Friday Outlook

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 |  Includes: BBRY, GS, LDK, MBI, MER, STI, XLF
by: Philip Davis

Just yesterday we discussed how Paulson and Bush caved in to their Chinese masters and backed off on regulating Sovereign Wealth funds and just 2 days ago, in member chat, we were talking about all the distressed financials and I said: "This is the kind of thing that you can expect BX to bring some Yuan into as it’s a good way for China to circumvent Congressional objections as they take positions in US financials. The British did this to China for 200 years, after starting out as friendly buyers of exports they became the de-facto rulers of the country through banks - unlike us, China learns from history and there is nothing in history that gives you an in better than a country that’s desperate because they can’t pay their war debts." I was going to make a list of China investments in financials this week but it would be easier to list who they’re not buying a piece of — yet!

I’m going to try not to be grinchy today as the global markets seem determined to believe in Santa Clause but I’m still glad I went to cash and I will be covering into this rally, just being glad I’m getting so much money from my January callers. If this rally continues next week and into the new year, there’s plenty of good things to buy, like poor (NYSE:LDK), who got murdered yesterday and (NYSE:MBI), who are looking pretty attractive at $20 if the market is so determined to ignore the total rolling disaster that company is at the center of.

We’ll be watching the financials today to see if this rally is real. David Fry drew a channel on the (NYSEARCA:XLF) that will be an excellent guide for us to see if we can break back over $29.50, which we slipped back under yesterday:

David had a great comment on GS earnings this week: "The word is (NYSE:GS) made money shorting mortgage backed issues… maybe as much money as they made selling them to you."

Yes we’ve all heard of victim-less crimes but corporate America has given us what I call the criminal-less crime - clearly there are millions of victims but no one seems to have done it! Much like Osama Bin Laden, this government isn’t even looking for the perpetrator…

This should not surprise us as the government is also not looking for inflation as the "core" inflation remains at 0.2% even though today’s PCE price index is up 0.6% vs. being up 0.3% in October. Personal Income (also inflationary) is up 0.4%, while personal spending up 1.1%, which will probably be seen as a sign of consumer strength as opposed to people having to dip into their savings accounts and falling 0.7% behind just to buy gas and food. The personal savings rate was down 0.5%, making up the shortfall and, with a national savings rate of just about zero, one might wonder how many more months consumers will be able to dip into the piggy bank.

Oh sorry, I promised to put my rally cap on - I got distracted by facts… So how about that (RIMM)? (MER), who also are expected to write down $8B MORE dollars this quarter, are in talks to pick up $5B of Asian cash from Singapore’s Temasek. (NYSE:STI) is writing down $400M this quarter and will take another $1.4B onto their balance sheet which it plans to offset by selling it’s 43M shares of KO ($2.6B). This IS the good news folks, believe me you do not want to hear the bad news today!

So Asia is way up today with the Nikkei and the Hang Seng adding around 2%, Sure that’s just a 50% retrace of the week’s losses but it sure beats the Nikkei blowing through 15,000 without a 20% bounce after falling over 1,000 points in 10 days(and you thought only politicians could spin the economy!). The HSI made an impressive 609 point gain today and is well on it’s way to retaking the 3,500 points it dropped since it topped out at just under 30,000 on Pearl Harbor day. This 1,100 point bounce brings them very close to a proper retrace so next week will be very critical for the Hang Seng.

Europe is up about a point across the board, which is light considering the amount of cash that was dumped over there but it lends support to our theory that most of that EU money is finding it’s way here as US equities continue to reign as the least sucky place to put your money. I’ve become acutely aware of this as I’ve moved the portfolios to cash and can find NOTHING I want to put money into so I am kind of hoping for a little crash so I can do some bargain hunting as I build next year’s portfolios. We had a nice one to start this year in February and that was really the kick-off to this year’s spectacular performance.

The ECB’s Jean-Claude Trichet, who follows my rule of selecting French leaders who have the most French-sounding names, is lowering the bank’s forecast for EU growth to 2% for 2008, this along with Japan’s lowering to 1.3% and China’s attempts to slow their economy should be a negative of some sort but Fa-la-la-la-la it I guess as the Dow is up over 100 pre-market…

Thursday, two economic research institutes that regularly advise the German government revised their forecasts for German growth sharply downward to as low as 1.5%. One warned that Europe’s biggest economy could grind to a virtual standstill. Monday, the Deutsche Bundesbank said Germany’s economy is likely to expand a real, calendar-adjusted 1.6% in 2008 and 2% in 2009. BNP Paribas said a 1.9% consensus forecast on euro-zone growth next year among multilateral institutions is probably too optimistic, and it expects growth of around 1.5%, given tighter monetary and financial conditions "combined with the inevitable spillover via both the trade and confidence channel from the U.S. slowdown."

OPEC’s income rose to a record $536B this year and they are celebrating the holidays by curtailing shipments to tighten up global supplies but the US justice department is too busy investigating the pricing practices of the chocolate industry to worry about why oil is at $95 a barrel due to "possible supply concerns" when OPEC now has 3.5M barrels a day of spare capacity and global inventories sit near record highs.