Preview from Europe: Stocks Hold Up While Waiting on Obamulus

Here is a new word for your lexicon: Obama + Stimulus = Obamulus. In a word, that is what the market is focused upon plus key bellwether earnings reports due Thursday from JP Morgan (JPM), Intel (INTC) and Genetech (DNA). Indices turned around yesterday after Bernanke’s (“I’m all in”) LSE speech and word that Senate Majority leader Reid believes he has enough votes to get approval for the additional $350bn of the TARP. So, led by financials, the blue chip Dow finished only modestly lower with the broader indices and the NASDAQ getting their head above water.

Today’s Market Moving Stories

• Japanese stocks got a little lift overnight on news that Toshiba (TOSBF.PK) is in the final stages of talks to buy Fujitsu’s (FJTSY.PK) hard drive business. This would make them the world’s largest supplier of small hard drives.
• President elect Obama nominee for Hank Paulson’s job at the Treasury is under a bit of pressure over being a tad tardy paying his federal taxes.
• The US Federal Reserve and FDIC have called on Obama’s Treasury team to use the second $350bn of the TARP for the originally intended purpose - buying toxic assets from the banks in an effort to clean up their balance sheets. The two said that by using the TARP in this way, banks will be able to get themselves into a position where they can attract private capital and then will be in a position to increase lending. These are the very same arguments the market discussed last year when the TARP was first floated.
• Note the huge fall in the US trade balance deficit (-$40.44bn actual vs. -$51.40bn expected) yesterday as imports collapsed. This followed the stunning retreat in exports data from Germany, Japan and China.
• Such has been the decline in Asia to Europe shipping traffic that some brokers are waiving container fees and only charging for the bunker costs. In other words, container rates are now trading below operating costs.
• Irish PM Cowan’s comment about the IMF this morning has caused a huge stir, but I feel he is being totally misquoted. He was replying to some rather hyped scare mongering comments by a Trade Union leader Dan Murphy ahead of talks on pay cuts which are pending. The Irish PM is in Japan at the moment. Mind you a closed mouth gathers no feet at times like this.
• Siemens' (SI) (Europe’s largest engineering company) Q1 2009 orders have dropped “significantly”.
• Crude oil prices are up about 3% on the back of comments from Saudi oil minister Ali Naimi that the country would cut its February production by more than the target set at the last OPEC jolly up. This has prompted the usual knee-jerk reaction in energy stocks this morning.

More Major News From The Big Banks
Citibank (C), which once bestrode the world like a colossus, will probably break itself up. A “good bank/bad bank” solution seems to be the preferred choice at the moment, with Citi splitting off the consumer finance and securities business (higher risk) from its commercial banking operations. In other words it wants to shift the credit card business, where there remains considerable risks, to one side. Some $600bn worth of assets are expected to be placed in the ‘non-core’ unit (i.e. the bad bank).

Shares of banking behemoth HSBC (HBC.B) are likely to feel the heat today after a Morgan Stanley report that the company may need to raise as much as $30bn in fresh capital and cut its dividend in half. If the last 18 months have one constant, it’s that expectations of a rights issue or any form of dilution means your stock price tanks.

Barclays’ (BCS) stock price is down 10% on a JP Morgan equity report outlining its views as to how much additional cash the UK banks need. Barclays is feeling the pain more because the UK government is not already in there as a shareholder. If the government does need to get involved at any stage, the share price is going to get hosed. Barclays are also going to cull 2,100 investment banking jobs. This signals that Barclays are backing down from the aggressive growth and hiring strategy that it had been sticking with despite the awful industry backdrop.

Eyebrows have been raised with news that JP Morgan is going to move forward the release of their numbers to Jan 15th. No doubt they have some great news and glad tidings from the frontline to air?

Those Pesky Equity Analysts
It’s getting to the stage where equity analysts are ranked below even accountants/ auditors and economists like me are at the VERY bottom of the evolutionary food chain. Take the case of two of the United States' largest banks, Citigroup and Bank of America (BAC), who are due to report in the next few days. There is a wild divergence of opinion among these alleged expert analysts about what we should expect earnings to be. For Citibank the range of forecasts runs from a loss of $0.47 to a blowout of $1.57. For Bank of America, the range is -$0.25 to +$0.59. Given the sheer amount of people who cover these stocks, how can this be? It’s not like they are trying to second guess the results of an illiquid mid cap corporate about which there is little information!

Data Today
The major event today is December’s US Retail Sales (expected –1.2%, ex autos –1.4%) at 13.30GMT. Weak weekly chain store sales numbers and earnings warnings from the retail sector point to a very sluggish holiday period as huge job losses, falling house prices and the credit famine weighed heavily.

And Finally… Play The Bailout Game
The Bailout Game

Disclosure: None

Comments

[SW Richmond:]

Faith in Obama and "change we can believe in", anyone? Those pesky IRS regulations:

"Source: Treasury nominee failed to pay taxes"

apnews.myway.com/artic...

"WASHINGTON (AP) - President-elect Barack Obama's choice to run the Treasury Department and lead the economic rescue effort disclosed to senators Tuesday that he failed to pay $34,000 in taxes from 2001 to 2004, a last-minute complication in an otherwise smooth path to confirmation.

Timothy Geithner paid most of the past-due taxes days before Obama announced his nomination in November, an Obama transition official said. The unpaid taxes were discovered by Obama's transition team while investigating Geithner's background, the official said."

Jan 14 07:33 AM

[Maxe Paul:]

Ha Ha, i love the bailout game, very clever, i made it to the leader board. Im thinking of applying to be the federal treasurer. Can't be that difficult surely!

Jan 14 08:26 AM

[OldLimey:]

Given that it's impossible yet to get a handle on bank balance sheets (i.e., whether write-downs have to date been adequate and asset values are realistic), earnings reports belong on the 'fiction' shelves. Perhaps the range of estimates reflects the breadth of scope open to managements for a bit of creative accounting. Still, the Street will continue to live in its parallel universe and do its best to suck our money into it.

Jan 14 10:40 AM

[searcher:]

Clearly, the range of earnings estimates reflect the discretionary aspects of bank accounting that have always existed. These ranges likely rest on the analysts' guess of when the bank in question will meld any portion of the cards in their hand.

Jan 14 11:29 AM