As goes Goldman, so goes the nation?
I don't think we have a more market moving event than GS earnings, which are widely expected to be very good. BBY also reports this morning and we get our PPI report along with Industrial Production and Housing Starts so it's going to be one hell of a morning, one way or the other.
Oil is down to our test target at $132.50 pre-market on factors we discussed in yesterday's wrap-up so I won't bother with that silliness this morning. This is coming despite a half-point drop in the dollar yesterday, which is continuing this morning as no one actually believes that Bernanke has the nerve to raise rates next week. I believe that Bernanke would raise rates, if it were the wrong thing to do but, since it is the right thing to do to show the markets he's serious, we can be pretty sure he won't…
Obama has been rolling out details of his economic plan, which is focused on infrastructure spending and deficit reduction, similar to what Clinton aimed to do before the reality of a Republican Congress forced him to abandon the energy tax that was aimed to be earmarked for conservation and energy independence "because a .07 per gallon tax would bankrupt this country."
The heart of Sen. Obama's spending program is his plan to spend $15 billion a year for 10 years on energy technology. It would be funded by revenue collected from a separate Obama proposal to cap greenhouse emissions through a system of trading pollution permits. He also would fund an "infrastructure reinvestment bank" that would finance $60 billion in high-speed railways, improved energy grids and other projects over a decade.
The Clinton administration, at the urging of then-Vice President Al Gore, spent heavily on a project with the Big Three auto makers to build a higher-tech family car that produced three times the gas mileage of a conventional car. The car was never built and the Bush administration killed the project. At a rally in Detroit Monday night, Mr. Gore announced his endorsement of Sen. Obama.
8:30 Update: GS did come in with a beat with a profit of $4.58 a share vs $4.93 last year and that should be very good for the $185 butterfly we took yesterday. Low expectations were for a profit of $3.42 a share but, had they come anywhere near that, the sell-off would have been huge. We'll analyze where they made their money later today but it looks like about 1/3 of the profits came from their own investments, not brokerage fees and Dick Durbin is pushing forth legislation today to put a stop to that. "At this point, we simply don't know what role speculation or manipulation is playing in price increases," he said. "We simply can't waste any more time before getting to the bottom of this."
Producer prices rose at the fastest pace in 6 months, up 1.4% in May and up 7.2% since May 2007. Even the core PPI is now up 3% from last year, the biggest annual increase since 1991 and way higher than the 1% that economists somehow predicted (as I said last week, it's really time to find some new economists!). The PPI data showed energy prices up 4.9% last month, after falling 0.2% in April. Gasoline prices jumped 9.3%. Diesel prices rose 11.2%.
Housing starts fell another 3.3% and April's numbers were revised down from an 8.2% gain to a 2% gain – Oops! The good news is that "economists" predicted a 5.5% drop so they only missed this one by 33% and we are "better than expected." I will begin a program next week of polling my two daughters (8 & 6) and we'll see if they can outperform the current group of leading economists. Our Q1 current account deficit was pretty much in-line at $176Bn, "just" 5% of our GDP!
Asia was very flat this morning but the Shanghai Composite fell another 3.8%, putting in its lowest close since February '07. Air China and China Eastern Air went 10% limit down as concerns linger over volatile fuel costs. Brokerages also got hammered on fears that the declining markets would eat into their profits the way it has eaten into 1/2 of the money invested since last year.
Europe is having a great morning and I'm not sure why as the BOE was forced to write a letter explaining why inflation is at 3.3%, well over their 2% target rate. German sentiment was also way off but I suppose they, like us, are reacting to the nice pullback in oil this morning – let's hope it sticks!
We'll have to see how well the financials perform after getting a look at GS. I'm not too excited by what I see so far but since disaster is already priced in, it's very possible we'll get a relief rally here and certainly more to come of MS doesn't screw up their earnings. We're well positioned for a rally at the moment so we can sit back and enjoy it – we'll have a nice chance to see how the indices perform on the resistance points this morning for sure.
