Obamalus To Hurt Corporate Earnings, CNBC Willful Ignorance Continues?

By: PaddyPowerTrader

The early market buoyancy yesterday was erased and indices faded badly to finish in the red on fears that the Obamalus would crimp future earnings of heath care and drugs companies. The plan contains provisions to clip Medicare payments to insurance companies and hospitals plus there are provisions to allow consumers to buy cheaper drugs from abroad. Stocks are headed for their worst month since last October.

Today's Market Moving Stories

• Overnight data from Japan again made for grim reading. Industrial Production nose-dived 10.0% m-o-m in January, the largest decline ever registered. Meanwhile, Household Spending fell 5.9% y-o-y and headline CPI Inflation slowed to 0.0% y-o-y from 0.4%. This pressed Finance Minister Yosano to urge that stimulus measures contained in budget bills should be implemented with haste.
• I know we are all sick of reading about the global banking tumour but sadly it's STILL the main driving force. The US Federal Deposit Iinsurance Corp announced its so-called “ bad bank ” list, which includes institutions that are in danger of failing, increased 47% in the fourth quarter and now includes 252 firms that hold $159 billion in assets. The agency also revealed the banking industry lost $26.2 billion in the fourth quarter.
• Lloyds results have just hit the wires and, at first glance, they look awful. The share price has gone cliff diving. The numbers are wildly complicated to interpret as they are present in terms of two standalones, HBoS and Lloyds. Bottom line though is that the common equity could be worth as little as 99p per share and the outlook for 2009 is much grimmer than expected. There is also no news on the extent of their Asset Protection Scheme “participation” though the Telegraph is whispering $250bn!
• A lending package of up to €24.5bn is being drawn up by the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank to help central and eastern Europe's battered banking systems weather the financial crisis.
• A report from the GFK NOP said that 40% (or 5 million British households) face the prospect of negative equity by the end of 2009.
• Crude Oil has reached a one month high of $45 a barrel as maybe those production cuts are starting to bite.

What Of The Economy Now?
Well, adjectives escape me to describe the latest slew of US economic data, which in a nutshell, reflects the sheer magnitude of the current slump with durable goods (posting their 6th consecutive monthly fall), weekly jobless claims (at record high) and new home sales (at record low). Remember we're just one week away from another non farm payrolls disaster next Friday.

Emergency EU Summit At The Weekend
There will be a CEE pre-summit meeting scheduled for Sunday morning and this will be followed by an emergency EU summit from around midday onwards. High on the agenda will be how and when to provide financial support for Emerging Europe as well as Western countries such as Ireland and Greece. I suspect there could be significant announcements from the summit. Possible announcements include financial aid for some of the weaker nations or even a relaxation of the Stability and Growth Pact (SGP) rules, which virtually every Euro member will break this year. Note JC Trichet met with Irish government officials yesterday where he said any talk of an Irish sovereign default was absolutely absurd.

Equities

• Adding to the siege mentality in stocks was an ugly report from Dell after the bell yesterday featuring poor sales with decreasing margins and profits that collapsed 48%. Tech stocks may be under pressure today.
• Rio Tinto and Norsk Hydro are both under pressure following a Goldman Sachs sell recommendation on falling demand for commodities.
• Grafton reported results that came in below expectations. Profits before tax were €64.3 million, down 72.8%, compared to expectations of €121 million. Earnings per share fell to 25.09c compared with consensus of 30-33c, down 70.9% in the year. Another tough year looks in prospect particularly after the poor weather in Jan/Feb.
• Dragon Oil announced yesterday that the board had commenced an investigation into certain possible irregularities identified in it's procurement procedures. The Groups results (that were supposed to be published on 4 March) have been delayed until management can determine what affect the investigation will have on the company's financial position.

Companies Changing Their Logos To Reflect The Times

And Finally… Great Moments Of Wilful Ignorance

Riley made one of his usual uber- bullish CNBC appearances on August 17th of 2007 ( Dow 13,000 with the rate cuts and sub prime debacle beginning). He dropped such a cornucopia of devastatingly awful advice that you need to see it to believe that this all came out over the course of 9 minutes. Some choice nuggets? First, Riley responds to a question from someone who is 58 and retiring at 59 by commenting that it might be a good idea to be 95% in equities. Minutes later, he recommends large, stable money centre banks (remember those) and the XLF (bank index ETF). He also remarked that the market was at a good valuation, the Fed will save the day, it's just the Countrywides with the sub prime problems, buy the S&P 500 , buy tech stocks…etc. Ned Riley would call The Apocalypse a buying opportunity.

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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