11 December 2008

Eye-catching Excerpts from Other Blogs

Phil Davis is now 60/40 bearish in his portfolio. However, some of his thoughts today suggest that he should be significantly more bearish:

While the House stayed late and passed a $14Bn rescue package for the big 3 (less than 1/2 of what they admit they need), the Senate Republicans are threatening a filibuster to stop the bill dead there and that will give us the same kind of chaos the TARP vote did, which was not at all good for the markets.

Asia was up about half a point today as South Korea cut its rates a full point to 3%, the fourth cut in 2 months (have I mentioned I like gold lately?). India said they don't THINK attacking Pakistan is a good solution to terror attacks, but it is being debated. Europe is down about a point in morning trading ahead of the US open as riots in Greece underly the deteriorating jobs picture over there. Very unfortunately, in both Asia and Europe, the energy sector is leading the markets - a real fine example of fiddling while Rome, as well as Athens, Beijing, Moscow and Tokyo, burn…

Speaking of Moscow burning - The Ruble is on the rocks and much closer to collapse than you may think. If oil does persist below $50, the Russian economy may fall and that will imperil the Baltic states as well as the breakaway nations that have joined Europe but are still in Russia's economic sphere of influence. A breakdown in the 'stans will harm Asia as well, and this was one of my "worst case" possiblilities for the market along with GM failing (still on the table) and a major bank failing (not off the table) - any one of which can take us to 7,000.

That, my friends, is how we end up back to 60% bearish during yesterday's rally - let's hope I'm wrong and we have a reason to swing back to neutral after we get through tomorrow's Retail Sales report, but, with the international news flow such as it is, it's going to be hard not to be a little bearish into the weekend.

Bespoke shows that the share price of Goldman and Morgan Stanley have levelled out even as earnings estimates continue to plummet:

Expectations for anything positive to come out of Goldman's and Morgan Stanley's earnings reports next week have gone the way of the dodo bird. Earnings estimates have been lowered day in and day out since the start of September, and currently, Goldman's Q4 EPS estimate is at -$3.50, while the consensus EPS estimate for Morgan Stanley is at -$0.25.

Below we provide historical charts of Q4 earnings estimates and stock prices for both GS and MS. As shown, even as the two stocks have begun to form a nice base in recent weeks, earnings estimates have continued to collapse. This suggests the market has already priced in doomsday reports from both companies.

I'm not sure I agree with Bespoke's assessment that the market has already priced in the upcoming disastrous earnings reports from Goldman and Morgan. Just looking at their charts, you can see the share prices basically track the lowering earnings expectations up until recently. Why haven't the share prices continued to track? Maybe they will shortly.

Trader Mike thinks the market is overbought:

Yesterday it felt like we were back in a market with normal volatility levels. But the VIX, which is still in the fifties, says otherwise. There were a lot of NR7s made yesterday, so perhaps that was just a slight pause before we get back to range expansion. Given the indices’ overbought stochastic readings and the looming 50-day moving average I think the odds of a downward move is more likely.

Finally, is it filibuster-time in the Senate?

The prospects of a $14 billion government rescue of the American auto industry seemed to vaporize Thursday morning as the Senate Republican leader, Mitch McConnell of Kentucky, spoke out forcefully against the bill, effectively dooming its chances despite the urgings of the White House.
But the more crucial test is in the Senate, as Thursday’s developments demonstrated. Senate Republicans on Wednesday rejected an appeal by the White House chief of staff, Joshua B. Bolten, who urged them to support the bill. Instead, some Republicans have called for the automakers to seek bankruptcy; while others said there should be steeper concessions by labor and creditors.


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