level of 0.5% well into next year. Last week, the International Monetary Fund published its latest report on the UK economy, in which it forecast economic activity to shrink by 3.75% this year.

The always readable John Mauldin on Europe’s plight.

The joys of Sach’s. An internal memo from Goldman’s.

Maybe car dealers in the Crumlin area of Dublin are should try this innovative sales pitch.

And finally….

Another bailout ditty…..

Disclosures = None

By The Mole

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 - 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