Global markets sold off overnight on continued concern that the United States banking system in in dire trouble. S&P futures took an elevator ride down to the basement overnight before bouncing a bit at 7am EST but are still down significantly. Financial stocks are once again taking hits in the pre market as additional warnings are being circulated about various banks from analysts.
Financial analyst Meredith Whitney of Oppenheimer who has been ‘spot on’ with her analysis of the banks made this call this morning on Wachovia Bank (WB)
OPPENHEIMER CUTS WB TO UNDERPERFORM FROM MARKET PERFORM
- Opco’s Whitney says outlook for shareholders is ‘bleak’
Lack of confidence continues to build worldwide in the ability of the United States Government to handle the banking crisis. IndyMac Banks’ collapse is most likely just the beginning of bank failures in the months ahead in our view. If things are allowed to continue as they have been, and if the Government attempts to artificially inflate housing prices this problem WILL fester and explode into a much larger problem. The housing market must be allowed to correct normally through the simple supply and demand process with the resulting normal price discovery process.
Only in this manner can the problems equalize and a balance be achieved. Banks and financial institutions caught in the middle by having leveraged themselves way too high is simply just too bad, they must fail. No bail outs, no tax payer rescue plans. Bad companies fail all the time and these institutions should NOT be given any special rights. Good companies are rewarded, bad companies are punished and go out of business.
Producer Price Index (PPI) data:
*JUN PRODUCER PRICE INDEX M/M: 1.8% V 1.4%E; PPI EX FOOD_ENERGY M/M: 0.2% V 0.3%E
- PPI YoY: 9.2% v 8.7%e
- PPI Ex Food_Energy YoY: 3.0% v 3.2%eTABLE: JUNE PRODUCER PRICE INDEX DATA
JUNE MAY APRILPPI, Finished Goods 1.8 1.4 0.2
PPI, Ex. Food, Energy 0.2 0.2 0.4
Energy 6.0 4.9 -0.2
Foods 1.5 0.8 0.0
Consumer Goods 2.3 1.8 0.1
Residential Electricity 0.8 0.6 1.2
Residential Gas 6.6 3.8 5.4
Gasoline 9.0 9.3 -4.6
Home Heating Oil 12.4 8.0 2.2
Drugs -0.1 0.2 0.7
Autos 2.2 -1.0 0.4
Tobacco 0.0 2.2 0.1
Capital Equipment 0.3 0.1 0.4
Intermediate Goods 2.1 2.9 0.9
Ex, Food, Energy 1.3 2.0 1.2
Crude Goods 3.7 6.7 3.2
Ex. Food, Energy -0.2 5.0 7.9
General Motors (GM) announces the elimination of their dividend, cuts in bonuses for executives, the raising $15 Billion of capital by selling certain assets, and job cuts. All in the attempt to stem further losses at the big auto giant. Pre market action on GM stock has been mixed. At this moment it does not look like GM went far enough to make investors comfortable.
At 10:00am US EST Ben Bernanke, Secretary Hank Paulson, and SEC Chairman Cox will be speaking before the US Senate to discuss the economy and the markets. Also, President Bush is scheduled to hold a press conference at 10:20am to discuss the economy.
Be prepared for any ‘stick save’ which might turn the market around in the short term. When there is this much political gabbing at the same time then it means they may be prepared to offer the market a piece of candy to calm it down. But, unless the Government stops trying to artificially inflate housing prices then we are in for even worse conditions ahead.
Watch the XLF, is near a strong support region which could provide a technical bounce. However we need to remind you that in this environment where fear is very high and confidence in waning it is very possible that support regions are of no substance to the market. Today remains as either a severe sell off or a wild bounce.
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