Wake Up Call - Feb 28

Good Morning, hopefully... This morning, robotic experts on Wall Street will tell you to buy buy buy on the weakness. They will tell you that history shows us that it pays off months from now. History actually shows us that it pays off days from now, if not today, but people are afraid to go out on a limb and risk their reputations, so they hedge against their enthusiasm.

Well, guess what, we think the robots are right this time, but not because of history, but because of the underpinnings of yesterday's drop. The market fell yesterday on concerns that the Chinese government was about to push their financial markets into collapse. China has been attempting to pull the reigns in on speculative investment, and rightly so, but it has no interest in causing the collapse it is attempting to prevent. So, today, some reassuring commentary from officials calmed the stomachs of investors, and led to a recovery in China. Other Asian markets just followed suit after the American market decline, and they are now awaiting further signs from America before deciding if the sky is truly falling or not. We saw some danger for continuation posed by the Indian budget release and by a critical GDP revision this morning, but we feel both information bits are not powerful enough to drive further collapse. Therefore, we expect the U.S. market to recover strongly today. However, Ben Bernanke has the ability to make me look stupid, depending on how he reacts to the likely dramatic congressional questions posed to him today about the stock market decline. Though futures will likely prove meaningless in a wildly volatile trading day today, they are indicating a rise for U.S. equities at this minute.

Asia:

Hang Seng Index -2.46%; Shanghai/Shenzhen 300 +3.54%; NIKKEI 225 -2.85%; BSE SENSEX 30 -4.01%; KRX 100 -2.76%

U.K. & Europe:

DJ STOXX 50 Index -1.08%; FTSE 100 -1.1%; CAC 40 -0.96%; DAX -1.16%; Russian RTS Index -3.66%

Americas & Middle East:

Tel Aviv 25 +0.11%; DFM General -0.86%; Tadawul All Share -1.65%

KEY HEADLINE NEWS

• History shows us that the market typically rebounds the day after a large point drop (200 or more) in the Dow. While the robotic experts on Wall Street will tell you to buy, based on history, I think they are right this time around. Keep in mind, they will not always be right. Eventually, we will face a situation more dire than this that will place into question the stability of the world. Robots will tell you to buy on the day that follows that event too, but it will be up to you to measure the durability of the concern in question on that day and invest accordingly.
• Mainland Chinese stocks rebounded on Wednesday, as the government indicated its interests lie in preserving the stability of the market. With that important note, the rug that was pulled from under Chinese stocks, was replaced. However, take note of this event, because when a significant global issue arises, Chinese stocks and the global economy will be poised to collapse in a devastating manner.
• Europe followed a recent trend we have noted, where it takes its lead from the U.S. market. We anticipate European shares will recover before the close of the day.
• A critical revision to Q4 GDP came in at a level we think will be supportive of a U.S. stock recovery today. GDP growth was revised lower to 2.2%, from the early report of 3.5%. Expectations were for a revision lower to 2.3%, according to Bloomberg's survey. However, concerns are rising about U.S. economic growth. GDP is slowing, as evidenced by the durable goods report. Today, Ben Bernanke has the power to severely hurt or help the stock market. We would prefer he bite his tongue and stay focused on the issues he has highlighted in the past, inflation control and economic growth. His view of economic growth and the inflation outlook is critical to the market, so pay close attention to what he says today.
• While we had other significant reasons for concern yesterday, including a weak durable goods report and scary sub-prime news from Freddie Mac, Merrill Lynch's move to cut investment banks was reactionary in our view and typical of the heard mentality that will always exist within financial markets and the self preservation that exists within many analysts. While we are concerned that economic growth is slowing, and could still flirt with recession, we just think these guys picked the wrong moment for their cut.
• Many of my trader friends who have been fired over the past five years were likely smiling yesterday when the computer glitch occurred. It seems we still need humans in case the machines short circuit. Chalk one up for the humans!
• In our view, commodity prices fell yesterday because of the concern about the Chinese economy. Clearly, a financial collapse would be detrimental to the economy in China, but it has not occurred, so we would expect commodities to recover here.
• Mortgage applications rose last week, on lower rates. Our housing prediction played out yesterday, as we told you January would show an uptick in purchases. It plays into our logic theory about the mindset of a salesman. The "it'll be better next year" sales pitch by desperate real estate agents and mortgage brokers likely pushed sales in January, in our view. However, market conditions will prevail this year, and we continue to anticipate more housing weakness.
• European business confidence was reported strong today, and this should aid European shares once the American market starts trading higher, in our view.

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Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)