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Terrible Tuesday Morning

It's stimulus day, aren't you excited?

Apparently the markets aren't as we are down considerably in early morning pre-market trading (7am).  Asia got hit hard with the Hang Seng dropping 500 points (5% since last week), the Nikkei off 1.3% (5% since last week), and even the Shanghai, which has had a fantastic run, fell 3.2% this morning.  The FTSE is testing their own 5% rule on their third consecutive down day while the CAC bounced right off the 5% line at lunch and the DAX needs to get more bouncy just to take it back

Kind of a disaster on the whole isn't it?  One big reason for all the market dips is the dollar is flying as investors scramble for safety.  Gold (which I may have mentioned a fondness for) is up over $460 as banks and property firms lead the way down on feelings that simply not enough is being done to right that sinking ship.  The overriding concern of the day is the deadline for the Big 3 auto makers, who are required to submit a fantasy plan showing they can (ROFL) be made viable after already receiving $13.4Bn in emergency aid.  I have long stated that the failure of one of the Big 3, most likely GM, can sink the markets 20% below our 8,650 mid-point, to 6,920 and 7,785 is exactly between the two so it should be no surprise that we are at that point on a day of uncertainty like this one.

The US banking industry also faces uncertainty as the final stimulus bill includes harsh restrictions on executive pay at banks receiving Federal aid beyond the $500,000 cap already announced.  In the final bill, bonuses for senior executives and next 20 highest employees at companies that receive more than $500 million from the Treasury are restricted but ALSO "The soon-to-be-law prohibits paying commissions, which are the lifeblood of a salesperson’s income,” said Scott Talbott, vice president for government affairs at the Financial Services Round Table, a Washington trade group that lobbies on behalf of banks. “Non-TARP companies, like hedge funds and foreign firms, don’t have this restriction, so it will be easier for them to hire the top producers away." 

This change may be overreaching somewhat and could make the acceptance of TARP funds "toxic" to the banks they are supposed to support.

Hey, screw those guys!  That's right, screw them!  Look at this chart and realize what a scam these people are running.  The actual firms, the companies you buy stock in (and this is just GS, MS, MER, LEH and BSC), made $12Bn in profits in 2007 yet the people working there took over $100Bn in salaries and bonuses.  What the hell kind of business model is that?  We had to pay these guys $95Bn in '06 to earn $30Bn but last year, in 2008, these crooks took $60Bn in compensation for losing $7Bn (and that's just what was booked)!?!  So let these greedy bastards threaten to take their con game overseas and good riddance to them, they do nothing for the economy but churn fees and skim the profits away from people actually doing the work.  Do not be sucked into the pity party for the middlemen, imagine what would have happened if these 5 US Investment Banks were not able to take $500Bn in transaction fees since 2002 and that money actually went to the companies doing the IPOs or went to the shareholders of the companies being acquired – now THAT's a stimulus! 

I'll put it out there right now – if anyone wants to do an IPO, I'll handle it for a flat $10M, that would be $70M less than Google spent on their IPO and I'm pretty sure I could have gotten just as many people to invest in GOOG as these guys did for the extra $70M.  Yes, not all IPOs are easy to raise money for but that's the problem isn't it – companies that are too weak to IPO do so anyway by paying these hustlers to scam investors and THAT'S why they get the big bucks.  In fact, the 3% fee paid by Google to IPO was less than half the industry standard 7% and that doesn't even include the preferred stock and other options the firms skim off the top. 

So happy Tuesday to you!  I'm sorry but that needed to be said, we discussed it some last week and I've been moving more and more towards the camp where we have to let this industry die.  We don't need brokerage firms to fund business.  Good businesses will find investors and bad businesses shouldn't have them in the first place.  All this industry does is distort the game and funnel capital away from good firms and to bad ones who are able to lobby better or hire bigger rainmakers to raise capital.  Capitalism is supposed to be based on survival of the fittest, with investment capital chasing the companies that provide the best returns – not whatever makes Goldman's "conviction buy list" or any company your broker has an "in" on.  Did we learn nothing in the dot com era?

As I said in our Weekend Wrap-Up, we finally have some evidence of rotation, rotation away from the BS commodities and other ridiculous vehicles that were pushed by the brokers who made themselves $100Bn in fees while putting their clients into toxic assets.  Effectively, it is costing the US $8Tn to pay for the $500Bn in fees these guys created pushing bad products and even worse investing ideas on America – it would have been a lot cheaper if they would have just said "stick em up" and we gave them a Trillion

So today we get the next (and certainly not the last) Trillion dollars of bailout spending and investors have already decided it's not going to be enough to save us, but I'm starting to think that flushing all this garbage out of the system may ultimately be the best thing for us.  Capitalism has lost it's way, we have sent so many jobs overseas that there are no workers left in this country to buy the goods that we have to import back in – gee, who'd have thought?!?  I can make an Indy race car go faster by tossing out the weight of the driver but that doesn't make it a good plan does it?  Capitalism has lost it's drivers as the insatiable greed of Wall Street caused the United States economy to crash.  Fortunately, the drivers were thrown clear before the empty machines hit the wall and we still have the people we need to build a new economy – they just need to be given the opportunity and that's what this stimulus is about, it's an opportunity to rebuild our economy and it's just too bad if the investment bankers aren't along for the ride.

Hopefully 7,650 (-2.5%) holds up on the downside and we can get back to 7,785.  Of course 800 is the critical line for the S&P although 788 is the official 50% off mark for a spike down.  On the Nasdaq it's 1,431, 5,194 on the NYSE and 428 on the Russell – all may be tested today so let's be careful out there but we're already bearish and holding those levels (NYSE will be hardest) by the day's end could actually be encouraging.  We'll have to play it by ear and, of course, have our Mattress Plays ready – just in case!

 

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We need to start building things in this country again, that is the backbone of any healthy country. Corporations could care less about the American work force…protectionism should be at the forefront of this countries plan for recovery.
Death of a nation, we are being over taxed and under payed. Trillions being tossed around not for the benefit of this nations people, but to prop up the corporations that lobby our politicians to produce their goods outside of the country.

My father came to this country 38 years ago with 16 dollars to his name, in 12 years he became a millionaire. Try doing that now, on your own without having some brilliant new idea and a venture capitalist to fund your company. The American dream is DEAD!!. Im sickened by whats become of my country and the people that promise to uphold the integrity of this once great land. Greed has bleed us dry and no one is willing to take the blame, just a bunch of finger pointing with no true leadership. Im deeply saddened. Free trade has robbed us for long enough. We’ll be eating Timberland soup while the Chinese feast on American beef.

Phil –Ref GM. GM employ’s about 270K people around the world, about 125-130K in US. I am expecting that most if not all layoffs will be in US. If for additional $16Bn they are letting go 47K workers, then I am guessing money will not resolve their problem. It seems that the GM cut is caused by a drop in the of car purchases from 17M/yr to ~9.5M/yr. What is not clear to me why the gov has to pay for company shrinkage? Maybe it will be better for the gov to buy the extra cars and give it to the third world to rot there? At least we will have people working, credit for international assistance, and a market for the spare parts. We can call it a Bronek’s International Recovery Plan (BIRP). BTW, in ’70/80 one div of GM employed >90K people. It is hard to believe, but it true.

I will also say that I am NOT happy with the backpeddling newspeak that makes our goal now to "create OR save 3.5M jobs." 
 
That has been the line for several weeks, certainly during the debate on the stimulus package.  It might be backpeddling from a while ago, but it wasn’t a recent change.

Good Morning Phil

Asia Markets :    Wednesday, February 18, 2009
(The following is from WSJ; please cross check with other sources to confirm.)   

Nikkei Average*                 7534.44    -111.07    -1.45%
Hang Seng*                     13016.00       70.60      0.55%
China: DJ Shanghai*         251.24      -11.82     -4.49%
Seoul Composite*            1113.19     -14.00     -1.24%
Bombay Sensex*              9015.18      -19.82    -0.22%
Baltic Dry Index                  1895.00       49.00      2.52%

*at Close

Asia Markets Fall on Deepening Recession Fears

Deepening economic gloom and fears about the health of the global finance sector pushed Asian shares to their lowest level this month Wednesday, prompting investors to move to low-risk assets such as regional bonds.

Japan’s Nikkei shed 1.5 percent to hit its lowest close in nearly 4 months as financial shares sank amid worries about European banks and credit concerns hit property firms.

Seoul shares closed down 1.2 percent led by financials on deepening worries about European banks, but technology issues outperformed helped by the weaker won currency.

Australian shares closed down 1.5 percent, led by top miners and energy stocks after copper and oil prices fell on more signs of a deepening global recession.

Hong Kong shares rose 0.5 percent despite fears the financial market and the economy may go down another leg. Global bank shares slid on worries over risks to European banks from the credit turmoil. Commodity counters came under further pressure after oil prices dropped 7 percent on Tuesday amid demand worries and stayed below $35 per barrel.

Singapore’s Straits Times Index closed 0.8 percent higher.

China’s Shanghai Composite Index fell sharply for a second straight day, down 4.7 percent as shrinking turnover suggested inflows of fresh money into the market were drying up.

Bombay Stock Exchange’s Sensex ended at 9012.83, down 22.17 points or 0.25 per cent. The index touched an intra-day high of 9113.92 and low of 8922.31. Bulls failed to gain control of the volatile session Wednesday as markets end flat with negative bias. Realty and oil&gas space ended higher as traders covered shorts while banking space

Over the past three to four years, one of Asia’s fastest growing industries has been exporting workers, especially to the oil-driven, construction-crazed economies of the Middle East. Remittances have become a major contributor to foreign exchange earnings and gross domestic products (GDPs), peaking at an estimated $116 billion in 2008.

Last year, remittances to Asia amounted to $8.9 billion for Bangladesh, $27 billion for China, $30 billion for India, $6.5 billion for Indonesia, $2.2 billion for Nepal, $1.8 billion for Malaysia, $7 billion for Pakistan, $16.4 billion for the Philippines, $2.7 billion for Sri Lanka, $5.5 billion for Vietnam and $1.8 billion for Thailand, according to International Labour Organisation estimates.

The inflows accounted for 9.5 percent of Bangladesh’s GDP, 2.4 percent of India’s, 15.5 percent of Nepal’s and 11.6 percent in the Philippines, the UN agency said.  Click here for the article.

Euro Shares Fall 1%; Banks Give Up Gains

European shares fell by mid-morning on Wednesday as banks gave up early gains and stocks trading without rights to dividend weighed on a key benchmark.

The FTSEurofirst 300 index of top European shares was down 1.3 percent at 755.78 points. The benchmark is down 8.5 percent so far this year after falling 45 percent in 2008.

Societe Generale fell 3.2 percent after an early 7 percent jump on a quarterly profit and higher dividend, and Commerzbank lost 0.7 percent after a 10 percent gain earlier in the session.Banks were the biggest sectoral loser on the index, with Standard Chartered Bank down 6.5 percent, Deutsche Bank falling 4 percent, Dexia slipping 6.4 percent and Unicredit falling 5.3 percent.

Energy stocks tracked crude oil prices, which fell about 1 percent. Royal Dutch Shell, BG Group, Tullow Oil, Repsol, Total and StatoilHydro shed between 0.2 percent and 2.2 percent. Oil group BP and miner Rio Tinto lost 2.7 percent and 4.5 percent respectively as they traded ex-dividend.

Other miners were also under pressure. BHP Billiton, Anglo American, Xstrata, Antofagasta and Eurasian Natural Resources fell between 2.6 percent to 3.6 percent.

The minutes to the Feb. 4-5 rate-setting meeting of the Bank of England (BoE) indicated that the bank is ready to embark on quantitative easing where central bankers start raising the monetary base in an effort to boost demand — as was practiced in Japan earlier this decade.

Oil Rises Above $35, Eyes Crude Supply Build

US oil prices rose above $35 a barrel on Wednesday, rebounding from Tuesday’s nearly 7 percent losses on renewed economy concerns, slumping demand and bloated inventories.

US light, sweet crude [ 35.0    0.07  (+0.2%)] for March delivery rose, while London Brent crude [ 41.6    0.57  (+1.39%)] for April delivery was up.

With March’s contract to expire on Friday, the April contract’s premium narrowed to around $3.60 on Wednesday versus nearly $8 last week, a sign traders believe swollen inventories in Cushing, Oklahoma, may persist.

The U.S Energy Information Administration will release its weekly inventory data report on Thursday, but a Reuters poll of analysts on Tuesday showed an average forecast for an increase of 2.6 million barrels, nearing an 11-year high.

Analysts said the bailout request and Obama administration plans to help homeowners would weigh on crude on Wednesday. Traders will also watch for data on US housing starts and January industrial production, as well as the Redbook retail sales index for February to look for new indications on the health of the world’s top economy.

Euro Pares Gains vs Dollar; Sterling Falls Broadly

The euro pared early gains on Wednesday, as concerns about the banking system and economy cut short a technical rebound after the single currency hit 2-1/2 month lows against the dollar. Sterling fell broadly as minutes from the Bank of England’s February rate-setting meeting showed policymakers voted unanimously to seek government consent for so-called "quantitative easing" though buying gilts and other securities.

The euro [ 1.2608    0.0029  (+0.23%)    ] was down versus the dollar after rising as high as $1.2639, according to Reuters data.
It had fallen to $1.2558 on trading platform EBS, its lowest since Dec. 4. It was flat against the yen [ 116.82    0.57  (+0.49%)   ].
Sterling [ 1.4212    -0.0024  (-0.17%)    ] was down versus the dollar after hitting a low of $1.4094.
The euro was up versus the pound [ 0.8869    0.0035  (+0.4%)   ].
The dollar was up against the yen [ 92.63    0.24  (+0.26%)    ] after rising to a more than one-month high of 92.75 yen on Tuesday.

Sentiment remained weak for the euro as banks continued to be crippled by soured assets and a global economic downturn showed no real sign of recovery. The euro also remained under pressure after Moody’s Investors Service had threatened to downgrade euro zone banks with significant exposure to the weakening economies in Eastern and Central Europe, and Standard & Poor’s said it may review emerging Europe bank ratings.

Data on Tuesday showed foreigners bought a net $34.8 billion in long-term U.S. securities in December, reversing outflows in the prior month. That was tied to so-called safe-haven flows, analysts said.

Gold hits 7-mth high as haven demand spurs ETF buying

Gold firmed to a fresh seven month high in Europe on Wednesday as investors spooked by the outlook for the financial system bought gold and bullion-backed exchange-traded funds as a safe store of value. Holdings of the world’s largest gold-backed ETF, the SPDR Gold Trust, leapt to a record high above 1,000 tonnes on Tuesday as fears of a deepening global recession and the prospect of inflation fuelled buying.

Holdings of the SDPR Gold Trust have surged by more than 228 tonnes in 2009 to date alone. The trust’s reserves now stand at 1,008.8 tonnes, as of Feb.17.  Among other precious metals, silver climbed to a six-month high of $14.31 an ounce, tracking gains in gold. The metal is also being lifted by flight-to-safety buying and interest in silver-backed ETFs.

Platinum meanwhile climbed to a 4-1/2 month high of $1,109.50, also boosted by gains in gold, with dealers and analysts reporting lower prices have boosted jewellery demand.

Gold hit a high of $973.50, its strongest since July 22, and was quoted at $967.35/968.95 an ounce at 1031 GMT, little changed from $968.35 late in New York on Tuesday.
Silver strengthened to $14.13/14.19 an ounce from $14.10.
Platinum firmed to $1,103.50/1,113.50 an ounce from $1,088, while spot palladium rose to $217.50/222.50 an ounce from $216.50.

Pharm Boy; why am I not surprised ?!?!?!

Ah Phil, you are catching on to O’s Newspeak … they’ve been parsing words all along.  It is not good.  The whole saving jobs stuff is complete BS.

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