What a scary pre-market!
Continued financial panic and a commodity sell-off have sent the Hang Seng down 692 points, once again testing the March and last August lows. The Nikkei fell 326 points and came to rest on the 13,000 line but it has been much lower in March so not throwing in the towel just yet. Europe is recovering from a 2% sell-off this morning and the US futures were off 1-2% as well in very early (5am) trading.
Please make sure you read my comments from last night's wrap-up, on what I'm seeing and what our attitude needs to be if we are to have a continued sell-off. I am still rooting for a turn-around this week but I've got my white flag in my back pocket if oil holds $140 and the Dow fails to retake 11,800 by expiration day next week.
In addition to the sheer panic environment of the US financial markets, I have to blame the G8 for being perhaps the lamest group of World leaders ever assembled for the market jitters we're seeing in Europe and Asia. You have a gathering of the heads of every major power (China, India and others are included in "special sessions") and this is all they can come up with after a day of meetings: "To enhance energy security, we propose holding an energy forum to focus on energy efficiency and new technologies, which could also contribute to dialogue between producers and consumers."
Oh thank goodness – they are proposing to have a meeting! Now this is real progress (end extreme sarcasm font). Of course they said some other things (see link) but this group oversees 1.4Bn of government petroleum reserves and houses another 2.7Bn of commercial reserves in their countries. That is a 50-day supply of oil even if the entire 86Mbd of global production were cut off dead cold. They could release just 1/10th of those reserves and flood the market with 6M barrels of extra oil per day for 2 months. Do you not think that might have some effect on the price of oil? Well maybe not since supply and demand have NOTHING to do with the price of oil but I bet it would sure cut down on some speculation when you know that 3 times Iran's daily exports will be flooding the market every day.
Of course there is literally nowhere to put it all but THAT'S the point! Let's push private reserves to the max, make sure oil is readily available in every nook and cranny of the free world and make it very plan that there's another 3.7Bn barrels where that came from. Gosh that was easy, now excuse me while I go solve world hunger….
Chinese hunger is so solved that 25% of their adults are now overweight. With a population of 1.3Bn, China now has more fat people than we have people so high fives and Happy Meals all around! An additional 11 million Chinese adults are becoming overweight or obese every year and 12 million to 14 million adults are becoming at risk for diabetes and hypertension annually, says study author Barry Popkin, director of the obesity center and professor of global nutrition at the University of North Carolina at Chapel Hill. "When you have this many people becoming diabetic and hypertensive, you think about the health-care costs and it's pretty staggering." There is some serious money to be made in pharmaceuticals on that one!
The Wall Street Journal makes an excellent point, in-line with a discussion we've been having in chat this week about limitations on China's economic growth: "Obesity-related costs are likely to lead not only to drastic increases in direct medical costs, but also to indirect costs like decreased worker productivity and absenteeism. Health-care costs could also have implications for companies looking to invest in China. Many companies provide medical care for workers, and thus they could end up footing much of the bill for obesity-related costs," Dr. Popkin says. Those costs could prompt companies to invest in less-costly markets, such as Vietnam, and ultimately slow the Chinese economy. "U.S. labor costs skyrocketed and people are moving away from investing here," says Dr. Popkin. "It's the same issue in China."
Nice job YUM and MCD – we've taken the world's cheapest and most productive labor force and turned them into…. US! I guess it's time to start opening Dunkin' Donuts in Vietnam now, maybe Africans would prefer the Southwestern goodness of Taco Bell… "It's a brave, new world that hath such people in it!" – Shakespeare
The nice thing about selling Happy Meals in China is the toys are made locally so that saves on the transportation costs and I'm really liking the IYT here if oil keeps going down. They don't have leaps but the Dec $75s are $13.45 with $5 in premium and, with the Transportation Index at $83.79, you can sell the July $85s for $1.73 (we buy the longs first and hope to do better), then the Aug $85s for $3.50 (apx), picking up all of your premium in the next two weeks. These are the kind of spreads we need to take in this market. This one is made more attractive by the fact that the Aug $80s, our fallback position, is $6.70 with $3 in premium – very good coverage on a $13.45 play!
Bernanke spoke this morning and actually boosted the markets somewhat as he made the case for giving the Fed broader authority. "In doing so, we aim not only to make the financial system better able to withstand future shocks, but also — by reducing the range of circumstances in which systemic stability concerns might prompt government intervention," Mr. Bernanke said in his prepared remarks.
Meanwhile, just ahead of the open, oil plunged to $137.85 and perked the markets right up. Hopefully it will follow through and just die as a $10 drop in a barrel of oil since last week effectively puts $860M PER DAY back into consumers hands, 25% of that right here in America and boosts the dollar at the same time. This drop is coming despite more saber rattling from Iran as I think we're all tired of that old song at this point.
We got a big beat from GBX (.49 vs. .38 expected), but not so much that it will blow our spread from yesterday. HELE doesn't report until just before the bell but PBG also had a nice 3-cent beat (.78) and is up nicely despite cautious guidance. This is it folks, it's put up or shut up time for my premise that earnings will set us free – much more on this tonight but, for today – let's be careful out there!
