Stock Market Wants Another US Rate Cut

The stock markets want another US rate cut and it seems until this comes about, there is some freefall going there with some weak rebounds although for now, it is not holding up well. Calling Ben Bernake...

Amazing, Bloomberg is always reporting bullish things despite negative news and presenting them positively. A $45 Billion Writedown Won't Stop Wall Street Profit

Big move on the Yen has caused unwinding of carry trades, resulting in AUD/NZD and the other currencies to go into freefall. Last time we had that move, the it touched a low of 1.02 to the USD. Worth watching today. News headlines all 'screaming' of new 10 yr highs on Yen strengthening to the USD while the Tokyo stock prices plunged to their lowest levels this year, reflecting fears over how the rising yen could damage the country's exports.

If you are paid in USD, you effectively have taken a paycut vs the other currencies if you are not based in USD. My apologies if I unintentionally hurt anybody with this remark.

Crude oil took a breather today, it dropped as much as 2.9% . OPEC says considering increasing production...at that prices why not. Its winter season.

Gold futures for December delivery fell $27, or 3.2 % to $807.70/ ounce on the NY Comex
Speculative long positions in gold futures still outnumbered short positions by 202,125 contracts on the Comex in the week ended Nov. 6, CFTC data showed on Nov. 9. Net-long positions rose by 3,519 contracts, or 1.8 percent, from a week earlier.

Speculative long positions in oil futures on the Nymex outnumbered short positions by 105,816 contracts. Net-long positions rose by 22,696 contracts, or 27 percent, from a week earlier. Net-long positions reached a record 127,491 on July 31.

In Singapore National Development Minister Mah Bow Tan said in Parliament yesterday 'There is no need and there is no intention for us to take any further action,' soothing sounds for the property market especially property stocks in singapore which had some freefall as well as price target cuts by brokers these 2 weeks.

The STI all time high a month ago excatly was 3,875 , its now lost 364 points or just under 10% . Chinese stocks and blues had a big tumble yesterday. Govt release saying that Singapore inflation may hit 5% in early 2008 is not good

Interesting article in Barron's Nov 5 issue carried the results of its latest Big Money poll of fund managers,. Some of the findings are: 22 %thought Wall Street (with the Dow at 13,595) was overvalued, 23% undervalued and 55% fairly valued. overall, 42% of respondents said they are still bullish on stocks. However, this figure was down from the 64 % of a year ago.

Bulls vs the Bears

So its the Bulls vs the Bears again. For the bullish, these guys are buying commodities , gold, and oil related stocks. For the Bears, well, I think they are just sitting there and saying to themselves that 'We will watch and see how it reacts after all, the markets always come back within 2 weeks or so".

I will not be catching falling knives too soon as yet and it does not make sense to be holding a position over the weekend.

Chinese stocks are the most pricey currently trading in the above 40 PEs, with HK China shares following and one can expect further 'weakness' there with some selling expected on that area although, the wealth and liquidity of chinese funds cannot be discounted.

Are investors in self-denial of the fundamentals. Just think , higher oil prices = more pricey products. Cost of living has to go up as its now more expensive to transport supplies and goods now. Subprime problems in US mean loss of jobs and borrowers may have to find ways to pay off their housing loans, which means that they will have to cut their other expenditures and the continued announcement of job losses at banks on the mortgage departments will mean that there is a bunch of people out there looking for jobs. Its a definite slowdown expected next year .
Personally, I like a newsclip article on Wednesday with Gisele Bundchen saying that she will accept all currencies except the USD as payment for modelling jobs. It just says it but somehow, US /Fed in a Hobson's choice of just keeps cutting rates which means US$ will continue to remain weak

The bad news:
Oil recouped early losses to resume its march towards the US$100
The strengthening of the Yen again, may see some unwinding of carry trades, also perceived bad for Japanese stocks as it makes exports more expensive
Jitters have grown since Citigroup Inc said on Sunday that it needed to take an additional US$8 billion to US$11 billion in writedowns. Note that ML had just earlier reported a US$8.4billion loss writedown for 3Q07
General Motors Corp on an accounting adjustment, had a a record loss

StockWatchCommentary

After all the MSCI rebalancing last week...the focus will be in HK where the market will focus on HSI rebalance which will see HSBC and China Mobile weighting reduced by about 3.23ppt and 4.94ppt by the close of this Friday. Will be interesting to see how the rest of Asia namely Singapore and Malaysia react to HK.
It is still China that remains the most interesting with the big market potential as well as the wealth growth there. ...only it probably has to run through the gamut of recalls on safety standards set by their 'corporate-buyers' who ordered them. Hey, I dont think we should blame China entirely given that these 'corporate-buyers' were motivated by profits when they ordered their made-in-China OEMs, I had to agree that the design of the products which were given to the Chinese OEMs did not specify the excat standards of safety. Still, these news will only ensure that Chinese Govt will work towards upping their safety standards as the clock continues to ticktock forwards towards the Olympics next year.
One thing for sure, there are lots of broker reccomendations these week compared to 3 weeks ago where most were staying clear until it gets less cloudy. Certainly 80% more reccommendations of buys and switches and lesser calls to sell in their strategy reviews on the markets. At UOBKH, an analyst based on technicals, is adopting a sell into strength strategy via SGX.
Here is an interesting news article to read ->WSJ Investors Hope This September

What a farce, BOA is paid to invest in Countrywide.

Just happened to read this article on Bloomberg dated Aug. 24 - Bank of America Corp's (BOA) sweetheart deal in return for its $2 billion investment in Countrywide Financial Corp. It helps being a cash rich white knight .
OK, I am green-eyed and I am clearly not Warren Buffet. But read this article on Bank of American deal its 'saving' in Countrywide is clearly in the favor of BOA of course.

Brewing the Perfect Storm

This article is written by Andy Sng(Assetia Asset Management) on what he thinks of the market.

I expect the ABCS market to remain tight as investors shun risk from asset backed commercial papers. Billions of ABCP may need to be rolled over in the next few days or weeks. This jitter could spill over to other assets if sustained .
This means that the short term credit market (and borrowing costs) will remain nervous, prompting central banks to continue injecting liquidity to tamper this burden (and encourage confidence). However, sustained injections and FED cuts (if any) will lead to stabilization of the markets but the price of inflation will have to be paid down the road. Also, the injection may find its way to provide more easy credit to areas not intended for.
What is worrisome is the perceived certainty of central bank intervention that encourages unwarranted risk-taking. Not too long ago, investors will not bat an eye to take on additional risk in order to earn a mere 20 basis or so more. Today, borrowers are crying at having to pay 80 basis more and still not attracting investors. What about paying a “reasonable” price for risk-taking, like 300 basis or 500 basis more? No, scream loud enough (“or be too big to fail”) and FED will come to the rescue. Stocks markets had hardly given up its gain this year when the world “swoon”, and looked to FED for action. It seems that central banks have become “Guardians of asset prices” or “Asset reflators” of the new world .

This reminds me of childhood times when “Daddy” always have more money no matter how we spend them. So spare the rod and spoil the child – we are brewing a perfect storm

$ StockWatch $ Happy Quiet Friday

This last week had been a volatile ride yet an opportunity for shorts as well as buying. The currency and stock swings gave those who had taken profits or stayed sidelined recently when the debacle of subprime broke out to take the opportunity to bargain hunt. Mr Warren Buffet did so via Bank of America, buying up Countrywide Financial.

Buffett who runs Berkshire Hathaway Inc., clearly prefers financial companies which account for some 40 percent of the value of Berkshire's stock holdings

So far, stocks have made some recovery after the slide, The liqudity is coming back to the system as central banks pumping $ there and prices of stks have made some recovery while the Yen which was strong last week weakened. Fed and the rest of central banks certainly have helped the financial system bear out this subprime issue and preventing a financial disaster although we can expect the effects to be felt on the US economy. While market rallied these last couple of days on hopes of Fed cut, expect profit taking from day traders, uncertainty on next bad news but it seems market may just have enough fats from the good years to weather this rough patch.

Next week would continue to see rebalancing trades and futures expiry which would add to volatility of the indices and blue chips.

Current news as follow

1. French banking giant BNP Paribas said on Thursday it plans to unblock three of its investment funds, whose suspension earlier in the month sparked turmoil on global stock


2. Goldman Sachs Group Inc.'s Global Equity Opportunities hedge fund rose 12 percent last week after the securities firm shored up the money-losing pool with $3 billion of cash, investors said.


3. Singapore's DBS Group confirms today that it has more direct exposure to CDOs than previously declared. This came after broker CLSA said in a report that DBS may have S$2.4 billion ($1.6billion) worth of CDO holdings -- nearly double the S$1.3 billion directexposure it initially declared via a special purpose vehicle that had commercial paper backed by S$1.1 billion worthof CDOs. (that is what you get when you use keep them off the balance sheet, its hard to keep tabs)


4. News flagging the banks affirming exposure to the subprime today, Bank of China price came off on back of its disclosure on its exposures.

Money Talks - or is it no money talks today

Anyway, to add on to this little blog page on the money talks...basis capital came out yesterday afternoon to say that they have lost 80% of their value check out the link on bloomberg

There is also big unwinding going on with forced selling on the equities. The yen has advanced
..against all 16 most-active currencies this week -> last look again today 116.50 to the USD, as traders exited so-called carry trades. A$ and NZ$ taking a big hit.

Money Talks - summary of subprime contagion

This year is the year of big changes in finance all around from tight markets, liquidity and staff musical chairs and shortage. Its been 2 good years of corn so far and there is a lot of fats built up that had helped fuelled the markets until the subprime concerns stopped the stock market moves.

What is happening now is -> the retail man in the street is losing money as subprime 'meltdown' continue to build up. Liquidity will continue to tighten although the question continues to remain on how much more to go... The meltdown so far is not as 'severe' given the market uptick in the last 2 years and investors still have some 'fat' from there.

Given market uncertainty, one would stand clear for now and just unwind fat positions and switch around stocks which is going on.
Funds managers must be looking through their portfolios on which stocks to clear and hold as fund redemptions will continue given that those with subprime 'failures' are unable to take out their investments given the losses.

On the currency front, the increased risk aversion among global investors as well as capital recall means investors are winding down "carry trades," a reason why Yen had not been doing well until recently. Interestingly NZ$, a favorite of the carry trade as its interest rate is 7.75% higher than Japan's, has slid the most among the 16 major currencies in the past week, falling 3.5% against the yen while the A$ has dropped 2.1%. The Yen is standing at 117.39 to the USD.


A summary of liquidity pumped in by central banks so far has shown that it has hit all markets and not just US.

US:

Bear Sterns (US$1.3bn losses estimated) - Triggered the decline in June after two of its hedge funds faltered as subprime loans default rates. The company pledged US$1.3bn to help stem losses in the funds. They filed for bankruptcy protection on July 31. Investors were blocked from pulling money from a third fund as losses in the credit markets expanded

American Home Mortgage Investment -Margin calls forced the mortgage lender into bankruptcy protection on Aug. 6

Australia:

Basis Capital :have seen its Basis Yield Fund lose half its value. .

Absolute Capital Group Ltd: Suspended withdrawals and froze its Yield Strategies Fund and Yield Strategies Fund NZD, which together have about A$200m (US$177m) under management.

Macquarie Fortress Investments Ltd- The 3rd fund manager in Australia because of loans made against the funds, which have about US$1.3bn invested, they could lose a quarter of their value (or US$300m)

Taiwan Life Insurance Co.- would book a loss of TWD428m (US$13m) for the first half 2007

France-BNP Paribas Asset-management arm freezes three of its asset-backed security funds amid a lack of liquidity with some US$2.2bn losses estimated

Germany -IKB Deutsche Industriebank AG German bank has "felt the impact" of the subprime fallout and now on the receiving end of a bailout that consists of about €3.5bn, or US$4.789bn, to cover possible losses, plus a further financial backstop of €14.6bn to keep afloat IKB and the affiliate that invested in fixed-income securities. An estimated US$5bn losses.

China's 6-listed banks may lose an estimated 4.9bn yuan (US$646m) from their investment in subprime loans

1) Bank of China US$507.8m 2) China Construction Bank US$76m 3)Industrial & Commercial Bank of China US$15.8m 4) Bank of Communications US$33.2m 5) China Merchants Bank Co US$13.6m 6)China Citic Bank US$2.5m

Funds injected by central banks last week

US Federal Reserve Central -> has injected approx US$62m (Thursday: US$24bn / Friday: US$38bn )

European Central Bank -> Funds injected US$279bn (Thursday: US$130bn /Friday: US$84bn /Monday: US$65bn )

Bank of Canada injected on Friday: US$1.6bn

Bank of Japan -> injected US$13.5bn Funds (Friday: US$8.4bn /Monday: US$5.1bn )

Swiss National Bank injected on Friday: Est. US$1.7-2.5bn

Reserve Bank of Australia injected on Friday: US$4.2bn

Monetary Authority of Singapore believed to have injected on Friday: US$1bn