Preview from Europe: Stocks Go Cliff Diving Again

It's amazing what you can buy for a buck or two these days. The un-happy meal menu of stocks features Citibank (C) at $1.02 and General Motors (GM) at $1.86 as the death spiral beckons. There are times when too much drink is simply not enough as the horror show continues unabated. Yesterday’s laughable notion that the Chinese authorities are in control of events and would be able to turn their export driven economy around displayed the kind of naivete and misplaced optimism not seen since the Alamo. Where are they going to export to?

Any respite today? Unlikely, with non farm payrolls to be released, Citibank all but nationalised by default, genuine fears of GM bankruptcy, General Electric (GE) needing a massive capital injection, volatility spiking back above 50 and the US government increasingly seen as overextended.

Today’s Market Moving Stories

• Another very bad day for financials yesterday, post Aviva’s (AIVAF.PK) dreadful results. Aviva’s share price ended up falling a third and took UK life insurers Prudential (PRU) and Legal & General (LGGNY.PK) with it. The two latter insurers have yet to report full year results although both have made somewhat comforting statements about their year end capital positions. Trouble is that plunging equities, falling property values and wider credit spreads can only spell out a much weaker Q1.
• Barclays’ (BCS) share price was on the skids yesterday, down 24%, after a particularly negative equity report predicting two years' of losses. Its market cap is now down to £5.5bn so if the government does need to come to the rescue, there won’t be a lot left on the table for shareholders due to the dilution.
• In related developments, the BBC is reporting that the UK government is on the verge of upping its stake in Lloyd’s (LYG) to 60% (from 43%). The FT has a different spin on this story putting the taxpayers' holding at 70% while they get the dubious honour of insuring £258bn of toxic “assets”.
• At $1.02 Citibank shares are down 98% from the peak in summer 2007. The firm’s market cap is now just $5.5bn, down from $277bn. Now that’s what I call wealth destruction. There are rumours that their former chums in the sovereign wealth funds are considering now dumping their virtually worthless shares.
• And pineapple face, Hugo “Che” Chavez is at it again. Venezuela seized a 1,500 hectare plot of land owned by Smurfit Kappa (SMFTF.PK). Smurfit Kappa used the land to grow eucalyptus trees and the government will harvest the trees to plant other “more rational” crops like yucca and beans.
• Bloxham’s stockbrokers have a relatively bullish piece out on troubled drinks maker C&C this morning saying that they are impressed by the new down to earth management team who are not hell bent on world domination. In short they see the hangover as cured and the company getting back on the wagon with a floor in the share price at around the €1 level.
• The woes in Irish banking were further highlighted by results published by ACC (who are now part of Rabobank) which showed a steep rise in impairment provisions giving rise to a €244m loss. 2007 saw €40m profit.
• Other UK stocks making news today: WPP (WPPGY.PK) came in slightly ahead of expectations suggesting the TNS integration is going well. For once a stock that looks cheap! BT (BT) has been cut to a sell at Morgan Stanley. The company is cutting their final dividend due to a huge rise in their pension deficit. Wolseley (WOS) is planning a £1bn rights issue (£270m from new shares at 120p and balance from existing shareholders at 40p) and is to exit its US based Stock Building Supply unit.

Watch Out For The Next Big Settlement Date
In money market circles, much is made of turn dates and funding requirements over the balance of month-, quarter- and year-end. However since the onset of the financial crisis it has actually been the quarterly International Money Market settlement dates which have been more problematic via their impact on the derivatives world in particular. The March (think Bear Sterns) and September (remember Lehman Bros.) installments have been particularly telling in this regard, corresponding with some major institutional failures and severe instances of market contagion. With the next of these landmarks approaching on March 18, the obvious question is whether this time will be any different? Whose turn might it be this time: Citibank, GE , GM, Bank of America (BAC), Chrysler?

What Will The US Non Farm Payrolls Number Be?
Non farm payrolls charts are flying all over the place at this time of the month, but nevertheless the chart below (click to enlarge) may be of interest. It shows a blended, normalised average of the two ISM employment indices and initial jobless claims. Suggests that today’s number should be -850k, compared to market consensus of -650k. No model has ever come close to calling non farm payrolls correctly, which is a main part of why the market focuses on it so much, but the correlation isn’t bad. We’ll see.

Note the down move this morning in the Greenback because of a rumour of a -1 million print on the key US non farm payrolls number due at 13.30 GMT.

Mervyn Is Groping In The Dark
The Bank of England’s Mervyn King became the Buzz Lightyear of central banking with a decisive move to zero and beyond yesterday. Quantitative Easing (QE) is fast emerging as the philosopher’s stone that might finally create credit at the stroke of a computer key and turn the global economy around. Against a background of low growth forecasts, the Bank of England launched its QE strategy (with a potential for £150bn) with a very clear indication of how it will be implemented and why.

The ECB instead emphasised the non-standard nature of the already enacted measures, especially the unlimited provision of liquidity against a wide range of collateral and argued that such “credit easing” is better suited to the Eurozone’s financial system and economy. President Trichet said the ECB does not exclude further non-standard measures, but indicated that the Governing Council is not yet convinced that further measures are needed. This stands in stark contrast to the dramatic downward revisions to staff forecasts who are now predicting a deep recession this year, zero growth in 2010, and a substantial undershooting of the inflation target in both years. That said we are clearly heading for a 1% ECB rate soon as the hawks have thrown in the towel.

Data Today
We had the ISM and ADP appetisers earlier this week with grim reading from both from an employment perspective. Today is the main course. With the Fed’s President Lockhart having spoken earlier in the week about big payroll losses, markets should already be braced for a bad number today at 13.30 GMT (consensus circa –730k).

And Finally… A Nice Dig At CNBC

The Daily Show With Jon Stewart

CNBC Gives Financial Advice

Disclosures: None

Comments

[Sentinel]

Yeah....

But are the stocks wearing those cute little Speedos?

That Daily episode where he rips apart CNBC with their own "experts" own words is absolutely priceless!

2009 Mar 06 07:28 AM

[xsellside]

The Daily Show video was a great way to start my Friday. Hilarious!

2009 Mar 06 08:42 AM

[Thadeus Thornton III]

The Daily show is worth the read here. Ain't it the truth! I used to watch CNBC. How can these guys say they are experts when they didn't see the stock market sell off and raiding (1999 - 2001) that had been pumped up with all the poor "home owner" individuals that pumped it up with money in their 401K and 401B plans? And now this takes the cake. More "Expert" advice from CNBC gurus and the peopel they pick to air their expert opinions. Rubbish. . . sadly rubbish.The "Big Boys" will whine and scream about being taxed too much, but sure are there when "tax payers" money is being offered!

That being said, many people also put their trust into the "social contracts" that the finance, real estate, investment, and other so called professionals promote and sell. Where was truth in advertising and sound advice from the financial gurus? It couldn't be Madison Ave. advertising and the desire for investment bankers to get big bonuses here that might be a little more at fault also, could it? Then lets blame the home owner, individual, and his/her irresponsibility or ignorance. I don't think so. IMO.

2009 Mar 06 09:18 AM

[Deweyp]

CNBC... Too Too Funny. I guess there is a point when your plane is plunging at 500 mph toward earth with no power, that it is just plain crazy to try to be positive about things.

2009 Mar 06 12:04 PM

[carey_jim]

The clear solution to these problems, in the U.S. at least, (since we welcome immigrants here with open arms) is to print slightly fewer visas than dollars and call the Arabs in to the rescue.

The Arabs have the money to buy GM, Citibank, GE and all our other soon to be penny stocks and take control of the United States economy.

They could also bring in their poor, huddled up and veiled masses to buy the foreclosed property.

Don't laugh. It's against their religion.

2009 Mar 06 12:13 PM

[carey_jim]

These 'trusting' people doubled and tripled their real 401k wealth without doing anything except signing a few pieces of paper

If they were too dumb to know that there is no free lunch and just sat on their hands while their 401k's melted like snow on the backs of their brokers' neck, why feel sorry for them?

People are still trying to sue tobacco companies for their lung cancers but most people hold back their tears and just suppress a laugh or two.

The DOW climbed from around 2000 to around 14000 and a lot of people got rich doing nothing but putting their retirement money in stocks.

Ditto for real estate which climbed, in California, during the period of about 1976-2008, from about $40,000 per house to close to $800,000 per house or about 20 times in value and speculators leveraged themselves into huge profits by leveraging their purchase anywhere from 20% down to 5% down depending on their friends in the banking business.

No one felt sorry for them on the way up and no one should feel sorry for them on the way down.

The only fear I have is that these greedy people will try to stage a socialist revolution of some kind to take their property out of foreclosure, and then find a way for government socialist bureaucrats to save their moribund companies while forcing stock prices to go back up so their 401k's will regain their value.

I'm not shedding any tears, I'm watching my back.

2009 Mar 06 01:52 PM

[Thadeus Thornton III]

I guess I would be a little more broad minded here. Not ALL of the people you label here fall into this category. Like I said, some people need to depend on the "social" contract" of the people advising them. And they should be able to. After all, most employers won't offer a defined pension anymore. So an employee is left plunking his/her money into whatever 401K plans that are offered. They have no choice. If a person is a machinist, a nurse, a trash collector, factory worker, etc: they have no choice and somehow are supposed "bone up" on financial terms and the socio-political things that affect the markets? Besides, I didn't triple or quadruple my gains in any of my investments. And neither did anyone else I know. Most people lost any gains of "irrational exuberance" in the stock market "raid" of 1999 - 2001. It took me almost six yeas to get back to even.

2009 Mar 06 03:44 PM

[carey_jim]

Am I, or the ordinary Joe the plumber, supposed to trust someone like you? After giving me minus 70 points by randomly going through my posts and giving them minus one point until my positive rankings dropped from from 97 to 20.

Or did you rely on the 'social contract' you have with your friends?

You aren't even pathetic. You don't rise to that level.

Are you trying to protect the common man from his own financial folly by demonstrating your own lack of principles?




On Mar 06 03:44 PM Thadeus Thornton III wrote:

> I guess I would be a little more broad minded here. Not ALL of the
> people you label here fall into this category. Like I said, some
> people need to depend on the "social" contract" of the people advising
> them. And they should be able to. After all, most employers won't
> offer a defined pension anymore. So an employee is left plunking
> his/her money into whatever 401K plans that are offered. They have
> no choice. If a person is a machinist, a nurse, a trash collector,
> factory worker, etc: they have no choice and somehow are supposed
> "bone up" on financial terms and the socio-political things that
> affect the markets? Besides, I didn't triple or quadruple my gains
> in any of my investments. And neither did anyone else I know. Most
> people lost any gains of "irrational exuberance" in the stock market
> "raid" of 1999 - 2001. It took me almost six yeas to get back to
> even.
>
> -----> These 'trusting' people doubled and tripled their real 401k
> wealth without doing anything except signing a few pieces of paper
>
>
> If they were too dumb to know that there is no free lunch and just
> sat on their hands while their 401k's melted like snow on the backs
> of their brokers' neck, why feel sorry for them? <------
>
>
> ---->
> The only fear I have is that these fat, lazy, greedy people will
> try to stage a socialist revolution of some kind to take their property
> out of foreclosure, and then find a way for government socialist
> bureaucrats to save their moribund companies while forcing stock
> prices to go back up so their 401k's will regain their value. < -----
>
>
> That term socialist gets thrown around a lot lately. To many, it
> conjures up a Hitler like government and Fascism. They are two very
> different things. Hitler was a fraud and used socialism as a label
> to get his public to "buy into" his dictatorship. He was a fascist.
> We came very close to this right after 911 and still have lingering
> effects with "Homeland Security" issues. Socialism should and would
> work for everyone including business. It is supposed to be a way
> of fairness and leveling the playing field. At the same time, I am
> not advocating it, just clearing up a common misunderstanding. Not
> many people realize it, but the city of Milwaukee, Wisconsin was
> governed by socialist mayors from the 1930's and even going into
> the early 50's I believe [google mayor Zeidler ]. It worked. The
> city did well in business and employment improvements during those
> hard years of depression and going into WWII.

2009 Mar 06 11:15 PM