Morning Report: Gurus Galore
(Stocks in this article: NYSE: IMB, NYSE: HOV, Nasdaq: JAVA, NYSE: NT, Nasdaq: DIVX, NYSE: THC, Nasdaq: ATVI, NYSE: MBI, XETRA: BMW.DE, NYSE: C, NYSE BCS, NYSE: ADM, NYSE: VLO, NYSE: SDS, NYSE: PTR, NYSE: GS)
The market seems to me like a child who has just been reprimanded and given a new set of rules to live by. That child initially tests his parents to see if they really have the conviction to follow through. The market seems to disbelieve the Fed now concerning its neutral bias. For this reason, I think a large group of disbelieving bulls are still in for a wake up call.
They should have received that call yesterday, when Fed Governor, and Bernanke confidante, Fred Mishkin, stated that the Fed's recent quarter point cut might not have occurred if not for market expectations and a "feedback effect"; this is in part my interpretation. He stated that the Fed could even reverse its actions, thus raise rates, if data showed the cut was unnecessary. This to me does not sound like a Fed with imminent emergency cut on its mind. Far from it! Yes, the Fed goal is to preserve economic growth and stability, but the group is a stubborn proud bunch of data minded, intelligent folks who are not going to be pressured by institutions or media, especially while bearing the scar of the summer's political pressure. Do not misinterpret this statement; I called for a strong Fed action this summer. Still, I'm sure the Fed did not take kindly to the political heat from the Administration and Democrats in the relevant Congressional Committees (Read Dodd and Frank).
I expect the Fed felt significant political pressure to cut rates in September, and as the credit crisis unfolded, was finally provided concrete and inarguable reason for action. I feel that going forward it's going to take true "calamity" to drive further action, borrowing from the words of William Poole. Unfortunately, there seems a good chance of that calamity.
Besides Mishkin's comments, Ben Bernanke is scheduled to voice his views on current events at a microfinance conference today. This should and will be closely watched, and could provide the market with impetus to dive. His November 8 testimony to Congress might do more toward that end.
Gurus seem to be abundant this week. Yesterday, PIMCO's Bill Gross offered his monthly Investment Outlook, where he discussed a significant contraction of lending and overall banking risk taking to come. He went so far as to state his view that the only savior for the economy in near years would be a 3.5% Fed Funds Rate. In later media interviews, Gross measured financial sector aggregate asset writedown potential at $250 billion over the next two years. This will not bring bargain hunters to financial sector stocks. Yesterday, after our call to sell Goldman Sachs (NYSE: GS), a stock we viewed as an island target in the sea red ink, an analyst's downgrade and rising speculation took GS shares 4.9% lower. GS is up in today's pre-market as Goldman reportedly denied rumors. I would use strength today to take profits in GS, and for those of you able and willing to short, to do that. Barclays (NYSE: BCS) is also showing serious signs of trouble in its stock price, and as rumors surfaced that it may have approached the Bank of England recently for funding. GS, however, offers a better entry point for shorting. My favorite near-term idea remains the UltraShort S&P 500 ProShares (NYSE: SDS), which targets negative correlation to the index and thus offers bears an easy way to hedge or play downside.
Guru George Soros also threatened before a New York University audience that economic weakness could surprise Fed Chief Bernanke in intensity. His exact statement to this effect was that the U.S. economy is on the verge of "very serious economic correction," as reported by CNBC. Alan Greenspan, perhaps feeling lost in the sea voices, today announced that the main ailment the economy faces, is excess home inventory. He suggests that the resolution of this problem would resolve many of the other symptoms seen across the market. He also expressed concern that the global economy may be moving from the 20-year period of disinflation, in the other direction.
Oil is moving on up this morning, as last week's shutdown of Mexican facilities on storm concern is expected to show up in inventory data this week. Also, the trouble in Iraq/Turkey and this very serious uprising in Pakistan offer thorough geopolitical stresses to oil in the short short-term. I continue to expect oil to spike to over $100, stressing "spike," before smart money takes the commodity down on fundamental drivers. Reiterating, those drivers remain: economic slowing in the U.S. (Japan is also showing signs, as is Europe); another likely warm winter; my expectation for improving inventory as the strategic oil reserve fills up; and finally a stabilizing dollar. PetroChina (NYSE: PTR) still looks like a nice short opportunity to me.
This Pakistani issue, driven by constitutional and righteous argument, does not look to subside easily. Musharraf now faces both Islamic fundamentalist opponents and Democratic fundamentalist contras. The west runs a serious risk of the two intermixing, and a resulting surprising uprising that could mask a fundamentalist takeover of Pakistan. Let me remind you that Pakistan is seriously nuclear.
The market seems to me like a child who has just been reprimanded and given a new set of rules to live by. That child initially tests his parents to see if they really have the conviction to follow through. The market seems to disbelieve the Fed now concerning its neutral bias. For this reason, I think a large group of disbelieving bulls are still in for a wake up call.
They should have received that call yesterday, when Fed Governor, and Bernanke confidante, Fred Mishkin, stated that the Fed's recent quarter point cut might not have occurred if not for market expectations and a "feedback effect"; this is in part my interpretation. He stated that the Fed could even reverse its actions, thus raise rates, if data showed the cut was unnecessary. This to me does not sound like a Fed with imminent emergency cut on its mind. Far from it! Yes, the Fed goal is to preserve economic growth and stability, but the group is a stubborn proud bunch of data minded, intelligent folks who are not going to be pressured by institutions or media, especially while bearing the scar of the summer's political pressure. Do not misinterpret this statement; I called for a strong Fed action this summer. Still, I'm sure the Fed did not take kindly to the political heat from the Administration and Democrats in the relevant Congressional Committees (Read Dodd and Frank).
I expect the Fed felt significant political pressure to cut rates in September, and as the credit crisis unfolded, was finally provided concrete and inarguable reason for action. I feel that going forward it's going to take true "calamity" to drive further action, borrowing from the words of William Poole. Unfortunately, there seems a good chance of that calamity.
Besides Mishkin's comments, Ben Bernanke is scheduled to voice his views on current events at a microfinance conference today. This should and will be closely watched, and could provide the market with impetus to dive. His November 8 testimony to Congress might do more toward that end.
Gurus seem to be abundant this week. Yesterday, PIMCO's Bill Gross offered his monthly Investment Outlook, where he discussed a significant contraction of lending and overall banking risk taking to come. He went so far as to state his view that the only savior for the economy in near years would be a 3.5% Fed Funds Rate. In later media interviews, Gross measured financial sector aggregate asset writedown potential at $250 billion over the next two years. This will not bring bargain hunters to financial sector stocks. Yesterday, after our call to sell Goldman Sachs (NYSE: GS), a stock we viewed as an island target in the sea red ink, an analyst's downgrade and rising speculation took GS shares 4.9% lower. GS is up in today's pre-market as Goldman reportedly denied rumors. I would use strength today to take profits in GS, and for those of you able and willing to short, to do that. Barclays (NYSE: BCS) is also showing serious signs of trouble in its stock price, and as rumors surfaced that it may have approached the Bank of England recently for funding. GS, however, offers a better entry point for shorting. My favorite near-term idea remains the UltraShort S&P 500 ProShares (NYSE: SDS), which targets negative correlation to the index and thus offers bears an easy way to hedge or play downside.
Guru George Soros also threatened before a New York University audience that economic weakness could surprise Fed Chief Bernanke in intensity. His exact statement to this effect was that the U.S. economy is on the verge of "very serious economic correction," as reported by CNBC. Alan Greenspan, perhaps feeling lost in the sea voices, today announced that the main ailment the economy faces, is excess home inventory. He suggests that the resolution of this problem would resolve many of the other symptoms seen across the market. He also expressed concern that the global economy may be moving from the 20-year period of disinflation, in the other direction.
Oil is moving on up this morning, as last week's shutdown of Mexican facilities on storm concern is expected to show up in inventory data this week. Also, the trouble in Iraq/Turkey and this very serious uprising in Pakistan offer thorough geopolitical stresses to oil in the short short-term. I continue to expect oil to spike to over $100, stressing "spike," before smart money takes the commodity down on fundamental drivers. Reiterating, those drivers remain: economic slowing in the U.S. (Japan is also showing signs, as is Europe); another likely warm winter; my expectation for improving inventory as the strategic oil reserve fills up; and finally a stabilizing dollar. PetroChina (NYSE: PTR) still looks like a nice short opportunity to me.
This Pakistani issue, driven by constitutional and righteous argument, does not look to subside easily. Musharraf now faces both Islamic fundamentalist opponents and Democratic fundamentalist contras. The west runs a serious risk of the two intermixing, and a resulting surprising uprising that could mask a fundamentalist takeover of Pakistan. Let me remind you that Pakistan is seriously nuclear.
posted by The Greek | 9:00 AM
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