It’s the banks,stupid
Dow Jones up 279 @ 8,228
SPI up 46 @ 3,474
CRB up 4 @ 219.95
Oil up $2.71 @ $43.55
Gold down .15 @ 854.15
Copper (March delivery) down $7.10 @ 143.35 (BHP saying demand will fall)
U.S 10 year bond yield rose 16 bp @ 2.55%(supply worries plus stocks ralling)
The Hindsight
Only one story and that was the bank stocks rallying. The market in yesterday’s carnage was almost assuming the U.K and the U.S are the same country; the nationalisation of the biggest bank, Bank of America just ‘aint going to happen. Sure the Brits have more nationalising to do who knows how far the government will go, I don’t think anybody does including Chancellor Darling. Incidentally, has the UK collapsed? The pound hit a 25 year low, it appears every UK bank will be nationalised and the oil reserves are drying up…Maggie Thatcher must now be in a straight jacket.
So the main reason for the rally was the report published showing that the Bank of America’s CEO, Ken Lewis and 6 directors all bought shares on Tuesday around $6.00(closed today @$6.68). Now these guys aren’t stupid(although their predecessors were) as they aren’t going to fork out over $12 mln of their own money if Bof A is going to be nationalised or has fatal funding issues.The cynic in me almost cry’s ” Insider Trading” but its all good as it propelled the Dow higher and caused a “Warren Buffet” style rally. …..Hey Wazza, I know you bought B of A shares about $20 higher a few months back so how about averaging in?
BHP shed 6,000 workers(out of 101,000) and wrote down $1.7 bln. Intel shed 2,000 mostly in the Philippines and Malaysia (buy San Miguel shares?).The worlds biggest miner also cut back production and were pretty gloomy about the future demand but as is always the case, the shares rallied as traders needed to know all the gory details no matter how bad.Take note the Australian banks as these guys have been worryingly silent (apart from raising more capital via selling bonds) and this uncertainty is seeing their shares getting hammered almost day in day out.Guys an idea…… flag to the market about how much bad debt you have and then see your shares recover…we can’t wait till February!
The Foresight
In my previous report I stressed the importance of the 8,000 level must hold to confirm the bottom.Now it is interesting to note we broke through that level hitting 8,735 on Wednesday and have since rallied nearly 300 points. So was that a “false breakout” or the signal for another fall? According to one analyst(I won’t mention his name as my lawyers have enough on their plate as it is) who said the Dow held the 8,000 level, OK, so a close under 8,000 didn’t occur?! I’m truly in 2 minds as I’m sure the day traders pushed it through 8,000 to trigger sell stops(which worked) thus it could be termed a false breakout and treated as such. In conclusion I need to see how the Dow trades over the next few days; if we never return to 8,000 then get long, if we do and close under it for a few days then that confirms we have another 500 points to fall. So the next few days/week is crucial. It will always be about the price action.
I did also advise to sell U.S 10 yr bonds when yielding 2.39%. Today their yields rose (price fell) to 2.55%, a chunky 20 basis point rise.This trade has plenty more to run and I’m targeting the yield to hit 3% very soon. The reasons are many; chart, the supply of debt, the Obama stimulus and the dwindling appetite for U. S bonds from foreign investors (see previous report). Also, and this surprisingly hardly got any coverage (but it is very important) is the news that South Korea said it has no more interest in buying U.S bonds . Now I can understand the North Koreans saying that but when one of your many financiers pulls the plug (and they have already invested many billions in bonds) it has to cause alarm bells. Lets just hope the likes of China(owns 2 trillion of U.S bonds), Japan, Europe and the Arabs don’t follow suit, if they do then I advise you to literally go into your bunker and stockpile food! The U.S going bankrupt will be armageddon.
Tonight we see U.S housing data and the weekly unemployment claims; they will have no market impact despite what the talking heads will tell you…those guys have to make a living as well!
In my next report I will be explaining the application of Fibonacci and its meanings.
Have a great day.
QUOTE OF THE DAY: “When a man talks dirty it’s called sexual harrasement when a woman does it’s $3.75 per minute”