FYI | Oct 24 2008
By Greg Peel
The Dow closed up 172 points or 2% while the S&P gained 1.3%. The Nasdaq closed down 0.7% following a poor earnings result from Amazon in Wednesday’s aftermarket. Amazon is seen as a bellwether for e-retail and the company’s guidance was not inspiring.
It was another rockin’, rollin’, ridin’ session culminating in the Dow being up 276 points at 11am and down 276 points at 2.30pm. Is that one for the tea leaf readers? The index attempted a rally towards 3pm but that was knocked down, suggesting the three o’clock surfers were waxed up and ready. But whaddya know? They bought it instead.
They say that learning to fly a helicopter is like learning to balance on a beach ball in a swimming pool. Helicopter pilots would go nowhere near this market.
We should be heartened by the fact that for the last two sessions running, the buyers have pushed the market up 200-odd points on the death. However to be heartened at present is to be more hopeful than coldly analytical and with new lows having been formed on the S&P (not yet a new intraday low however) one has to be realistic. This market can still go lower before it goes higher and it is more likely to go lower quickly rather than slowly. Your mother always told you about picking bottoms.
The earnings season rolls on and there are some companies “beating The Street” and some companies not. To suggest that there is a stock analyst in the world who can accurately forecast earnings at the moment is to believe the New South Wales government knows exactly what it’s doing. And guidance continues to be dour, but what else could it possibly be?
The reason for the mid-session weakness last night – as if any particular reason is needed – was the result of the auction for Washington Mutual credit default swaps. WaMu was once America’s biggest thrift but it went quietly down the gurgler last month almost unnoticed in the global mayhem. The auction set a price for WaMu at 57 cents in the dollar, implying sellers of CDS insurance will have to trump up 43 cents for the buyers. The game is not over yet, as the sellers have to come up with the cash. But given Lehman Bros CDSs were settled recently with a payout of around 90 cents in the dollar – and settled without drama – one might be forgiven for thinking 40 cents is not too bad.
There was no specific impetus to drive the late buying last night, nevertheless. There’s not much more the US government or Fed ot any other global body can announce that’s going to spark a sudden relief rally, so it’s all down to the value players. Are they ready? Are they willing? At the moment it seems most are wating to see what the other guy does. Fortune favours the brave, but not the foolish.
The US dollar didn’t move a lot last night against anyone so oil was able to recover some ground – up US$1.09 to US$67.84. Traders are squaring ahead of the OPEC meeting in Vienna tonight. It it suggested in the pit that the market has already priced in a 2 million barrel per day production cut, so anything less than that might prompt another sell-off. More worrisome is that one OPEC minister who was door-stopped on the way to preliminary discussions suggested a resolution need not be made tonight. OPEC may prefer to wait until the scheduled December meeting in order to get a better grasp on demand reductions, he said, and that would just leave us all hanging for another two months.
It’s been a while since base metals all individually made up their own minds, but that was the case in London last night. Zinc was up 7% but the others were either up or down 1-3%, with copper and nickel losers and aluminium, tin and lead winners.
Gold fell another US$8.90 to US$721.60/oz, and it is really beginning to confound and depress the gold bugs. Traditional thinking would have had gold back over US$1000/oz by now given the amount of paper currency being thrown at the global debt problem, but tradional thinking has never before had to deal with leveraged investments in gold exchange traded funds. While “get me out” is still the dominant theme, and margin-called hedge funds and traders have to sell everything they have to raise the cash they need to avoid going under, then gold is just another victim. Fundamentals do not apply.
The Little Aussie Battler lost another half cent to US$0.6693.
The other Little Aussie Battler – the local stock market – was a bit of a wet blanket last night as far as the SPI Overnight is concerned. It fell 63 points.
See you at the show. Deals a-plenty. Those who can’t make it or aren’t Sydney-siders need not fret. There will be deals for you too.
