Market death or another bottom test?
FRE and FNM are once again being used to spook the markets but thank goodness for Piper Jaffray, the lone voice of reason in this insanity, who went out on a limb this morning to point out "There has not been one significant piece of macroeconomic or company-specific news on either company to drive the decline," in Piper's view. "They believe FNM will likely not need new capital unless credit losses rise to over 40 bps, which would be about triple current levels."
The drop began on a bullish competitor's speculative note on capital and proposed FASB accounting changes (dispelled by the regulator). FNM/FRE's regulator, OFHEO, put out a press release last night saying "they are adequately capitalized with capital well in excess of OFHEO-directed requirements, have large liquidity virtual portfolios, access to the debt market and over $1.5 trillion of unpledged assets." Piper also warns that this is irrelevant as market fear is so high fundamentals don't matter and, as I pointed out in Wednesday's Wrap-Up, these institutions are under attack by GS, Cramer and the usual pack of hyenas so facts don't really matter when the big boys line up to get you.
And, of course, oil is back to $145, up $8 in just 2 hours of NYMEX trading on what I am sure are legitimate demand issues. GE turned in a report that was in-line, without any of the severe financial losses that were being predicted and Q3 is being guided in-line as is the year. This is a $275Bn company with $200Bn in annual sales and $22Bn in profits telling you that things look fine across their finanical, service and manufacturing divisions – QUICK, PANIC!
What's even crazier than the herd mentality that is driving investors out of anything financial is the fact that the MSM refuses to talk about the elephant in the room, which is $146 oil (8 am). Of course $145 oil is causing consumer confidence to slip and causing consumer spending to slow and driving up costs for corporate America and deflating the dollar and destroying our balance of trade and damaging the travel industry and killing the Transports and Restaurants…. It's ALL about OIL, that's why it's usually called an oil crisis but where is the concern? Where is the call to action? What is being done about it? The media glosses over the issue and the people feel there is nothing they can do but accept their lot in life while the country collapses – When did we let this happen to America?
At least BUD gets to escape this nightmare, InBev raised their offer to $70 a share and I think they should take the money ($50Bn) and run before Americans have to start walking to the liquor store to be able to afford a 6-pack. We covered up into yesterday's close as we didn't hit our market goals for the day but I can't at the moment imagine what's going to happen that's going to make us want to go into the weekend bullish when, based on this morning's now $9 price move from yesterday, Americans are being asked to come up with an extra $540M for gas this weekend (20Mbd x 9 x 3). That's an annual pocket-picking of $65Bn thanks to those stimulus checks, close to 1/2 of which went to gas money last month and allowed Americans to cut back on their driving by "just" 4%.
Over in Asia, the new IPhones rolled out today and immediately sold out. That won't stop AAPL from selling off today along with the rest of the market even though reports from store after store around the world are that entire 1,500-phone allocations are gone as fast as they can be sold. Its arrival in Japan marks a significant foreign entry in a market dominated by local brands. According to the WSJ: Japanese media are talking about "iPhone shock," alluding to Commodore Matthew Perry's black ships that forced Japan to open to Western influence in the mid-1800s.
Have you ever seen a company that makes a $500 phone that well over 1M people are waiting on line for around the World trade down in pre-markets? That's INCREDIBLE! I like the AAPL $170s as a momentum play, hopefully for about $7.50, looking for a quick $9 as the sales numbers start coming through. I also like the Aug $180s for $9 that were $12 on Thursday for a weekend play. $500M is 2% of Apples total '07 sales in just one day, in just one hour really at the rate these things are selling.
Asian markets were mixed, with India dropping another 456 points, the Nikkei down slightly thanks to an after-lunch pump and the Hang Seng was up 362 points even though the Shanghai pulled back to 315. Financials were down but export companies picked up a bit along with oil and commodity companies.
Europe is following our markets down significantly, dropping 2% off what started out as a good open. As with the US, the rise in oil sent Airline and Auto stocks sharply lower. InBev shares ROSE 3.9% as investors there are very excited about snapping up American companies at what looks to them to be bargain prices (see BUD in Euros chart).
I don't know if we're going to hold 11,000 or not but I'll be taking out my FNM callers and doubling down at the open (looks like $4.20) and selling the $5s on a bounce, but this is a very dangerous trade and will be catastrophic if the rumors are right but I'm just not buying it. We went through the same thing with BSC and none of it turned out to be true but, unfortunately, lack of confidence in a financail can become a self-fulfilling prophesy so we're going to have to play this one by ear.
