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Saturday, June 15, 2024

Tuesday Already? G20 Stimulus Hot Air Inflates Global Bubbles

We’re playing catch-up on the global markets this morning.

The Nikkei gapped up 100 points on Monday morning, right over the critical 10,200 mark and the index has gained another 100 points into this morning’s close so up about 1.5% in two days.  The Hang Seng has continued it’s strong 5-day recovery, where it’s up 1,500 points in 4 days, back to 21,000 and up 7.5% from the bottom while the Shangai Composite is back to 2,930, neatly completing a 250-point bounce after the 800-point drop, right in that 32% Fibonacci zone so the 3,000 line is going to by hyper-critical to determine further strength in China.  Europe is up at well but the FTSE, CAC and DAX are all running out of gas at the 5% rule over 5 days of trading back up.

Although the G20 pledged this weekend to continue to throw money into the global economy, US indexes are nowhere near 5% gains off last week’s lows but they are working on that in the futures as we are up about 1% across the board.  We’re not going to make 5% so let’s be real (this is not China yet, that flag gets raised over the White House later this month) – 4% gains off the lows can take us back to:  Dow 9,600, S&P 1,030, Nasdaq 2,038, NYSE 6,700 and Russell 577.  Since the S&P, NYSE and Nas would all be at about new highs for the year, that in itself would be some trick so let’s watch Russell 577 as the line in the sand because they’ve been well above that mark and should have no trouble getting over that line if this rally is real.   Otherwise, it may just be another round of pre-market pumping on light volume trying to foment excitement that doesn’t really exist during actual trading hours.

I am in the process of a major review of the market crash and I’m still not convinced we should be over 9,100.  You can read Part 1 and Part 2 of my commentary, which takes us through the events leading up to the March crash so far so perhaps that is why I’m still feeling bearish this morning but I do wonder how do we really know this 20% market run (from July 10th) is all that different from the 20% run we had from November 20th to January 5th.  4M people have lost their jobs since Jan 5th and the job seeking population continues to grow at the usual 120,000 a month so that’s another 1M jobs missing.  2M homes have gone to foreclosure and 1M Americans have filed for bankruptcy and wages have failed to keep pace with inflation by a whopping 5% in just 8 months

The corporate tools on CNBC are celebrating the productivity numbers (while GE gets a plate-spinning upgrade from JPM this morning) but that is just Wallspeak for "workers are getting paid less to do more."  That kind of logic works well when those workers are 8 year-old Korean children making WMT clothes for the Kathy Lee line but when those slave laborers are the American consumer – the shopping equation has a danger of falling apart down the road. 

Your stock virtual portfolio better be up at least 1% this morning.  That’s what it will take to keep up with the diving dollar, which lost 1.5% against the Pound (now $1.655) since Friday’s close and 2% against the Euro (now $1.45).  The dollar is back down to 92 Yen and oil is back at $70 and gold hit our upside target of $1,007 this morning so we’ll see what sticks in today’s trading.  The biggest market-moving news of the morning is KFT’s $16.7Bn offer for CBY (which is the first stock I ever owned)  at a 31% premium to today’s price and CBY REJECTED the offer saying that the offer "fundamentally undervalues" the company.  This is giving confidence to investors who all believe their favorite stocks to also be over 31% undervalued although it should be noted that Friday’s close at $37.50 was indeed 46% below CBYs 2008 high while the people running into HSY on the same premise are getting a stock that’s just 30% off it’s high.

So KFT, who we have to figure does their homework before offering $16.7Bn to expand their $41Bn business, decides that CBY is worth LESS than their 2008 highs, even though they will gain tremendous cost savings in the acquisition.  Also, it should be noted that KFT is offering mostly stock and they are just 15% off their own 2008 highs and the offering would be dillutive…  The bottom line is KFT is willing to pay a forward p/e of roughly 12 to buy out a huge synergistic competitor.  This is not something to get all that excited about.  As a business consultant, I would urge any of you who have a business and the cash-flow to do it to buy out your competition for a forward p/e of 12 as you can use their own cash-flow to finance the aquisition and drop earnings to your own bottom line through consolidation of operating expenses and other efficiency savings

So KFT doing what a business should do does not mean you should be running out and buying AMZN with a forward p/e of 35.  You have no synergies with AMZN and there are no major ways you are going to increase their efficiency by buying 100 shares of their stock is there?  Will another industry competitor come by and offer more the $34Bn market cap AMZN is now commanding?  AMZN does not pay you a dividend to wait so they either grow or die and your purchase is based solely on your hopes that a "greater fool" will be coming along to buy your non-controlling shares of AMZN stock from you for more than $78. 

I don’t mean to pick on AMZN – I like them but I’m not buying them now because I’m not yet sold on the growth story and that is the only possible story that you can base a purchase on for AMZN.   Many stocks are in the same boat and the index that tracks boats and shipping, the Baltic Dry Index, has flatlined at 2,400 for 2 weeks and is not looking all that healthy.  That is down almost 50% from the June highs so one would have to wonder if shipping is that far down, what economy is it that people are buying?  As I mentioned, that subject will be explored in detail later this week as I complete my review of the stock market crash of 2008-2009.  For now, we’re going to watch our levels and see what holds.

Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand. Financial markets are stabilizing and the global economy is improving, but we remain cautious about the outlook for growth and jobs, and are particularly concerned about the impact on many low income countries. We will continue to implement decisively our necessary financial support measures and expansionary monetary and fiscal policies, consistent with price stability and long-term fiscal sustainability, until recovery is secured.

We have made significant progress in strengthening the IFIs, but more needs to be done. We are close to completing the delivery of $850 billion of additional resources agreed in April, including an expanded, more flexible New Arrangement to Borrow; and $50 billion to support social protection and safety nets, boost trade and safeguard development in low income countries.

So party on markets, Daddy hasn’t stopped handing out the cash yet and as long as the G20 is willing to continue to spend $5Tn a year to stimulate the economy, I have nothing but faith in our ability to continue recovering.  This is nothing we didn’t expect – as I’ve said, Christmas MUST be saved this year but I don’t actually think this is enough to do it.  We still need to make significant progress helping the actual people who are suffering, not just the corporations and the commodity pushers or this will be on short little ride back to the top.  

Let’s be careful out there!



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