Another Bear Market Bounce Or Stocks Bottoming?

By: PaddyPowerTrader

Stocks rallied hard yesterday from oversold levels as newbie Treasury Secretary Tim “the enchanter” Geithner talked of the need for a “forceful” fiscal stimulus and action on a “dramatic scale” to strengthen banks. He also hinted that plans for a “ bad bank ” may be gaining traction. A round of executive bank share purchases from Jamie Dimon (550k shares) at J.P. Morgan and embattled Ken Lewis at Bank of America (200k shares) also helped to give better tone to financials and instil a bit of much needed confidence. But it may be just another dead bank bounce.

Today's Market Moving Stories

• The once red hot Chinese economy grew by ONLY 6.8% in Q4 2008; its slowest pace for 7 years.
• The sun is setting on Japanese exports which are reported down a massive 35% year on year, a record decline pointing to a further round of job and production cuts. Indeed Sony has announced their intention to close a couple of TV factories and layoff 2k workers as they prepare to announce their first corporate loss in 14 years.
• The Bank of Japan left interest rates unchanged at 0.1% but downgraded their assessment of the economy further and said that the economy will split back into a deflationary phase for the next two years. Note they are also considering a plan to buy up corporate bonds directly.
• The NAHB (National Assoc of Home Builders) index fell further yesterday prompting Toll Brothers home builders creatively to offer fixed rate mortgages at 3.99% (a full point below current market rates) in an attempt to kick start buying.
• As more data rolls in, it is increasingly clear that, not only did global output suffer a cardiac arrest in Q4, but the heartbeat is still flat-lining in Q1. Though governments are desperately trying to apply financial defibrillators, the patient thus far is non-responsive. Accordingly I see every chance that the ECB has no choice but to take rates down to 1% in coming months no matter what J.C. Trichet says.
• According to the London Times, the UK government was prevented from taking a stake in ailing Barclays by a secret deal they'd cut with the Abu Dhabi Royal family last October. Bottom line is the poison pill clause meant that the UK government would have to pony up 153p per share against the market price of 66p yesterday and would double the Gulf States holding in the company for free! Bet this gets waived if the taxpayer does pay up.
• Update on Irish equities. Tullow Oil raised €402m of fresh equity at 600p. Elan says its Tricor/Trilipix franchise grew strongly in Q4 2008, but patent expiration is looming for its Skelaxin drug. CRH believe that details on the stimulus package are positive for the building materials industry and rating downgrade of peers highlights the strength of their balance sheet.

Updates From US Earnings Season
Going, going… eBay posted somewhat underwhelming results after the bell with net income down more than 30% as competition increases. The shares were down 5% in after hours trading. And while Seagate had a big miss, Apple popped 9% on results which far exceeded Wall St's expectations. There was no word on the health of iconic company founder Steve Jobs though. Intel said that they would cease production at five older Asian factories cutting 5-6k jobs.

The Great Sterling Debate Hots Up
A day after famed investor and China bull Jim Rogers declared the UK was finished and urged investors to sell GBP , a Goldman Sachs economist shot back with an report declaring that the “likelihood of a near-term improvement in business activity suggests GBP could bounce back quite quickly. We therefore stick to our guns and remain long GBP .” Who is right?

In other FX news there is talk of intervention out of Switzerland to stop the Franc appreciating and ditto from Japan to halt the rise of the Yen (given the dire export numbers). Both these are credible, though unilateral (i.e. flying solo) intervention rarely has any lasting effect. Less believable is a rumour of G7 support for the sinking British Peso. The BoE governor has siad he welcomes such weakness so I assume Goldman's started this tall tale!

An Explanation Of The Now Dead Celtic Tiger
Ireland, once hailed as the European economic miracle, even got the full Gladwell treatment . That indeed is the ultimate sign that a trend has become a full-blown phenomenon that must have some crazy explanation totally missed by normal observers. See, the idea that Ireland was growing rapidly due to free trade and deregulation was just too conventional for Malcom Gladwell; there had to be another explanation.

This relation between the number of people who aren't of working age and the number of people who are is captured in the dependency ratio. In Ireland during the sixties, when contraception was illegal, there were ten people who were too old or too young to work for every fourteen people in a position to earn a paycheck. That meant that the country was spending a large percentage of its resources on caring for the young and the old. Last year, Ireland's dependency ratio hit an all-time low: for every ten dependents, it had twenty-two people of working age. That change coincides precisely with the country's extraordinary economic surge. So have the demographics changed so dramatically in the last two years? We await the story about how Ireland sabotaged itself by indulging in a reckless baby boom.

Data And Earnings Today
Its second division stuff on the data side with US housing starts and permits likely to show further weakness.

But earnings today features a lot of Premiership stars with reports from Fifth Third Bancorp, KeyCorp, Southwest Airlines, SunTrust Banks, United Health, Union Pacific, Google, Microsoft, AMD and Capital One.

Bellwether European stock Nokia also reports. They have already warned twice this quarter and analysts expect EPS of €0.22.

And Finally… Pick Up The Pieces

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.

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