Morning Coffee: Smells Like Capitulation
(Stocks in article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, NYSE: JNJ, Nasdaq: YHOO, NYSE: BAC, NYSE: WB, NYSE: UAL, NYSE: DD, NYSE: ABK, NYSE: UNH, NYSE: TGT)
Folks, I know this is hard to believe right now, but this market action smells a lot like capitulation. First off, the timing of this Federal Reserve blows, put it bluntly. Let's face it, they've done everything off-key. They really have no clue as to how the market reacts to news, and these claims of independence from market and administration... Come on! Actions speak much louder than words. Bernanke should have made this move the day he said "substantive action" would be taken.
Folks, I know this is hard to believe right now, but this market action smells a lot like capitulation. First off, the timing of this Federal Reserve blows, put it bluntly. Let's face it, they've done everything off-key. They really have no clue as to how the market reacts to news, and these claims of independence from market and administration... Come on! Actions speak much louder than words. Bernanke should have made this move the day he said "substantive action" would be taken.
There are some itchy trigger fingers in charge of monetary policy, and thank God for that since we can pressure Ben into acting. Did you know that Bill Poole voted against this action, saying something about how the economy could wait a week until the scheduled FOMC meeting? Allow me to take some writer's freedom now...
In The Greek's fictional "Barbarian World" that our close friends enjoy so much, the villagers would be heading to Poole's house tonight with torches lit and hangman's noose tied.
Traders may be happy the action came before market open, but if it came after the first hour of trading, it would have lifted stocks to close higher today, in our view. Instead, the largest cut since 1984 gets almost brushed under the carpet. However, as time passes and maybe even today, investors will realize the magnitude of this action and the potential for another quarter point in a week when the FOMC meets. The President's State of the Union Address will offer a juicy plan for the market, and Hank Paulson was on the horn today calling for bipartisan effort for America's sake. We'll see about that, but I expect nobody wants to be blamed for failing to act in an election year. So, in the near-term, if the government can work out the specifics of this fiscal stimulus package quick enough, the market should be revving up for recovery rally. In China, all depends on this.
China
The mainland Chinese market is lagging the global drop because of the information filters in place and unsophistication of investors. However, panic is brewing. Depression is a real possibility for China if the U.S. economy falls into recession and a messy war begins in Iran. The unsophistication of local investors could trigger a 1929 style crash there, but investment is supposed to be limited in the country, so some argue market crash alone wouldn't impact the economy of China. After all, it is also greatly lifted by global demand for its goods. The difference between strong growth now and depression then certainly represents a mountain range to cross, but it's one we can envision crossing here. The catalyst is oil prices upward of $150 and energy flow disruption due to war. When there's not enough power to run China, there is economic catastrophe. Then we'll be saying, thank God for coal, while we look over shoulders for Chinese infantry. Learn to trade foreign currencies with Peter Bain Video ForEx Course
Company Specifics
In corporate news, Target (NYSE: TGT) sees January sales toward the low end of its forecast range, Yahoo! (Nasdaq: YHOO) is planning to fire a few folks and eBay's chief (Nasdaq: EBAY) leaves her post. We can't know for sure Whitman's reason for leaving, and it could be for very personal and good reason, but as a career move, it looks strategically wise. If the consumer is falling off a cliff, even the nicely valued EBAY could fail shareholders, despite its global store reach through the net. The action in Yahoo smells of whisper. It seems to make no sense as it sinks lower and lower. Remember that holiday season technology glitch they had? We speculate whether that had an important economic impact to the company's holiday quarter. If there is an earnings hit as a result, remember, it would be due to temporary issue, and this would mark a buying opportunity, in our view. TradeKing.com. $4.95 trades + 65 cent option contracts. Free real-time quotes. Find out why TradeKing is the King of online brokers.
Guess what though, some people are still making money, and public companies too. JNJ posted a nice profit alongside DuPont (NYSE: DD), which even beat numbers. UnitedHealth (NYSE: UNH) made its number too. Still, headlines garnering the tops of financial sites today focus on huge losses at Bank of America (NYSE: BAC), Wachovia (NYSE: WB), UAL (NYSE: UAL) and Ambac (NYSE: ABK); oh and the Fed action won some space too... The thing is, there's no surprise here. We expected this right; we warned you here about the Q4 kitchen sink write-off phenomenon that would be evident in all its glory this year. The stocks already priced much of this in and financials are getting a lift today. The Financial Select Sector SPDR (AMEX: XLF) is only off about 2% now after starting the day much lower.
OPEC Report and Oil in '08
OPEC has the chicken and the egg question in mind, saying higher oil prices now would hurt global economies. What about the high oil prices of the recent past guys? Those prices haven't impacted consumer savings and spending? OPEC only projects a 300K barrel demand drop-off in '08, but at least it finally gets the detrimental impact of high oil prices on the stability of demand, maybe... Rich pockets now could be traded for lint over the next few years if global recession ensues. The secular rise of commodity prices do threaten long-term burden for the world's economies, and inflation. That said, the real driver behind high oil prices is the fact that OPEC, or global production, might not be capable of meeting demand without major new finds.
I want to be clear. I expect a near-term rally driven by Fed action and government stimulus, but troubled markets in '08 should continue as economic realities present. There are more legs to this thing than most see as yet. We'll post some specific research pieces to point these out. Just as we would not sit on cash now, we also would not sit on shares later. But, the market is dynamic, and money is to be made in short-term trading as well as in long-term investing. Remember, I'm a fan of Lynch and Buffet, and a believer in long-term investing, but when you follow the market on a daily basis, and issue advice on that timeline, you have a responsibility to advise traders about near-term opportunities and risks as well.
Traders may be happy the action came before market open, but if it came after the first hour of trading, it would have lifted stocks to close higher today, in our view. Instead, the largest cut since 1984 gets almost brushed under the carpet. However, as time passes and maybe even today, investors will realize the magnitude of this action and the potential for another quarter point in a week when the FOMC meets. The President's State of the Union Address will offer a juicy plan for the market, and Hank Paulson was on the horn today calling for bipartisan effort for America's sake. We'll see about that, but I expect nobody wants to be blamed for failing to act in an election year. So, in the near-term, if the government can work out the specifics of this fiscal stimulus package quick enough, the market should be revving up for recovery rally. In China, all depends on this.
China
The mainland Chinese market is lagging the global drop because of the information filters in place and unsophistication of investors. However, panic is brewing. Depression is a real possibility for China if the U.S. economy falls into recession and a messy war begins in Iran. The unsophistication of local investors could trigger a 1929 style crash there, but investment is supposed to be limited in the country, so some argue market crash alone wouldn't impact the economy of China. After all, it is also greatly lifted by global demand for its goods. The difference between strong growth now and depression then certainly represents a mountain range to cross, but it's one we can envision crossing here. The catalyst is oil prices upward of $150 and energy flow disruption due to war. When there's not enough power to run China, there is economic catastrophe. Then we'll be saying, thank God for coal, while we look over shoulders for Chinese infantry. Learn to trade foreign currencies with Peter Bain Video ForEx Course
Company Specifics
In corporate news, Target (NYSE: TGT) sees January sales toward the low end of its forecast range, Yahoo! (Nasdaq: YHOO) is planning to fire a few folks and eBay's chief (Nasdaq: EBAY) leaves her post. We can't know for sure Whitman's reason for leaving, and it could be for very personal and good reason, but as a career move, it looks strategically wise. If the consumer is falling off a cliff, even the nicely valued EBAY could fail shareholders, despite its global store reach through the net. The action in Yahoo smells of whisper. It seems to make no sense as it sinks lower and lower. Remember that holiday season technology glitch they had? We speculate whether that had an important economic impact to the company's holiday quarter. If there is an earnings hit as a result, remember, it would be due to temporary issue, and this would mark a buying opportunity, in our view. TradeKing.com. $4.95 trades + 65 cent option contracts. Free real-time quotes. Find out why TradeKing is the King of online brokers.
Guess what though, some people are still making money, and public companies too. JNJ posted a nice profit alongside DuPont (NYSE: DD), which even beat numbers. UnitedHealth (NYSE: UNH) made its number too. Still, headlines garnering the tops of financial sites today focus on huge losses at Bank of America (NYSE: BAC), Wachovia (NYSE: WB), UAL (NYSE: UAL) and Ambac (NYSE: ABK); oh and the Fed action won some space too... The thing is, there's no surprise here. We expected this right; we warned you here about the Q4 kitchen sink write-off phenomenon that would be evident in all its glory this year. The stocks already priced much of this in and financials are getting a lift today. The Financial Select Sector SPDR (AMEX: XLF) is only off about 2% now after starting the day much lower.
OPEC Report and Oil in '08
OPEC has the chicken and the egg question in mind, saying higher oil prices now would hurt global economies. What about the high oil prices of the recent past guys? Those prices haven't impacted consumer savings and spending? OPEC only projects a 300K barrel demand drop-off in '08, but at least it finally gets the detrimental impact of high oil prices on the stability of demand, maybe... Rich pockets now could be traded for lint over the next few years if global recession ensues. The secular rise of commodity prices do threaten long-term burden for the world's economies, and inflation. That said, the real driver behind high oil prices is the fact that OPEC, or global production, might not be capable of meeting demand without major new finds.
I want to be clear. I expect a near-term rally driven by Fed action and government stimulus, but troubled markets in '08 should continue as economic realities present. There are more legs to this thing than most see as yet. We'll post some specific research pieces to point these out. Just as we would not sit on cash now, we also would not sit on shares later. But, the market is dynamic, and money is to be made in short-term trading as well as in long-term investing. Remember, I'm a fan of Lynch and Buffet, and a believer in long-term investing, but when you follow the market on a daily basis, and issue advice on that timeline, you have a responsibility to advise traders about near-term opportunities and risks as well.
Market-Moving News
- Federal Reserve: Fed Emergency 75 BPS Cut
- CNN Money: Global Stocks Swoon
- FT: India Halted
- FT Video: Two-Day Global Swoon Continues
- CNN Money: Paulson Sees Cooperation for Stimulus
- The Greek's Week Ahead: Money Honey Does Davos
- CNBC: Experts Sound Off on Market
- MarketWatch: Bank of Canada Cuts a Quarter Point
- MarketWatch: Japan Holds Rates Steady
- Platts: Crude Recoups Some of its Early Losses
- OPEC: Monthly Oil Market Report
- CNBC: OPEC Says Recession Clouds Demand Outlook
- CNBC: World Economic Forum Opens in Davos
- CNN Money: Gold Knocked Down
- Yahoo! Earnings Calendar
- AP/Yahoo!: Bank of America (NYSE: BAC) Profit Falls
- AP/Yahoo!: Wachovia (NYSE: WB) Reports Profit Off 98%
- CNN Money: DuPont (NYSE: DD) Beats Numbers
- CNBC: Yahoo! (Nasdaq: YHOO) to Reduce Employment
- AP/Yahoo!: UAL (NYSE: UAL) Posts $53 Mln. Loss
- AP/Yahoo!: Ambac (NYSE: ABK) Posts Big Loss
- AP/Yahoo!: Johnson & Johnson (NYSE: JNJ) Reports 10% Increase
- AP/Yahoo!: UnitedHealth (NYSE: UNH) Makes Number
- Economist: The Geopolitical Week Ahead
- Iran Daily: Tales from the Dark Side
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posted by The Greek | 10:30 AM
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