U.S. Bankrupt, Dow Jones Closes at 6 Year Low

By: PaddyPowerTrader

The Dow Jones finally closed below its November 21st 2008 low (recall that was meant to be the “bottom”), though the wider S&P 500 and NASDAQ have not (yet) broken these psychological levels . It's really a case of nothing but the same old story with banks tanking on ever increasing nationalisation fears. And what of the multiple stimulus packages; well, in short, investors just aren't buying it.

Today's Market Moving Stories

• Asian markets felt the back draft and were soft over night. Stocks under notable pressure were Australia's Macquaire group, Qantas (after a Moody's downgrade) and Bridgestone (after some dire results and weak guidance).
• A little perspective on the US banks Citi and Bank of America. With Citibank's share price at these levels they are trying to run a $2 trillion balance sheet with just $14 billion of equity. You can work out that leverage ratio for yourself. It now looks like a self fulfilling prophecy is coming to fruition . So is Bank of America next? The market capitalisation of Goldman Sachs is now more than Citibank and Bank of America combined, sad.
• Bank of England's Gieve acknowledged the “serious risk” that the UK may enter a decade-long depression similar to the one seen in Japan in the 1990s. He added that quick action (via quantitative easing ) is needed.
• Irish Finance Minister Brian Lenihan said he will examine how to revise the government's bank guarantee to cover “supporting longer-term bond issuance” by the nation's lenders, reiterating comments he made last week. The minister also said remarks by former Irish Nationwide Building Society Chairman Michael Walsh that the society could not survive without government aid were a reference to the guarantee.
• Separately the Irish government has hired Dr Peter Bacon for advice on the creation of a “ bad bank ” or the introduction of a risk insurance scheme. A combined risk insurance/bad bank scheme is the current direction is favoured by the ECB. Such schemes are normally designed to remove hard to value credit instruments from the balance sheets of banks but any such scheme in Ireland will need to be tailored to relate to assets affected by the property crash.
• French Finance Minister Christine Lagarde believes that Eurozone countries must come to the aid of any troubled member state and avoid involvement of the International Monetary Fund if a bailout becomes necessary.
• If you missed Rick Santelli's rant of the year (he's the only sane person on CNBC) on why there's an investors strike, well have a peek-a-boo here . So tonight we're gonna party like its 1776!

Why The US Housing Industry Needs More Help
US housing starts are down 80% from their peak of three years ago and are finally catching up to the decline in new home sales. Nevertheless the month's supply of unsold homes is at its historic peak meaning that prices will have to fall further. Starts will have to contract further and more construction jobs will be lost. Builders are grappling with their trauma in the market, but homeowners are getting help from the government's new $75 billion program to alter terms of conforming mortgages. Falling prices will increase the number of vacancies as home values sink underwater creating a devastating downward spiral.

A Lesson From Germany In Stimulus Economics
Thomas Fricke argues in FT Deutschland that the €2,500 subsidy for the purchase of a new car , in exchange for an old car of 10 years or older, is working wonders. While car companies everywhere in the world are registering double digit sales fall, German car companies are now raising their production, as they can hardly meet the demand. Now these subsidies only account for some 0.15% of GDP, and they are not going to save the world economy, but they serve as an object lesson in stimulus politics.

Equities

• The ever innovative Ryanair has launched its in-flight mobile service on 20 of its Dublin based aircraft. It intends to roll out the service through its entire fleet over the next 18 months.
• AIB appears to be softening the market ahead of the March 2nd results by yesterday releasing an IMS profit warning.
• Cult car maker Saab has filed for “reorganisation” under Swedish law after it became apparent that troubled parent GM wants out.
• Sant-Gobain, Europe's biggest supplier of building materials is down 13%+ after announcing a rights issue of €1.5bn (nice timing). Fellow French cement producer Lafarge is embarking on a similar path and halving their dividend. Both companies intend to replay debt but these issues are likely to come at a deep discount and hurt existing stock holders.
• Other equities under pressure include BP (oil price fall), French bank BNP (weak sentiment) and Anglo American (dividend and buybacks suspended and axing 19k jobs).
• The only bright spark I can see is insurer Prudential.

Data And Earnings Today
UK January retail sales figures are released today at 09.30. Analysts believe that the high street enjoyed something of a respite in January. But this is a notoriously volatile series so it's really anyone's guess where the number will come in!

US consumer prices data for January at 13.30 are likely to reveal that for the first time since Bill Haley and the Comets were rocking around the clock in August 1955, the annual inflation rate has turned negative. This landmark will be achieved if the monthly change in the CPI is +0.4% or less.

Earnings from retailers JC Penney (expected EPS $0.92) and Lowe's ($0.12)

And Finally… After His Unjust Ban From Youtube, Our Class Hero Returns

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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