Highlights
So you should not be
surprised at this point at what drove markets on the day, Greece. They actually reached a deal on something so
great news! Right!? Well, not really. Luxembourg Prime Minister
Jeane-Claude Juncker said, "In short, no disbursement without
implementation." He then went on to
set another date for Greece at February 15th.
In plain English, the European finance ministers held back an aid
package of some 130 billion Euros in bailout funds as they don't believe what
the Greeks say. Pretty harsh if you ask
me, but history agrees with them as Greece has continually failed to meet
expectations and basically why will this time be different. So what next?
Greece really has 2 options.
First, they can draft a new plan by the 15th and receive the money they
are expecting. Second, they can exit the
Euro. Not great options for the Greeks
and this issue should be interesting for the markets going forward. I expect the markets will sell off to some
degree on the news. I am still bullish
on the Greeks reaching a deal, but the odds deteriorate every day. In other news, the markets were basically
flat on the news. The S&P 500 rallied 0.15%, the DOW.05%, and NASDAQ was
flat.
When Warren Buffet speaks,
people generally listen. Well today he
spoke in his annual letter to shareholders about his views on the markets,
gold, and other insights that he had to share.
In general summation, he claims that any "productive asset will prove
to be the runaway winner over bonds or gold over any extended period of
time." These are pretty bold
statements but he backed them up with some excellent logic. He said in his letter that bonds should
"come with a warning label" as they do not compensate investors
enough to deal with inflation and taxes.
He was even more critical of gold calling it a "non-productive
asset." In particular he noted
"owners are not inspired by what the asset itself can produce — it will
remain lifeless forever — but rather by the belief that others will desire it
even more avidly in the future." He went on to state that bubbles
"ultimately pop." I generally
agree and feel that gold, although a great trading asset, is not something to
hold much of for the long term.
Another interesting
story on the tape, a deal was reached with big banks and state governments and
the terms are going to hurt homeowners who have actually been making the payments
on their mortgages instead of "strategically defaulting". The agreement should be worth some $26 billion
will pay those who were involved in fraudulent lending and those whose homes
are worth less than the debt they owe (underwater). In reality, this deal helps those who put
little money down and those who decided to stick it to the banks rather than
the people who did the right thing. This
deal should help some 1 million of the 75 million homeowners or about 1.3% of
homeowners. Most troubling is that the
people who put 40% down and lost a similar amount in their house will get no
aid. In other news included that
jobless claims came in below the consensus at 358k, but the last month revised
number went up by 6k.
Equities
The stock market sold off
hard in the morning on the rejecting of the Greek bailout loans. The markets eventually changed their tones
and finished flat to slightly up on the day with the S&P 500 up 0.15%, the
DOW up .05%, and NASDAQ flat. In
individual names, DMND finished down big at 37% on the accounting issues
mentioned yesterday, Akamai (AKAM) was up 10.51% on a beat in both revenues and
earnings. First Solar (FSLR) rose 7% on
increasing demand expectations, and Whole Foods(WFM) was up over 5% on an
earnings beat, and Pepsi (PEP) fell some 4% on in Europe.
Rates and FX
Watch out for the AUD/USD as the RBA
lowered both its growth and inflation on the year. The AUD/USD sold off to 1.0709 at 11:00 PM
Pacific time. The lowered forecasts came
in at 3.5% growth and 3% inflation. This
increased concerns that the RBA would cut rates moving forward and pressured
the AUD. The EUR/USD sold off on the
news Greece had preliminarily agreed on terms as the market does not believe
Greece will be able to fulfill its promises.
The EUR will continue to be under pressure as uncertainly continues to
mount. The Yuan reached an 18 month high
on news that China had imports fall over 15% with a decrease in exports. This obviously fueled concerns of a global
slowdown in growth. The BOE injected some $79.3 billion into the economy to
support the recovery. Another move of
quantitative easing in the UK. The bank
left interest rates at a record low of .5%.
The UK economy shrunk at the end of 2011 and the unemployment rate rose
to a 17 year high.
Bonds continued to fall, supporting my recent call of a sell off especially with the longer duration names. The 30 year moved to 3.16%, the ten year settled at 2%, the 7 year moved to 1.38%, and the 5 year settled at 0.82%. I recommend a long 5s10s30s butterfly (my definition is longing the 10, shorting the 5s and 30s).
Commodities
Natural Gas storage fell 78 bcf, less than the expected 90 bcf. This was still semi bullish for NG as the gas has been under pressure due to over supply in the industry. Gold moved to 1,722 and Oil settled at $99.13.
Monday, I plan on entertaining some less prevalent commodities such as OJ and Cattle Feeder to spice up the report so be prepared!
Tomorrow
Leading US news include the consumer
sentiment number at 9:55 ET and Ben Bernanke speaking at 12:50 ET. China
reported that their exports fell .5% and imports fell 15.3% in comparison to
last year at this time. This moved the
Chinese trade surplus to a 6 month high of $27.3 billion. Most economists blame this on the timing of
holidays in the country in the data.
Stock Picks
Bank of America (BAC) - With the good news on a mortgage
deal being settled with the big banks, BAC should be a major beneficiary as one
of the biggest concern for the bank was the potential litigation and write
downs that existed in the future. From a
valuation perspective, the bank trades at a 7.4x forward P/E with very low
expectations built in. In terms of book
value, the bank trades at just .39 Price to book. A large part of this is due to the esoteric
nature of the assets on the books and what they are actually worth. At this point, if you plan to hold BAC for
the long term, I feel the bank will come out well positioned in the long run.
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