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Monday, July 15, 2024

Wednesday When Wen Chips In

China is leading the markets this morning.

Word is that Chinese Premier Wen Jiabao may announce new stimulus measures tomorrow, adding to a 4 Trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world’s third-biggest economy.  Wen will announce “a new stimulus package” in his annual address to the nation’s legislature, former statistics bureau head Li Deshui told reporters in Beijing today.  That was enough to send the Shanghai soaring 6.1% with the Hang Seng jumping right to the 2.5% rule, finishing at the high of the day in a bullish move up

Copper futures, which we have been watching closely, went limit up in Shanghai trading, oil jumped back to $42.50 and the Baltic Dry Index hit 2,034, a very far cry from the 700s we were seeing in the Fall. China will spend more on infrastructure and to boost manufacturing in addition to the stimulus package announced in November, Reuters reported today, citing an unidentified official at the country’s top economic planning agency.  Wen’s speech to the legislative meeting, which starts at 9 a.m. tomorrow, will be the equivalent of a U.S. State of the Union address, setting priorities for the year.  Keep in mind that China's GDP is "just" $3.5Tn, a $600Bn stimulus from China's leadership is like a $2.6Tn stimulus bill from us, not the $787Bn Washington is wringing it's hands over.

The Nikkei "only" gained 0.85% on the day but that doesn't really tell the tale as the index jumped 200 points off the bottom (2.8%) as Bank of Japan board member Miyako Suda said today the central bank should signal that it’s prepared to take “bold” measures to counter the recession. Japan’s lower-house of parliament approved a bill that will free up about 5 trillion yen ($50 billion) for economic stimulus.  This kept the dollar from falling below 100 yen, which is a line Japan would really like to avoid crossing again. 

This suits us just fine as the final play of the day, at 3:34 was: "Now is a good point to reload on those SKF plays.  The $170 puts are back to $11 (from $14), the $120 puts are back to $1.45, the $270 calls can be sold for $9.70.  Once again we have an air pocket under the gains, it’s a little tougher into the close like this as there is a risk of a spike up tomorrow so nothing you can’t roll or DD if they move up."  Nonetheless we went into the close slightly bearish (55%) but fortunately we also took our long puts off the table at the bottom and switched to puts that had lower downside deltas as we expected a bounce.

The level of the bounce will be critical today.   We have the ADP Employment Report, which is expected to be awful at 630,000 jobs lost in February but there were so many auto industry layoffs that month that you need to take that number with a grain of salt.  ISM services are expected to be dreadful at 42, oil inventories should show a continued increase in gasoline demand and, at 2pm, we have the Beige Book, the Fed's anecdotal take on the economy through the end of January.  As with yesterday, we're not going to be excited about anything less than a 2.5% gain on the day in our major indexes. 

Keep in mind that we have had just ONE positive market day of more than 1% since Feb 9th – this week marks the 4th straight week of declines that are averaging 100 points a day on the Dow so a 100-point gain is just a blip in the data, not a rally.  Bloomberg has picked up on my premise that the greatest stimulus in the world is not coming from any country but from the declining price of oil, which stands to put $1.7Tn back into consumer pockets this year:

It’s a savings which is approximately three times larger than the entire announced 2009 fiscal stimulus of China and the western economies combined,” Longview's Chris Watling said. “The savings from the fall in the price of oil will go straight into consumers’ and businesses’ pockets, will not be impeded by bureaucracy and WILL happen, unlike parts of the fiscal stimulus, which are likely to be delayed.”  That's $1.7Tn that will go to buy other consumer goods, pay off debts, mayber even get saved

While we do want to believe in rallies, for today at least we will be using this opportunity to roll our new long index puts higher while they are being offered to us cheaply – just in case!  EU markets are coming off the floor with the DAX leading the way, up 2.1% (8:30) but we need them to break through their own 2.5% mark at 3,800 to confirm a good move for the day.  Watching the FTSE yesterday let us know that the US markets weren't going anywhere and 3,600 is our must hold for the day but they've been rejected there already in early trading.  The CAC also hit resistance at 2,650, so a pretty well-defined set of goals for the European markets between now and lunch.

The BOE and ECB step up to the plate with rate announcements tomorrow morning and British PM, Gordon Brown just met with Obama.  That's Hillary meeting with Wen last week and Obama meeting with Japan's Aso at the same time and it seems we have a coordinated global move to move the markets

  • Swiss central-bank officials have in the past few weeks indicated that their next monetary-policy steps could include elements such as buying government bonds to boost the amount of money in the Swiss economy or intervening on the foreign-exchange market to weaken the Swiss franc or stem a rise in its value relative to other currencies.
  • Separately, U.K. Chancellor of the Exchequer Alistair Darling indicated the Bank of England could boost the money supply through the purchase of assets such as government debt as soon as this month. "We've given them the levers," Mr. Darling said Monday, according to an interview published by the Daily Telegraph.
  • ECB governing-council member Christian Noyer said the central bank for the 16 countries using the euro is studying whether to go ahead with plans to release more money in to the economy by unconventional means, saying the ECB is considering all options.

 I've been seeing a lot of bear arguments that have been based on the premise that the S&P earnings are down considerably and, in fact, the S&P as a whole has lost about 56 cents on the quarter.  But if you take out JUST AIG – it turns into a $4.57 profit.  Why then, I ask, should I be dumping my IBM stock because FRE and FNM are dragging down the S&Ps earnings?  IBM earned $3.03 last Q vs. $4.57 for the non-AIG S&P – does that make them worth $15Tn (3/4 of the S&P)?

"There are 3 kinds of lies," Mark Twain wrote over 100 years ago: "lies, damn lies and statistics."  Of late, the media is having a field day with all three of them but we have been trying to focus on the FACTS – which are very hard to get to beneath all the layers of BS.  You can tell me you don't think that a global stimulus package that amounts to close to 20% of the global GDP won't matter but I just can't accept that.  Yes we will have inflation down the road but what we won't have is a 1930's style depression -the global economy does march on.

Have a fun day – we deserve it!




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