Stocks are selling off around the world. And China is in the lead. The Shanghai Composite is down 23% since August 4. Former Morgan Stanley Asia economist Andy Xie says Chinese stocks have been in bubble mode and there are more declines to come.
The New York Times article is titled "AIG Rises, and Many Ask Why". After all, the company is 80% owned by the government, owes around $180 billion, is cash-flow negative and would be in even worse shape were it not for accounting changes that help it keep toxic mortgage assets unfairly valued.
And to top it off, the company is actively seeking buyers for its best business units, which will impair its ability to earn its way back to health.
Today was the big one. Say what you want about yesterday’s rally, the reaction to this morning’s 2Q GDP number should be expected to influence trading going forward.
Now, I’m going to let TradeMaster Jason Cimpl’s morning commentary to his traders provide the in-depth analysis to the GDP number:
Jason and I received an excellent question from a reader yesterday. "I am doing a 30 day trial of TradeMaster and have watched you last couple videos…an[d your]…email this morning suggesting [ULTRASHORT FINANCIAL(NYSE: SKF)].
Earnings season has been overwhelmingly positive so far. Only 16% of the S&P 500 companies that have reported so far has missed expectations. 75% have beaten expectations. That’s what happens when earnings estimates are so low that they are virtually impossible not to beat.
Wow. Huge rally for stocks yesterday. All the major indices have now broken above critical resistance levels. For the S&P 500, that level was 956.
The question for investors now: Is this a sustainable move, or are we experiencing some kind of a blow-off top?
The reason I ask should be obvious. Corporate earnings have come in better-than-expected virtually across the board so far. Only 16% of the S&P 500 that’s reported so far has missed expectations.
The earnings reports are flooding in. And while this season got off to a pretty good start with Goldman (NYSE:GS) and Intel (Nasdaq:INTC), we’ve seen a few companies come in with not-so-great numbers. Google (Nasdaq:GOOG), General Electric (NYSE:GE) and Nokia (NYSE:NOK) have seen their stock prices drop after they reported.
Oil dropped below $60 a barrel as consumer confidence came in below expectations. The belief is that when the American consumer is not confident, he or she does not spend money.
Earnings season has begun. Alcoa (NYSE:AA) kicked things off with a report that was better than expected, even though the company lost $454 million in the second quarter. Yes, nearly half a billion dollars.
Alcoa went on to say that aluminum demand will be down 7% this year. One analyst widened his loss estimates for the remainder of this year and 2010. And yet the stock is up 6% in the early going.
Yesterday, Reuters reported that the delinquency rate on credit card debt hit 6.6% in the first quarter of 2009. On mortgage loans, delinquencies hit 3.5%.
I can virtually guarantee both numbers were higher in the second quarter. And I expect them to move still higher in the future.
Unemployment will continue to rise. And even when it stops rising, it’s not going to magically reverse course, not when the U.S. economy is only growing 1% or 2% a year.
Thursday’s nasty sell off appears to be bleeding into today. Of course, TradeMaster technical analyst Jason Cimpl had us prepared for more declines today with his excellent video chart analysis that accompanied Thursday’s Daily Profit. If you missed Jason’s analysis, here’s the link again.
And so it begins. I’m talking about earnings estimate revisions for banks. And yes, they are headed lower. First up is Morgan Stanley (NYSE: MS). Credit Suisse analyst Howard Chen was expecting a profit of $0.80 a share. Now he says a $0.40 loss is more likely.
The Third Quarter is getting off to a rousing start. Economic data for the day is generally good - manufacturing shrunk less than expected and pending home sales rose more than expected. As of this writing (12:40 P.M. Eastern) the Dow is up 1.25%. Traders seem willing to forgive the larger than expected drop in private sector payrolls. We’ll see how long that forgiving attitude lasts…
Talk about boring. On Monday, around 10:30 AM, the S&P 500 rose above 924. By 12:30 PM, it rose to 927.99. Ignore the first hour of trading (when the S&P 500 made a comparatively wild 8-point swing), and the S&P 500 was confined to a 4-point range for 5 ½ hours.
Yesterday, the Fed scaled back two of its liquidity-providing programs and announced it would let a third one expire on July 1, 2009.
Each program was designed to provide liquidity to securities dealers and money-market funds that couldn’t raise funds in the capital markets. The Fed noted that none of the programs were used anywhere close to capacity. And the improving economy and loosening of credit markets has made the programs less necessary.
The Fed has spoken. Interest rates are not going higher anytime soon. And the Fed announced no change to its $1.75 bond purchase program. Bonds sold off, suggesting that traders hoped the Fed would do more to put a floor under prices.
The Fed made it a point to say that "…inflation will remain subdued for some time." But the Fed also hasn’t made any comments about target levels of inflation, or what levels of inflation would make it uncomfortable. With the amount of money being pumped into the system, this is a concern to me. Especially with commodity prices rising and the spread between 10-year Treasuries and 10-year inflation adjusted bonds (TIPS) increasing over the last month.
Stocks don’t like Mondays. This is the third Monday in a row that’s started with a gap down open. And volume has been on the light side each of these Mondays. What does it mean?
Low volume is usually interpreted to mean that there’s little conviction behind a move. That doesn’t mean the move itself can’t be large, just that it likely won’t follow through and may even reverse. Still, I can’t say I’d run out to buy stocks in anticipation of a rebound after yesterday’s drop.
Oil is down again this morning. The World Bank has lowered its growth projections for the global economy. In March, the World Bank was calling for a 1.7% contraction in global GDP. Now, it says the global economy will shrink by 2.7%. That’s a pretty big revision.
The forecasts for China and India are about the only bright spots.
So now the government is actually going to subsidize car sales with up to $4,500 in incentives for car buyers who get rid of cars that get 18 mpg or less.
I understand that the auto industry is hurting. And I also get that more efficient cars help reduce our dependence on foreign oil. But is it appropriate to use tax payer dollars to fund auto purchases?
10 banks have paid back $68 billion in TARP loans. Including some smaller banks that have already repaid loans, the total is now over $70 billion. Even though the repaid money was raised from secondary stock offerings, which dilute shareholder value, it’s still something of a positive sign, I suppose.
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