Well after a day off we have plenty of news – most of it will not fundamentally change economic conditions, however it could have a perception impact to the market forces. Everything from Fidel stepping down, Wal-Mart, Oil, MBIA CEO stepping aside, to mortgage rates accelerating.
The pre-market futures are getting a little blast to the upside – how much of that is optimism (at this point who knows) it could get a follow-through.
------------------------------------
Fidel Wins?!?
Whether you hate him or just not like him, the reality is that the little dictator stood 50 years and through 9 presidents. The little island has put egg on the face of the US for a very long time. I had visited Cuba and Havana back in the mid 90s and I must say it is a very lovely country. I ran into many Germans, Canadians, French, and English all of whom told me the ridiculousness of the embargo – but they all didn’t want it to end – cause they didn’t want an invasion of US cruise ships and tacky t-shirt shops. Verdedo (sp?) beach, just East of Havana rivals any resorts you would find in Hawaii – all owned and operated by Europeans. Castro need money have the fall of the Soviet Union and capitalism entered his country via tourism and massive resorts. I told a friend about these massive resorts, he didn’t believe me (he bought in to the American Propaganda – yeah ever country has propaganda, even the US) – and I loaded Google Maps satellite view and we zoom over East of Cuba and you could see the new resorts, massive pools, and excellent beaches.
Regardless, Cuba IS a poor and repressed country. It has no middle class, you are either poor, wealthy, or a tourist. Fidel was also a horrible dictator as well, no denying that. But the country is beautiful, the people are incredible, Havana is like stepping into the past, and the resorts are very nice.
The market seems to be getting a positive rally from this – but what does it mean for Cuba’s future? Who knows – the market seems happy that he is gone, maybe the US will drop the embargo (which really hasn’t hurt Cuba – since every country in the world – even our neighbors Mexico and Canada - have no barriers).
Only time will tell – but what I really hope is that the US doesn’t get to strong a foot hold in Cuba. If you want to see what the US does to a foreign tourist destination just go to Cabo San Lucas (the streets are lined with t-shirt shops, margarita villes, and a litter of tacky shops.)
For now – it’s just injecting some optimism into the market…..but Fidel resigned, he wasn’t over thrown and there is still a dictatorship government….
-------------------------------------
Wal-mart – making sense from the numbers
Wal-mart said 4th qtr profits rose more than estimated after it increased discounts on holiday sales. Flat-screen TV sales seemed to be the salvation as they were the big mover. However, full year earnings fell below analyst’s expectations. “While the 4th quarter did see a rise in revenue, the year fell flat of expectations and future profits will see stress from the consumer slowdown”, said an analyst this morning on CNBC after the earnings release. Full year will be at $3.43 a share – below forecast.
The good news is that Wal-mart out-paced Target for the first time in several years. Wal-mart caters to a wider range of shoppers buy a larger hardware and grocery section which is capturing additional sales. The recent Wal-mart mantra is a one-stop-shop and it seems to be working. While the groceries margins are very small – it does drive traffic and pays for itself. With the slow-down in the economy – Wal-mart is looking to capture more business as people start taking notice of HOW much they spend and WHAT they spend it on. Wal-mart’s low prices and wide variety of products is putting the squeeze on both the super markets and other retailers. Wal-mart could be the new recession retailer – maybe their new slogan is “Where do you shop in a Recession? Wal-mart – the one-stop-shop place to save!”
However, they will also be seeing a slow-down and expect to earn between .70-.74 cents a share for the next qtr and $3.30 - $3.43 for the year. Analyst surveyed on Bloomberg expects the higher-end of .74 per share for the 1st qtr and $3.44 a year. These recent projects by Wal-mart (lowering their forecast ranges) has put a halt to the pre-open rally in the stock after the earnings. Wal-mart is pulling off their highs in the pre-market. It may still see a pop at the opening, but as more “talking heads” pour through the numbers and see that Wal-mart is lowering forecast – it could over shadow their better than expected 4th qtr results. Remember, earnings are how they DID not how they will DO!
--------------------------------------------
MBIA CEO stepping down
Another CEO bites the dust, this time the head of one of the world’s largest bond insurers. With all the concerns floating around the bond insurers, their need for more money, the vultures circling, and now federal investigations – well the fire got too hot for the CEO and so he pulled the rip-cord on his Golden parachute and decided NOW was the best time to start playing golf and leave this steamy pile to someone else.
The stock is getting a boost in the pre-market, but remember – just because the CEO stepped down does not mean MBIA is all of a sudden a solvent and viable business – there is still a long and bumpy road for this sector.
-----------------------------------------
Mortgage Rates Rising???
Initially the avg. mortgage rate spread back August of last year (before all the rate cuts – Fed was at 5.25) was about 1.25 at 6.5%. The mortgage rates initially started coming down, along with the fed rate cuts and the spread WAS in lock-step – but then is started widening and fast. More recently in the last 30 days. The spread has now exceeded 300 bps and mortgage rates are on the rise.
There are several factors are work, first the mortgage companies are trying to make up for losses – the bigger the spread the bigger the profits. Secondly, lending restriction went from fully slack to extremely tight. But the most alarming has been the bond insurers recent troubles and their lack of having the funds to cover the losses of the CDOs. Couple that with banks needing money and looking to severally reduce their leverage – the sale of ALL paper (even ones that are “really” AAA credit) and it seems to be a mass exodus from mortgage securities.
So far the rate cuts have ONLY helped the institutions – none of the home owners are getting the break and are recently seeing an avg of 6.3% mortgage rates. An interview with a some manager of the real-estate agency group (forget the name of their association) actually said mortgage rates are down and this is a good time to find value property. Thank god the interviewer on Bloomberg had some sense and said well they are down only 25 basis points, but the fed has cut over 200 bps – are we really seeing the discount pass through to the consumers? Of course this guy had the stump-speech answer, 6% are traditionally low rates – even during the boom.
The reality – things are very VERY tight. Mortgage companies (banks) don’t HAVE money to lend and what money they do have will only be lent at the biggest spread possible (currently exceeding 300 bps) and to very VERY solid assets (like a 50% under the assessed value) – if they had their druthers. How does this affect the market? Well – it will put more pressure on the housing market, since the tighter lending has just stripped out a massive amount of potential buyers. It will keep the housing market depressed and could possible force prices lower as sellers may need to unload and dropping the price maybe the only way to find a qualified buyer. Expect the housing market to continue to slide.
--------------------------------------
Oil heading back to $100 – sure why not?
Nigeria has been having problems in production and OPEC has been making up the short-fall. OPEC is already just below maximum extraction and China has been demanding MORE oil. OPEC actually is indicating that they are looking to cut production – because of supposed over-supply. While it might be true that some sectors are over supplied – China, India, and several over nations in Asia are expanding and are in under-supply problems.
OPEC is also facing another problem – the US Dollar which has fallen against other currencies. Rumors the last several months have indicated insider talks of re-pricing oil to the Euro, thus cutting the dollar’s strength off at the knees and it would also most probably lose its status as the world’s reserve currency – since many nations hold US dollars as reserves (and a chief part of that is oil is priced in dollars – oil is still the world’s life blood).
Oil is ripping in the early morning hours (up $2 to $97.50) – expect this to put more pressure on the market and the US dollar.
----------------------------------------------
Futures Pre-Open
The futures are getting a good pop from Fidel stepping down and Wal-mart having better than expected earnings. The futures are front running the cash by about 5-8 points going into the opening. The ARB traders will be out in force shorting the futures and legging into the long basket – so expect a good pop at the opening. But after that – there is really no FUNDAMENTAL news to get this market going – we could pull back.
---------------------------------------------
Support / Resistance
Friday was pretty flat and we were closed Monday – it would seem the market is trying to play catch up to the rest of the world. Whether this is a sign of a real rally – well who knows. The market is getting VERY WEDGY – expect a BIG MOVE – up or down!!!!
INDU 12250 / 12500 (these are narrow bands of support / resistance – don’t go long or short at these areas – they just need to close above or below them to give any indication of future direction towards 12,000 or 13,000)
NDX 1800 (We need to close above this to see strength return)
SPX 1350 (It’s the pivot point )
RUT 700 (Pivot Point)
-------------------------------------
Conclusion
I have not seen any good “fundamental” news that the economy is turning around – great news about Castro stepping down and Wal-mart having good earnings is one thing – but not enough to turn this economy around. The rate cuts have not filtered through to the man on the street and oil is rallying again (fast). The dollar will probably continue to slid. We are NOT at the bottom.
The market is getting very wedgy – and will is getting loaded to make a big move. Expect BIG MOVE up or down – when it comes it will move fast and hard. Be ready.
I would make very sure that you are hedged to the down-side – especially if oil breaks 100 or the Euro breaks 1.50.
No comments:
Post a Comment