Monday Market Madness

Meredith Whitney is the 8am guest on CNBC.

That pretty much sums up the mood for the week right there.  More doom and gloom for the financials with Nouriel Roubine predicting in Barron’s another $2 TRILLION in bank losses saying: "We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up."   So happy Monday to you!

CNBC is now calling her "Influential Analyst Meredith Whitney," which should insult the other 500 analysts that appear on their show – if they had any actual self-respect that is…  Why it seems like just yesterday (but it was actually Wednesday) when Whitney was featured on CNBC at the close, telling Maria Bartiromo that "asset values on the books of many banks are aspirational" and will need to come down" and that "the equity raised by various financial companies, like MER, C and others, is just "plugging holes" in balance sheets, not funding growth."  Also featured today is guest host Kirby Daley, who says the Dow is heading for 10,000 because "if you walk around the streets of Middle America you will see we are already in a recession."

You will not hear CNBC mention that Q2 productivity was up a whopping 2.5%, something the WSJ says "has important implications for economic growth, inflation, employment and, ultimately, living standards. For example, strong productivity growth, by countering inflation pressures from energy and commodities, allows the U.S. Federal Reserve to keep interest rates lower than it otherwise might, helping it stoke the economy."  Gee, that doesn't fit in with a recessionary outlook at all.  In fact, that is one of the ways you can have growth without inflation and without pressuring commodity prices – get more efficient!

I am in now way saying the financials are strong – they took a severe beating and will be long in recovering but they are down and not out and there are other parts of our amazingly robust economy that are capable of picking up the slack if given the chance.  It does seem, however, that there is a very determined effort NOT to give the economy a chance with non-stop media negativity.  Let's remember the parting words of Phil Graham, as he mixed up the message of McCain by talking "straight" and calling us "a nation of whiners." 

Graham went on to say: ""We've never been more dominant; we've never had more natural advantages than we have today. … Misery sells newspapers," he said. "Thank God the economy is not as bad as you read in the newspaper every day."  John McCain quickly denounced Grahams positive outlook because the media (and Obama) put a negative spin on it saying "Phil Gramm does not speak for me. I speak for me. So, I strongly disagree," McCain responded. "America's in great difficulty, and we are experiencing enormous economic challenges."  It would be very funny if he weren't running for President…

Consumer psychologist Kit Yarrow backs Graham up saying "I think the way consumers feel about things is very emotional.  Those emotions are trumping reality, creating a snowball, which makes the economy worse. It's not as bad as consumers feel like it is.  I think we've become entitled to a sense that we're going to have continued prosperity, and if we hadn't had it good for so long, I don't think there would be this level of emotion that's causing us to draw back on our spending," she said. "We expect great growth. Any sort of normal growth is considered a catastrophe now."

Asia is in catastrophe mode with the Hang Seng dropping 1.5%, the Shanghai gave up 2% and the Nikkei fell 1.2% led down by steelmakers and shipbuilders – very recessionary outlook.  Nippon Steel dropped 7.1% on the day, TM got crushed (again) and Nissan fell to the 5% rule while Mazda zoomed past them, dropping 8.76% on the session.  No cars, no steel – who'd have guessed?  Apparently energy traders can't connect the dots as oil was still trading at $124, perhaps held up by an explosion at a VLO refinery since somehow a shut down refinery that can't use oil causes oil to head up.  We also have a tropical storm in the Gulf and that's going to be considered a disaster until it isn't anymore but none of this is enough to get oil back to $125 so far.

Europe is mixed ahead of our open and HBC wrote down $10Bn in loans causing (and prepare to be shocked and dump everything you own and load up the basement with canned food and ammo) a 29% decline in first-half net profit making just $7.72 Billion vs. $10.9Bn in last year's first half.  OH THE HORROR!!!  (that would be the famous sarcasm font…)  Get a grip people – profits go up and down, we invest for the long haul and the market has been acting like it has a severe case of ADD lately. 

The pre-tax profit of HBC was $10.25Bn, a slight beat of the expected $10.13Bn.  HBC was trading as low as $70 just two weeks ago as "influential analysts" told us losses would be fare more severe.  Don't expect this news to boost financials though, GS has come out with more negative statements on the financials and CNBC is running the above mentioned interview under the headline "Whitney's Wisdom" and it seems she's getting the cover of Fortune this week!

Let's keep an eye on the financials, whcih will have a lot of downward pressure and it will be interesting to see what holds.  We have a Fed meeting tomorrow so anything can happen there.  Personal income was up 0.1% vs. -0.1% expected and personal spending was up 0.6% vs. 0.4% expected yet you will no doubt continue to hear about the death of the American consumer because it's so much more compelling than telling you spending hasn't chanbed all that much.  Factory orders come out at 10 am and expectations there are for 0.7% growth so we'll see how that is trending. 

There are still plenty of earnings to keep us busy but it's all about the POO (Price of Oil) with plenty of earnings still pouring in this week (SIX was a huge upside surprise this morning).  Let's continue to be careful out there, I could be right about the economy but that's not going to make the markets rise in a sea of negativity but it does give us a lot of very interesting opportunites to go bargain hunting ahead of the crowd.

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