David White

Wall Street Breakfast: Must-Know News

I think you painted a little too rosy a picture of China. You neglected to mention the following:

China's exports contracted 23% in August. The overall trade surplus plunged 45% from a year ago. They are producing more with Industrial Production up 12.3%, but they still need a market for tose products. It clearly isn't there. Roubini has also said that the individual Chinese person is not going to change their buying/savings habits overnight. They may buy when given stimulus vouchers, but it will not continue beyond that. Thus far Roubini seems to be correct.

For this reason experts belive that China cannot lead the world out of the recession.

Closing Update: Stocks String Together 3 Straight Wins, Commodities Gain

Mergers may just suggest that some companies think they will do better if they take advantage of economies of scale. Some may feel they need to do this to survive. It is not necessarily a sign that the economy is picking up. The almost $22B reduction in consumer credit is also a reduction in the amount of money that is stimulating the economy. Longer term it is likely a good thing. However, short term it may have negative implications with respect to retail sales and perhaps the GDP.

SPY has dragonfly (or hanging man) doji for today on its daily chart. That may signal the end of this short term up trend for the SPY. It's a very bearish indicator.

SPY was up on extremely light volume. 131M shares traded vs. the average of 191M shares. It's a very bearish indicator.

Closing Update for Tuesday, September 1: Third Day of Pullback

Bill L: I couldn't agree more. Art Cashin said he believes fair value for the S&P500 is in the 850 to 880 range. We are a long way from there. There was also some not so good news included in the ISM numbers. For instance, the Aug. New Orders index was up almost 10 points from July. The Aug. Manufacturing PMI was up 4 points from July. Yet the Aug. Employment Index was only up 0.8 points from July (i.e. a jobless recovery). Plus the Aug. Prices Index was 65.0 vs. July's 55.0 -- an 18.2% increase. That huge rise has got to start the Fed worrrying seriously about inflation. That will translate into less stimulatory action from the Fed, and the Fed is already cutting back on its stimulatory actions. In fact it has been shrinking the money supply for several months now. It has announced the end of the $300B Treasury buying program in October.

On top of that, the ICSC and the Redbook Retail Sales numbers were bad again. The economy will have a hard time making a sustained recovery without consumer spending. Add the auto sales figures to that. They were positive as expected, but they generally disappointed the analysts, who had been looking for more. It was fairly clear that much of the positiveness in the numbers was simply attributable to Cash for Clunkers. Plus Cash for Clunkers may have robbed future sales to record sales now. This might well make one worry about future auto sales figures.

In sum most of the good news seems almost directly attributable to government stimulus programs. When the stimuli start going away, one has to worry about where the economy is likely to go. More short term, the market will likely turn on the news that comes out tomorrow morning. With about a 300 point move down from the high today to the current $100.10 on the SPY, the market has made a huge single day move. I would tend to look for a bounce tomorrow morning, but I would be paying close attention to the news. There is overhead resistance for SPY at about $101.60. It might make it that far, if the news tomorrow is good. If the news is bad, the slaughter may continue.

AIG Overpriced? Perhaps Not as Much as Barron's Thinks

AIG just had a ruling in the Starr case go against them. That's another $4.3B out the window. No wonder it's down today.

As for the overall worth of AIG, it could surprise people with a comeback. However, it is more likely that it has many, many more toxic assets. The relaxed mark to market rules have no doubt allowed AIG to hide many of the toxic assets. This is giving AIG the time it needs to sell itself. It needs to do this quickly, especially while most markets are up hugely. Anyone who is hoping for a miracle rebound from AIG is praying for a miracle. That is literally what it would take. Of course, anything is possible. A very strong economic recovery would do wonders for AIG's viability. If that happened, AIG might actually deserve its stock price. For the moment I think it is just another instance of irrational exuberance that comes at the end of a rally. If that's the case, we may see a big down move soon in both AIG and the equities markets in general.

Four Reasons We're Headed Even Higher

(MarketWatch) -- "Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy -- it now appears to be in the process of making a sizable withdrawal.

For example, the monetary base -- the raw material for the money supply -- has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.

And after ballooning from $100 billion to nearly $1 trillion between September 2008 and mid-May, adjusted reserves have since declined at a 43% clip, to just over $800 billion.

As a result, the Fed's two measures of the money supply, M2 and MZM, have begun to contract. M2 has shrunk at a 3% pace since the middle of June, while MZM, the St. Louis Fed's measure of liquid money, is down by 2% over the same period. "

All of this money is coming out of the markets. they have been going up on very low volume, but they almost have to fall soon. Your market cheerleading is just that. It has little or no basis in substance. Eventually the stock market will head higher. However, it will likely take some time. Over time fundamental analysis makes itself felt. The US markets are over valued now. The S&P500 was trading at 11 X earnings at the March lows. Now it is trading at about 18 X earnings. 15 might be termed fair value. It is over bought.

There has been very little revenue growth. Most earnings wins have come through efficiencies. There is only so much you can do there. The unemployment keeps rising. Unemployed people buy less. Revenues are not likely to go up dramatically soon.

Prechter has called a bottom on the USD due to there being only 3% bullish sentiment (the same as that of the stock markets at the March lows). If the USD rallies, commodities will fall and the US stock markets will fall.

To substantiate, Art Cashin (UBS) recently said fair value for the S&P500 was in the 850 to 880 range. That is a long way from where we are now.

The above are just some of the "real" factors that may mean the US equities markets are in line for a good sized retracement. The kind of unreasonable exuberance you are touting is a lot of what got the housing market in the mess it is in now.

If you by chance happen to be correct, it will only mean that the markets will be in for another horrendous fall. You know the old saying, "the bigger they are the harder they fall".

Closing Update for Friday, August 21: New Highs for 2009

Apparently the UK had 110,000 new Swine Flu cases in the last week of July alone. We are just getting started on that. The Health Minister had predicted a month ago that the UK might have up to 100,000 new cases per day by the end of August. This sounds like it is on track to become true. Other areas are being hit hard too.

Closing Update for Friday, August 21: New Highs for 2009

Bill L: I agree. Plus the AP just announced that the US Budget deficit for 2010-2019 is now supposed to be $9T instead of the former $7T figure. Apparently a good portion of this was due to loss of tax revenues that had previously been expected. Also the job data was bad on Thursday. People seemed to ignore that on Friday.

On the flip side of the coin, the market just broke though a big technical resistance point. One might think it could continue upward for a while after that. Possibly it will just fall back to the line (and go under it). I really don't see the fundamental upside yet, especially with the Swine Flu predictions that I have been hearing lately. W.H.O. is now estimating that there could be up to 2 billion swine flu cases worldwide this fall. Anyone who doesn't think that will have an economic effect is kidding themselves.

Closing Update for Friday, August 7: Day Up, Week Up

In the news today, the number of US airline departures declined. Airline stocks were down on the news. Swine flu hasn't even hit in force yet.
In reference to Swine Flu, only 45M swine flu vaccine doses will be ready for the US in October. They had expected 120M to be ready. This is bad news for the airlines.

Closing Update for Friday, August 7: Day Up, Week Up

Airlines got a little more bad news today when Chevy announced its mpg figure of 230mpg for the Volt. Chevy called this figure conservative. With this kind of gas mileage, a few more people will elect to drive to "closer" airline destinations.

For people shorting airlines, this should give those stocks a little nudge downward. I haven't heard about any jet engine improvements in the pipeline that would begin to approach this "revolutionary" development.

Wall Street Breakfast: Must-Know News

The SEC made the rule against naked short selling permanent today. It was set to expire on July 31. This should keep the markets from going down quite so quickly when they retrace. This means that brokers have to have (or buy) stock that they are lending for short selling.

We are still in a very volatile time.

Wall Street Breakfast: Must-Know News

Vickers Weekly Insider Report reported Monday that the ratio of insider selling to buying last week was 4.16 to 1 (the highest the ratio has been since Oct. 2007). The more stable 8-week average was 2.69 to 1 (the highest since Nov. 2007).

Of course, insiders are sometimes early, and occaisionally they are wrong. Still this does make one think that the current market rally may be facing strong headwinds in the near future.

If you combine this with the news from BofA that they are now planning the closure of 10% of their branch offices, you get an ugly picture.

Wall Street Breakfast: Must-Know News

For those waiting for the petroleum stocks numbers to turn the market. The API numbers yesterday indicate crude stocks were down 1.2M barrels. Gasoline stocks were also down very minorly. The petroleum stocks info at 10:30am ET will likely not turn the market (at least not on its own).

Wall Street Breakfast: Must-Know News

When you sell more cars at steeply discounted prices because myriad dealerships are being closed, it is not a "real and sustainable" retail sales gain. This is especially true when you consider that those same dealerships will no longer exist in the future. They will no longer contribute to sales. As I understand it, the continuing dealership closings should be with us for a few months. During that time I think it only makes sense to look at the ex-autos numbers (+.3%). This was lower than the +.4% figure expected (a disappointment).

In this month's case, a lot of the rise in sales was due to increased oil prices. The amount of oil consumed did not go up demonstrably in the US. Rather the cost went up 6.6%. To get a better idea of "real" retail sales trends you then need to look at ex-autos and ex-gas (-.2%). This was a bad number. When you also look at the ICSC chain store sales (negative) and the Redbook sales (-1.7% lower than last month), the sales figures are just plain bad. Yet in this rally people keep citing them as good. This makes me think that "da boyz" are orchestrating a crash or severe pull back for the near future. I don't mind if the market goes up, I like it. However, when people are pushing it up on a grossly destorted view of reality (retail sales outperforming expectations), it worries me a lot.

Wall Street Breakfast: Must-Know News

People know the bar is being set low for earnings this season. Beating will always be a positive. However, as earnings progress analysts expect the overall markets to react to forward guidance more than this quarter's earnings. If business leaders are starting to see growth in the realtively near future, the markets may be able to rally (or hold steady). If not, we may be in for a long retreat.

Wall Street Breakfast: Must-Know News

Earnings season is upon us. AA lost money again, but not as much as had been expected. AA stock is up about $.50.

Some analysts believe this may be the trend for this earnings season. Apparently the bar for earnings estimates has been set at approximately a 34% decrease over this quarter last year. Some analysts believe the actual decrease to be more in the area of 28%.