Too Big to Flail
October 21, 2010
“Slip sliding away, slip sliding away, You know the nearer your destination, the more you slip away, Whoah and I know a man, he came from my hometown, He wore his passion for his woman like a thorny crown, He said Dolores, I live in fear, My love for you is so overpowering, I’m afraid that I will disappear” (Paul Simon – 1977)
And so went the $, slip sliding away. Gone were the fears over the Chinese rate hike that strangled the markets yesterday, gone were the fears of the FED not delivering on QE II and so, back on is the risk trade, with Euro$ higher, Gold higher, stocks higher and commodities higher.
A report by the Melody Think Tank surfaced in the early hours of US trading, stating that the FED maybe on the verge of purchasing $500 billion of treasuries over the next 3 to 6 months with room for an extension of the program for an additional 6 to 12 months. This signaled to the market that the FED may still be starting QE II as early as November so a relief rally followed.
The only significant piece of economic data was the FED beige book and this gave no clear signal as to what to expect November 3rd, here’s a summary:
“Reports from the twelve Federal Reserve Districts suggest that, on balance, national economic activity continued to rise, albeit at a modest pace, during the reporting from September to early October.”
- - Manufacturing activity continued to expand
- - Housing markets remained weak
- - Input costs rose further
- - Prices of final goods were mostly stable as higher input costs were not passed on to consumers
- - Retailers said consumers are slowly regaining confidence, but remain price-conscious and were largely limiting purchases to necessities and nondiscretionary items
- - Sales of new vehicles were steady or rose. Used car prices rose
Mortgage/Foreclosure-mess wise, Goldman came out with a report on Bank of America, stating their estimated put-back loss for BAC is $24.9 billion (this comes to an after-tax loss of $11.6 billion). The company already lost $17.1 billion on the foreclosure issue, so they conclude BAC is actually a BUY based on these calculations.
This same Bank of America is suing the FDIC (Federal Deposit Insurance Corporation – the government institution that takes failing banks into receivership) for $1.75 billion. Bank of America is trustee for notes, issued by Taylor Bean’s Ocala Funding LLC unit, sold to Deutsche Bank and BNP Paribas. Taylor Bean ceased a majority of its operations on August 5, 2009 as federal prosecutors said a multi-billion dollar mortgage fraud took place. Bank of America said that the FDIC is legally required to cover these valid claims, and that the agency’s only explanation for denying the claims has been they have “not been proven”.
In suing, BofA, in its role as trustee, is doing exactly what a group of investors is doing to them, trying to reclaim money lost on faulty mortgages. And BofA is giving the same rebuttal as the FDIC: the claims are not valid, we do not have to pay. Isn’t it ironic, don’t you think.
US Markets ended higher, underpinned by a weaker $. The DOW ended up +1.18% S&P500 +1.05% Nasdaq +0.84% EUR$ 1.3960 WTI $82.50 Gold $1346
As commodities rallied, so did commodity related shares, Basic Materials was the biggest gaining sector +2.25% while Consumer Goods rose the least +0.69%
After hours E-Bay beat on EPS ($0.40 vs. $0.37 Exp.) and revenues ($2.249 bln vs. $2.18 bln Exp.) its stock trading up +8.5%
Today we will see the likes of CSFB (€0.97 EPS), Novartis (€1.25 EPS), Gemalto, Akzo (€1.0 EPS), Danone, Pernod Ricard, Publicis, Umicore and Nokia (€0.097 EPS) reporting, while Saint Gobain, Valeo and L’Oreal report after the close. In the US we will look at AT&T ($0.55 EPS on rev $31.247 bln), Caterpillar ($1.09 EPS on rev $10.477 bln), Eli Lilly ($1.15 EPS on rev $5.806 bln), McDonald’s ($1.25 EPS on rev $6.228 bln) and UPS ($0.88 EPS on rev $12.375 bln).
Just like autumn, earnings season is upon us in full force.
Happy Hunting & Let’s Be Careful out there!!!
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