Overview
Banking woes back in the limelight with the nationalisation of Anglo Irish Bank today, another $20B thrown at Bank of America as Merrill Lynch loses $15.1B in Q4, DeutscheBank another €4.8B, and there’s more. This continued to supply a bid tone to Treasury paper, ten-year Bunds and Canadian ones hitting record low yields of 2.85% and 2.51% respectively. Money market futures matched the all-time high prices set in 2003/2004, Short Sterling soaring to new records, then retreating slightly. Equity indices dropped a little, many testing fairly pivotal chart levels just ahead of October/November’s lows. The US dollar gained against all currencies, Eastern European ones especially, setting record highs against the Russian rouble at 32.70 despite $26B central bank intervention and the Mexican peso (14.3375), while the Kuwaiti dinar’s peg slipped. Commodity prices slipped too, Nymex Crude Oil to $33.20 and CME Lumber to $138.20 per 1,000 random length board feet, the cheapest in at least 20 years.
Political and Economic Developments
Yet more rate cuts this week: 75 basis points from Denmark and Thailand to 3.00% and 2.00% each; the ECB -50 to 2.00%, Mr. Trichet patting himself on the back on the Euro’s tenth birthday and boasting that the Bank’s balance sheet has doubled, just like the Fed’s.
Relentlessly grim statistics: Japan December Bankruptcies +24% Y/Y; Machine Orders –27.7%, about the worst in 30 years. Italian Industrial Production a record -9.7% drop November, after Germany’s unprecedented –27.2% slump in Factory Orders last week (and France’s –9.0% Industrial Production), and their governments predict these economies will shrink by 2.00% and 2.25% this year. EZ15 November Industrial Production also falling off a cliff to a record –7.7% and Mr. Trichet does not see any recovery, here or globally until 2010 though Fed governors have been pencilling in H2 2009. US December Retail Sales excluding autos fell a record -3.1%, with inflation-adjusted sales dropping almost four times that due to discounting and cheaper gasoline. Consumer spending accounted for 71% of US GDP until recently – howling headwinds! State budgets in tatters too, another lot clamouring for money.
The UK’s Trade Deficit exploded to a record £8.33B in November (£5.3B of which with the Eurozone so a weak pound certainly not helping anyone). The US one meanwhile shrank very considerably to $40B from an average of $63B last year; the Import Price Index fell a record -9.3% Y/Y having hit an extreme +21.4% in July 2008.
Underlying Themes
Fact: one in six Americans has no health insurance. This week: whistleblowers forced Eli Lilly into paying a record $1.42B to settle fraud investigations into marketing practices for an antipsychotic drug. The firm also agreed to a five-year plan for ‘corporate integrity’ where its products can be excluded from federal health programmes if salesmen misbehave. The drug is aimed at the mentally unstable and those with Alzheimer’s. In Britain this week Pfizer launched a hard-hitting ad campaign warning against buying medicines via the internet. A four-page spread in a London paper, grisly live footage of which will be aired in cinemas across the country, shows an alarmed middle-aged man holding a dead rat by its tail. Because of men’s tendency to self-medicate, and then buy the pills without prescription, they are being warned of harmful chemicals like rat poison in fakes.
What to watch for next week
Sunday 18th State elections in Hesse. Monday 19th a US holiday, Japan December Nationwide and Tokyo Department Store Sales plus UK January Rightmove House Prices and EU25 finance ministers meeting. Tuesday President Obama is sworn in, Japan November Tertiary Industry Index, December Consumer Confidence, Convenience Store Sales and Tokyo Condominium Sales, UK CPI, January German and Eurozone ZEW Surveys and the Bank of Canada sets interest rates (expect a 50 basis point cut to 1.00%). Wednesday the Bank of Japan starts a two-day rate-setting meeting (expected unchanged at 0.10%) and the Bank of England publishes Minutes of January’s MPC meeting, UK Unemployment, Public Sector Finances and Money Supply, November Average Earnings, German December PPI and January US NAHB Housing Market Index. Thursday Japan December Trade Balance, Supermarket Sales, EZ15 November Industrial New Orders, UK CBI Quarterly Trends, US December Housing Starts and Building Permits plus OFHEO’s November House Price Index. Friday January Manufacturing PMI’s for various European countries, UK Q4 GDP and December Retail Sales. Monday the 26th Chinese New Year where holidays in some countries last the whole week.
Positioning and Technical Analysis
Slowly the pieces of our jigsaw are slotting into place, where the finance industry looks like a cross between the zombie dead and a black hole. Arrogant ‘masters of the universe’ are not the alchemists many wanted to believe them to be and instead have shrivelled into civil servants, something ‘alpha males’ might have trouble with! The authorities have decided that they will be bailed out whatever the cost, so expect ever-increasing lines of begging bowls. Quality assets and defensive strategies will shine, shielding investors from more ravages expected ahead, so plan carefully. Avoid toxics and anything too good to be true.
