Preview from Europe: Just Another Day at the Stock Market Casino

The real anabolic steroid for equity markets was the FASB 3:2 vote to suspend (with careful caveats of course) mark-to-market accounting. IASB will be expected to follow suit so European banks should also benefit. See more below.

Take a guess where the most money was made yesterday… techs? Nope. Banks? Nope, they were actually surprisingly subdued. No, the real money was made in Resorts and Casinos with that sector up 16.44%. Boyd Gaming (BYD) and Wynn Resorts (WYNN), two stocks that couldn’t catch a bid if their lives depended on it since the start of the year, were truly explosive with gains of around 25% each on the day. MGM Mirage (MGM) and Las Vegas Sands (LVS) both popped around 18%. Do people without jobs plan to gamble this summer?

Today’s Market Moving Stories

• China’s official PMI, a measure of activity in the manufacturing sector, rose to 52.4 in March from 49.0 in February, marking the first time the index has been in expansionary territory since September. Ma Jiantang, the head of China’s National Bureau of Statistics, said “the continuous increase in PMI, along with positive signs I can witness from different places, showed that the Chinese economy may have started to warm up.”
• The New York Times writes that General Motors (GM) has stated in a regulatory filing to the Treasury Department that it is prepared to file for bankruptcy protection if it cannot restructure out of court. The paper notes that whilst basically echoing comments this week from GM’s new CEO, the comments mark the first time GM has officially disclosed to Obama’s auto task force that it was willing to consider such a step.
• Press are running with a story that U.S. banks that have received TARP money, are considering buying assets under the PPIP. They would not be permitted to buy their own assets back but presumably the assets of fellow U.S. banks are not going to be that different. That doesn’t exactly sound like the kind of deleveraging and de-risking the Fed presumably had in mind.
• 
• Meet the Hunter S. Thompson of Real Estate and do check out the videos showing the decline and fall of the property market in San Diego.
• Sick of dealing with the Irish Cowboys, well try www.redneckbank.com.

The ECB Underwhelms Us… Again

The ECB disappointed markets again, but set the stage for a possible “big bang” move next month: it cut their rate by only 25bp. However, Trichet stated very definitely that next month the ECB will decide if and how to implement further non-standard measures. I now expect a big-bang move at the May meeting, with another (final) 25bp cut, a lengthening of liquidity operations to twelve months, and the launch of outright purchases of private sector assets, likely including financials, corporate bonds and commercial paper, but not sovereign bonds. This would help unburden the banking sector, lessening the risk of a serious credit crunch and easing financing conditions for corporates. This could have a major market impact, lowering yields significantly and allaying concerns of a very prolonged slump in eurozone activity.

What Of The G20 Jamboree

Overall, the communiqué is long on lofty principles and short on concrete commitments, and my impression is that EU countries were able to get most of what they wanted into the communiqué, whereas the U.S. will take home very little. There was a strong emphasis on regulation. However, there was a conspicuous absence of measures to clean up banks’ balance sheets or any further developments on monetary policy commitments.

In terms of market reactions, Emerging Markets should be the big winners as IMF funds will be tripled to $750bn, rather than just doubled. But I see nothing that can bolster a more general confidence in a quicker recovery from the financial turmoil and economic downturn.

More On Those Pesky FASB Rule Changes
FASB rule change confirmed yesterday which although not formally introduced until mid June, will be able to be used from mid March. The changes permit companies to value non-active assets on a cash flow basis in certain circumstances.

The bull case is that although accounting changes should not alter the economic reality, this change will change banks’ behaviour through less forced selling and less need to raise new capital to bolster their capital ratios. The bear case is that if banks value their assets and liabilities with no reference to market prices, it becomes impossible for external investors to understand exactly what the value of banks’ balance sheets really are and risks undermining market confidence rather than bolstering it.

G20 And FASB – A Contradiction?

Loosening accounting standards is a “good” thing? Isn’t that part of the reason the global financial system was almost brought to its knees? From this vantage point, it does not appear that the accounting change affects the inherent value of the toxic assets. It seems like an odd coincidence (sick joke) to have the FASB rule released the same day the G20 communiqué states that “we will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector.” That is to be achieved by easing inconvenient accounting standards? But hey, everyone loves a rally!

Equities

• In early European trading bank stocks are the main movers and somewhat surprisingly to the downside with HBSC (HBC), Credit Suisse (CS) and Santander the main drags on the indices. Buy the rumour sell the FASB facts?
• In contrast the automakers are again showing strength this morning with BMW, Renault (RNSDF.PK) and Daimler (DAI) all showing well out of the traps and well up. Credit Suisse who have been busy this morning have upgraded the whole European car maker sector to overweight.
• Toyota (TM) was a big winner overnight surging 7% on news that it is to avail of funds from the Japan Bank for International Cooperation.
• Vodafone (VOD) were upgraded to a buy at Credit Suisse.
• The big loser this morning is Novo Nordisk (NVO) after the U.S. FDA committee was split in a vote regarding the firm's diabetes drug liraglutide and its possible link to thyroid cancer.
• Research in Motion (RIMM) (makers of Obama’s much coveted Blackberry) is up after beating street estimates.
• Ryanair (RYAAY) announced yesterday that from July 2009 it will open its 32nd base with one aircraft at Pescara, Italy, and open four new routes (seven in total) at this new base. In related news Aer Lingus issued a statement indicating that the airline’s website experienced a huge surge in bookings during March.
• Two ISEQ companies have been actively refinancing. Greencore (GCNGY.PK) has completed the refinancing of its bank debt facilities. New facilities totaling €360m, with a maturity date of 2012, replace existing facilities of €336m with a maturity date of May 2010. This debt refinancing will alleviate any concerns the market may have had about Greencore’s existing near-term refinancing dates. And Kenmare has achieved its targeted debt strategy. The debt restructuring signals that Kenmare’s lenders support management’s plan to accelerate production at its Moma mine, and it also reduces liquidity risk and should act as a shot in the arm for the stock.

Data Today
U.S. non-farm payrolls for March is released at 13:30 GMT. Fewer lay-offs and anecdotal reports point to a drop of 660K. Unemployment should up to 8.5%. Later at 15:00 GMT, U.S. non-manufacturing services ISM is out. Service-sector activity should remain depressed at 42, close to its recent average.

And Finally… The A-Z of AIG(reed)

Is This The Coolest Guy In Personal Finance

Disclosures: None

Comments

[Ferdinand E...:]

You are looking at the trees instead of the forest. With the exception of the bread passed to the IMF and World Bank so that they could buy plane tickets for their staff, and provide hustlers in stone age countries with some saturday night walking-around money, they did much better in London than I thought was possible. As we used to say in the army, there is no leadership without showmanship...most of the time.

Apr 03 09:03 AM

[AndrewBaker:]

Well, whatever comes out of it in time, the market is trending up. As a trend follower, I'm in for now (but watching to get out very quickly when needs be).

Apr 03 09:18 AM

[Glen60:]

Loved your headline: "Stock Market Casino". Exactly the reason I exited it last fall, except I termed it "Unregulated". Will leave it up to the pros to feed on one another, as I'll go to Las Vegas or Atlantic City should I wish to gamble, in the future. At least they are governed by some modicum of regulation.

G Clark

Apr 03 03:42 PM

[Moresby:]

Thanks for the brief.
As to that G20 junket, the National Post, Toronto gave it a price tag of $75 millions and it claimed the leaders could have talked their talk using Skype conference call for free.
As a political grand gesture, did it achieve anything? Can it save Gordon Brown's skin?
I just wish that $75 millions come out from this leaders personal pockets, not to be pick up by tax payers.

Apr 03 06:11 PM

[LKofScotland:]

Please don't tell me even you're surprised that the fix is in? I still don't understand why even the purported "finding alpha" site keeps shutting down the obvious. truth to horrible to contemplate? doubtful. perhaps time for a rename--"finding alfalfa" comes to mind. toodles.

Apr 04 10:37 PM

[Next Big Pi...:]

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Apr 06 03:37 PM