Skip to main content

Why doesn't the news translate into the markets?

This morning the stock price for Societe General is around Euro24.00 up 40% from its January 15 low of Euro 17. UniCredit saw its stock price double to Euro 4 from a low of Euro 2, granted the whole mess around its rights' issue clouds the picture a little bit but...

This morning looking at the VIX (Volatility of the S&P 500 -- or the fear index) is at a post crisis low (low 20s), yet none of the news is particularly good, the only explanation is that the ECB's LTRO program is working as planned -- boosting stock prices despite rising real uncertainty.  The reality of Greece is hard to escape -- Greece's tax revenus are collapsing, the Greeks are reluctant to push reform any further (there is no doubt that Greece is very unproductive, it has been for years).  Bottom line, we are looking at a very messy exit by Greece of the Euro -- if there is no new cash coming (budget deficit of 9.5% mainly because revenues have collapsed) then default will occur.

I don't think its appropriate to push the analogy too far, but no one knows the ramification of a Greek default, it was true for the U.S. Treasury when Lehman went under it is also true for Greece.  Two other bits of very gloomy information hit my inbox yesterday:

  1. Last month Glencore paid negative shipping rate on its leased verssels.  The vessel owners paid Glencore to use its ships -- granted it was not a large amount, still...
  2. Chinese electricity demand dropped by 7% last month (granted this was impacted by Chinese New Year festivities), still this has not happened in more than 10 years.
  3. Several friends in London are reporting massive salary cuts.  All three work in some of the bank's most profitable groups, yet all three saw cuts of between 12% and 25% in their gross salary.  Now, its important to note that when the bonus caps were introduced two years ago, many firms increased salaries to make up part of the difference.  Clearly banks are not feeling that pressure anymore -- by the way, none of the three left their jobs, but this will have a dramatic impact on their discretionary expenses.  

Despite this, and generally marginal earnings season so far, the markets are testing new highs.  Some will say that so much bad news was priced in the market that a bounce was almost a sure thing, yet its not like the market are very cheap.  P/Es of 13x are a little low but they are not "just emerging out of the recession" lows -- that would be p/e of 9x or 10x.  Granted the S&P 500 seems to be "topish" but then I thought it was heading towards 1,000 -- not 1,300.  Funny enough I don't invest with my head -- I leave that to my excellent broker.  He convince me in early January that we should get back in the market -- that my hugely successful bond bet was not going to get any better, and that I should go back heavy into the market (with companies that have low debt and nice dividend -- and little consumer  cyclical exposure), and I did, against my better judgment.  I've now learned to differentiate long term trend and short term price movements.

Note: I have no China exposure or Glencore, I don't trade the VIX and  

Comments

Post a Comment

Popular posts from this blog

The end of Tesla?

 it takes a special kind of idiot, to think that he can antagonize his entire customer base, and think that it will not impact his business. When Elon Musk went to work for Donald Trump, and created the doge department, he antagonized every liberal, and these people represent 90% of his client base.That’s not a brilliant move. Now Elon Musk is worth hundreds of billions of dollar, so he shouldn’t care a great deal, however, he needs to care because of several other issues. The cyber truck has been a disaster, most have had to be recalled because of defective glue, it’s not a truck, it’s not a car, it’s noisy, relatively uncomfortable, but great as a development platform. What Tesla has learned in making car manufacturing more seamless is truly amazing. The problem was that Elon Musk was so pissed with the Democrats, and with Joe Biden, in particular because of some slight, which were just plain stupid too. By the way, that he decided to support with hundreds of millions of dollar, ...
Post a Comment
Read more

Donald Trump‘s bad bargain

 The entire of 2023 and 2024 when Donald Trump was running for the White House, his mantra was no war, that the Ukraine conflict would be resolved in a day, and that he would do everything not to involve America and war. How the world has changed! He finds himself facing three conflicts; Ukraine, still going on almost 5 months after he became president. Gaza, an unspeakable crime against humanity, is obviously going to go all the way to its bitter end. And finally, Israel’s attack against Iran. It’s important to note, that Benjamin Netanyahu first indicated at the United nation that the Iranian were 3 to 5 years away from having the nuclear bomb. He made that statement in 1995. Therefore, no one is surprised that he uses the same two lines every so often. It’s entirely possible, that 30 years after he first announced it, that Iran has finally developed the bomb. It’s also remarkable that Iran, local power has been destroyed, from Yemen, to Syria, via Lebanon and Gaza to small exten...
Post a Comment
Read more

TACO again, but worst!

 Donald Trump got the rare earth metals that he had thrown away on April 2, liberation day as he called it. What did the Chinese get in exchange? The whole deal, is on the wrap right now. But let’s be clear. It’s the Chinese that have the upper hand.Some of the materials made by the Chinese, are simply unavailable anywhere else. suspicions are that the Chinese got the high-end chips that they lost under Biden. Tariffs will probably return to the level of April 1, and in the end Donald and his friends got nothing for it. It gets worse, Chinese exports to United States are down 40%. The Chinese have found new markets, I probably never gonna buy American grain again. Once again, Donald Trump proved he’s a great negotiator. He got absolutely nothing for his Showmanship. He told the world, that everyone would come and kiss his ass, instead they’re laughing At him. There’s no joke about Donald Trump, a 25 and inherited a huge fortune and proceeded to make it a small one. Bottom line, the...
Post a Comment
Read more