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Tuesday Morning – Big Ben in London

Bernanke is speaking this morning in London, a rare event for a major policy lecture.

This is coming on a morning where the European markets were off about 2% ahead of his remarks and US futures were also pointing down before the 8 am EST speech so it will be interesting to see what, if any, impact he has. “Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said.  “More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets.

Bernanke’s speech indicates he sees further government aid to the U.S. financial system as essential to an economic recovery. The Fed chairman recommended three approaches on troubled assets. Public purchases of the bad assets are one possibility, as was originally planned Paulson’s Troubled Asset Relief Program.  The government could also agree to absorb, in exchange for warrants or a fee, part of the losses on a specified virtual portfolio of troubled assets, he said. Regulators used that method recently with Citigroup Inc.  Another measure “would be to set up and capitalize so- called bad banks, which would purchase assets from financial institutions in exchange for cash and equity in the bad banks,” he said. Finally, efforts to reduce preventable foreclosures “could strengthen the housing market and reduce mortgage losses” and increase financial stability.  The Fed chairman said the U.S. central bank still has powerful tools to influence growth and prices.

[BenBernankeSouthPark.gif]So get ready for TARP II, which Bernanke seems to be indicating will do everything TARP I was supposed to do before Paulson took the money and used it for completely different things than he told Congress he was going to.  This comes from Bernanke at the same time as Bush is asking Congress for the second $350Bn from TARP I, presumably trying to get that money before Congress remembers we already had a TARP program that was going to do what Bernanke is proposing.  Quantitative Easing is now being tossed around as policy, QE essentially translates as flooding the market with dollars to spur growth.  Have I mentioned I like gold lately?

While Ben is speaking the Euro is trading back near it’s lows against the dollar as the ECB is seen as being behind the curve in adjusting their monetary policy.  I’m not sure how NOT giving money away makes you the irresponsible one but that’s the tone that is being set in the currency markets.  Of course it’s all about fear – by tossing Trillions into the system the Fed is easing the fear that the US financial system will collapse as they seem clearly hell-bent at preventing that at all costs.  Trichet has not given European investors the same warm-fuzzy feeling that Bernanke is giving to US investors.  Not that this is really doing anything for our own financials as the XLF is heading back to it’s November lows as fear of the unknown earnings grips the market once again.

We like XLF as a bet against the long-term collapse of the US banking system and you can buy that ETF for $10.80 and sell the March $10 puts and calls for $2.90, which is a net entry of $7.70 if called away at $10 (up 29%) or an average entry of $8.85 if it is put to you on March 20th, an 18% discount off the current price.  As more of a gamble, we also like the UYGs, a 2x ETF that tracks the XLF and is back below $5 at $4.71 (was $65 in October 2007).  While we don’t expect it to go back to it’s highs, it won’t take much improvement in the financials to rally this one so we like scaling in at this price (it may go back to $3.50 on a spike down where we’d really like them) and holding it naked or selling the March $5 puts and calls for $2 to drop the net to $2.71 (called away with a near double) or a $3.85 average entry (an 18% discount). 

This is what we mean when we do our hedged entries for bottom fishing – we’re comfortable picking up some of our top stocks here as we have quite a bit of leeway to the downside should the market fall further.  Our biggest problem in our first round of sales was that we were getting everything called away from us and, despite the great profits, we didn’t want to give up the positions but it sure does give you comfort when the market is falling to have these hedges!

On the International scene, Japan got us off to a really poor start this morning with the Nikkei falling to the 5% rule after coming back from a holiday.  China’s trade data showed continued slowing with both imports and exports sharply lower, sending both the Hang Seng and the Shanghai down near the 2.5% rule (it’s the same as the 5% rule actually).  Bombay stabilized and the Baltic Dry index continued to climb so somebody’s buying something

Europe is coming back just a bit after Bernanke’s speech, down about 1.5% now with miners and bankers leading the decline.  Both Germany and the UK are coming up with additional stimulus plans and we wait on the ECB to announce their widely-expected rate cuts.  Both Tesco and Metro (big EU retailers) warned of a very tough 2009 and that’s keeping a lid on that sector, along with everything else in Europe.

Tech will have a tough morning as Broadpoint cut ratings on 10 companies including YHOO, AMZN, GRMN, DELL, NILE and CSCO so any move back over 30 on the Qs will be a good sign that we’re getting tired of selling tech this week.  We’re ready for the Obama rally and started picking up our Bottom Fishing Plays around 8,500 yesterday – perhaps a little early but you have to start somewhere… 

I really felt like I was swimming against the tide in yesterday’s member chat as I insisted on being bullish as we broke below our supports but the selling seemed panicked and overdone and I’m sticking with that theory until I see real evidence that our markets should be priced at a 40% discount to last year’s prices.  Yes, AA was terrible but they already told us earnings would suck but INFY came in with a beat this morning and we have CBSH tomorrow and JPM and BLK on Thursday and that should firm up our picture of the financials but it will be too late to buy XLF and UYG by then if I’m right!

 

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Asia Markets :    Wednesday, January 14, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                                  8438.45    24.54    0.29%
Hang Seng*                                      13704.61    36.56    0.27%
China: DJ Shanghai*                          214.86       8.61    4.17%
Seoul Composite*                             1182.68     14.97    1.28%
Bombay Sensex*                               9370.49   299.13    3.30%
Baltic Dry Index                               911.00    22.00    2.36%

*at Close

Asian Shares Rise But Earnings Worries Persist

Major Asian markets rose on Wednesday, with markets from Japan to China and Australia logging decent gains, but worries about corporate earnings persisted.

The Nikkei ff its intraday high, as exporters such as Sony and Toyota rebounded after a sharp sell-off the previous day. Fujitsu shares jumped more than 6 percent at one point, after Toshiba said it is in talks to buy Fujitsu’s hard-disk drive business. Toshiba closed 6 percent higher. Nissan Motor ended 3.5 percent higher on a Reuters report that Chrysler was in talks to sell key assets to Nissan-Renault and auto supplier Magna.

South Korea’s KOSPI shares reversed early losses to close the Wednesday session 1.3 percent higher but investors remained cautious ahead of the start of the domestic earnings season on Thursday.

Australian shares clawed slightly higher as miners and financials rose. Caltex jumped nearly 9 percent at one point, as it defied the earnings gloom and said its 2008 profit beat its previous forecast. The benchmark S&P/ASX 200 index gained 0.9 percent at the end of the session.

The Hang Seng Index tracked the region higher to climb 0.3 percent led by Bank of China after Royal Bank of Scotland sold its entire holding in the bank. Bank of China’s Hong Kong-listed shares jumped 2.7 percent.

The Taiwan Weighted Index traded in positive territory throughout the morning but succumbed to selling pressure in the afternoon.

The Shanghai Composite Index jumped 3.5 percent.

Singapore’s Straits Times Index climbed 0.2 percent but Malaysia’s KLCI ended flat

Bombay Stock Exchange’s Sensex ended at 9,409.18, up 337.82 points or 3.72 per cent. The index touched an intra-ay high of 9,409.18 and low of 9202.57.

Banks, Miners Drag Euro Stocks Lower

European shares fell back in early trade on Wednesday as gains in energy stocks were overshadowed by falls in the banks and mining sectors.

The FTSEurofirst 300 index of top European shares was down 0.7 percent at 834.58 points after being up as much as 844.9 points earlier.

Banks were the biggest losers on the index. HSBC lost 5.9 percent as Morgan Stanley analysts said it may have to raise as much as $30 billion in capital and halve its dividend as earnings are likely to deteriorate more than expected. Barclays fell 4.8 percent. It said it was cutting over 2,100 jobs across its investment banking and investment management (IBIM) units, or about 7 percent of their staff, a person familiar with the matter said. BNP Paribas, Commerzbank and Banco Santander were down between 1.5 percent and 3.2 percent.

Overnight, U.S. Citigroup agreed to merge its Smith Barney brokerage with Morgan Stanley’s wealth management unit, and is expected to make further asset sales to raise capital and to isolate toxic assets from the rest of the bank.

Miners fell back as metal prices retreated with copper down 1.1 percent. Rio Tinto lost 1.5 percent after the group said it would cut diamond output at its Argyle mine in Western Australia and slow its underground mine development as part of its plan to slash spending and cut net debt by $10 billion this year. Anglo American, Antofagasta, BHP Billiton and Xstrata were 1.3-2.4 percent lower.

Energy stocks were the biggest risers on the index as crude rose over 3 percent to around $39 a barrel as OPEC kept up its talk of production cuts and as a cold snap in the United States boosted heating oil demand. BP, Royal Dutch Shell and Total were up between 0.1 percent and 1.3 percent.

Drug makers were higher as investors turned to the safety of defensive stocks. AstraZeneca, GlaxoSmithKline and Sanofi-Aventis were up between 0.6 percent and 0.7 percent.

Later in the session, investors will eye U.S. retail sales for December at 8:30 am New York time. Economists in a Reuters survey expect a 1.2 percent fall compared with a 1.8 percent fall in November.

Across Europe, the FTSE 100 index was down 1.2 percent, Germany’s DAX was 0.7 percent lower and France’s CAC 40 was down 0.6 percent.

Oil Rises Above $39 on US Cold Snap, Saudi Cuts

Oil rose more than 3 percent to above $39 a barrel on Wednesday as OPEC kept up talk of production cuts and a cold snap in the United States boosted heating oil demand. Top exporter Saudi Arabia said on Tuesday it was prepared to go even further than cuts it had made since December if the market warranted it, while OPEC’s secretary general said the cartel may reduce oil output again at its meeting in March. But analysts said downside risks remained high. A U.S. government report due later in the day is expected to show crude oil stockpiles rising for the third consecutive week, by more than 2 million barrels.

U.S. light crude [ 38.79    1.01  (+2.67%)] for February delivery rose.
London Brent crude [  47.89    0.45  (+0.95%)] gained.

A Reuters poll ahead of Wednesday’s U.S. inventory report saw a 2.2 million barrel build in crude stockpiles in the week to Jan. 9, and distillate and gasoline supplies rising by 1.1 million and 1.6 million barrels respectively

OPEC’s secretary general also said the cartel may cut oil output further at its meeting in March if the market remains oversupplied a month from now, while OPEC-member Qatar said a price of $70 a barrel was right for oil as it allows companies to invest in new resources.

Oil’s gain on Wednesday was also buoyed by a cold snap in the U.S. Northeast, the world’s biggest heating oil market, with temperatures forecast to be well below normal in the next week. The winter chill is expected to cause heating oil demand to be 13.7 percent above normal this week, the National Weather Service said.


Euro Rises but Gains Limited before ECB Move

The euro recovered from a one-month low against the dollar on Wednesday but remained under downward pressure as investors braced for a European Central Bank rate cut this week. The single currency’s gains were also limited due to the recent threat of ratings downgrades for some euro-zone countries, with much of the day’s recovery merely due to short-covering, traders said.

Markets expect the ECB to cut interest rates on Thursday by 50 basis points from the current 2.5 percent, to help fight the economic downturn. If the ECB doesn’t take drastic easing steps, the euro could be hurt further on a view that the central bank is falling behind in helping the faltering economy, Kubo added.

The euro rose 0.6 percent to $1.3264 [ 1.3237    0.0056  (+0.42%)   ] from late New York trade, after hitting a one-month low of $1.3140 on trading platform EBS in U.S. trading.

Against the yen, the single currency gained 0.6 percent to 118.70 yen [ 118.37    0.57  (+0.48%)    ]. It had fallen as low as 117.13 yen on EBS in U.S. trading, the lowest since early December.

The dollar was up 0.2 percent against the yen at 89.55 yen [ 89.4    0.05  (+0.06%)    ], helped by demand around the midmorning rate fixing.

Demand for the greenback firmed on Wednesday after a government report showed the U.S. trade gap shrank by the most in 12 years in November, driven by a plunge in imports.

Gold firms on weak dollar, rising oil; ECB eyed

Gold firmed in Europe on Wednesday, supported by a weaker dollar and rising oil prices, though it pared gains as the euro slipped from highs against the U.S. currency and equities and base metals turned negative. Trading is expected to be muted ahead of the interest rate announcement of the European Central Bank on Thursday. The ECB is widely expected to cut rates by 50 basis points.

Data released on Wednesday showed euro zone industrial production plunged for the seventh month running in November, suggesting the recession is worsening and strengthening views the ECB will cut rates deeply on Thursday. Elsewhere firmer oil prices are supporting gold. Crude bounced up more than 3 percent to above $39 a barrel as talk of OPEC output cuts continued and a cold snap in the United States boosted heating oil demand.

In Asia, jewellers are buying up gold bars ahead of the Lunar New Year on January 26, dealers said. Premiums for gold bars were steady at between 10 and 20 U.S. cents to spot London prices in Hong Kong. Jewellery demand in the world’s largest bullion market, India, has however been lacklustre in recent weeks, as buyers await lower prices.

Gold was at $824.20/825.60 an ounce at 1026 GMT, down from $821.05 late in New York on Tuesday. It touched a high of $828.65 earlier in the session, but slipped as the euro retreated and European equities and base metals turned negative.

Among other precious metals,  platinum edged up to $955.50/960.50 an ounce from $941, while palladium was quoted at $182.50/187.50 an ounce against $182.

Silver was at $10.75/10.83 against $10.72.

Good Morning everyone. (NOT)
 
 
UK in a bad way this morning. Down 2% (88pts). Banks getting hammered. I think the US will need good figures from the retail brigade if the bad mood isnt to carry over the Atlantic.

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