July 4th Market Notes: Financials, Europe, Oil

by: Philip Davis posted on: July 04, 2008 | about stocks: GS / IEV / IYF / OIL / USO / XLE / XLF

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Quick notes on the markets this morning before I start drinking:

Our pals at GS decided today would be another good day to downgrade banks as their unrelenting attack on anything financial shifts back from insurance (yesterday it was AET and HNT) to EU banks; Swedbank, Carnegie/Bankinter, and Banco Santander, with a statement that " European banks could need to raise around 60 billion euros ($94 billion) in additional capital, or withhold dividend payments for a year."

This sent EU markets down over 1% on a light trading day, ruining what was an optimistic open after the US markets decent show ahead of the holiday weekend. UBS had made people happy by stating the Q2 loss would be break even or very small and would have no need to raise capital (Meredith Whitney panicked the markets on Wednesday, saying they would lose $2.03 per $20 share and would need to raise capital). Zero losses would be quite a bit less than the $6.3Bn Whitney "expertly" estimated they would lose on June 11th, helping to drive them as well as other financials targeted by her and GS, down almost 15% in 3 weeks along with 1,200 Dow points over the same period.

The loss of faith in the financials engendered by this fear mongering also led to a 10% rise in the price of gold, a 10% rise in the price of oil and 3% drop in the value of the dollar (which was on it’s way to a breakout that was bringing down commodity prices when Whitney and GS went on the attack). Now I’m not going to say that these are evil, contemptible, manipulative bastards who have perverted the system in order to use their influence to drive the markets to whatever positons they have investments in - that will be for a court or a firing squad to decide after the revolution - I’m just pointing out the coincidences that continue to swarm around these particular "analysts."

Dealbreaker.com has taken to calling Whitney "Mistress W, the Dominatrix of Banking" and it would be funny if the markets didn’t take her outrageous predictions so seriously and cost people Billions of dollars, especially since dividend paying banks are the type of long-term investments held by many retirement funds and tend to be bailed out by the Fed, who should be demanding that the industry in general be held up to higher standards to promote financial stability, rather than letting yet another debacle of lies and innuendo like last week’s attack on LEH crush another financial institution the way BSC was disposed of (at OUR expense).

Meanwhile, Hank Paulson kicked the dollar while it was down, wrapping up his European trip where he has repeatedly emphasized that the US is more concerned about maintaining growth than fighting inflation. As I detailed in last week’s article "Are You 67% Better Off Than You Were" the reason the Administration is willing to trade inflation for growth is that inflation is a highly disproportionate tax on the poor (and, with the elitist group we have in charge now, that’s anyone with less than $10M liquid) and that 75% of the "growth" in income in this country goes to the top 1% of all wage-earners with another 5% trickling down to the rest of the top 10%. Supporting this status quo is, as I said in this morning’s post, a direct violation of the right to life, liberty and the pursuit of happiness for 90% of our population.

Over in Asia, the Nikkei fell yet again, making 12 days in a row, the worst streak on that index since 1954 and the Shanghai drifted another 0.5% lower despite a 1% pick-up on the Hang Seng. All trading was light and uneventful with the US markets closed.

Oil was unable to hold yesterday’s highs in International trading as my simple plan to take down the price of oil goes into play. Of course Obama’s advocacy of conservation has already spurred counter-attacks from the right, with Floyd Brown (President of the National Campaign Fund and the man who created the "Willie Horton Ads" in 1988) promising "a regular series of ads exposing Barack Obama for the left-wing politician that he is… Obama actually said that his solution is for us to eat less, drive smaller cars and keep our homes hot in the summer and cold in the winter."

Obama’s left wing energy policy includes the following bullet-points:

Hopefully McCain and Mr. Brown can save us from this madness! Over in Israel, they have initiated a plan to make the oil-less nation energy independent in 10 years - no wonder Iran wants to wipe them out and no wonder McCain is drawing record contributions from oil interests, on a pace to out-raise President Bush, who raised nearly 40% of his campaing dollars from oil interests (not including additional millions of "soft money" contributions or the $50M he racked up in his first primary race).

Perhaps it is because Bush supporters got such a fantastic return on their investment that McCain is attracting so much interest.

So the results of today’s foreign trading are inconclusive and it remains, as it has all month, all about the price of oil as it is the "one thing" that is holding this economy down, not the banks, not the housing, not the manufacturing - just oil… We have earnings next week and we’ll see how deep the damage has really run and I’ll have more to say on the markets over the weekend. Hopefully we’ll have some good reasons to buy next week but we’re going to need a catalyst to kick the market back in gear.

Have a happy holiday!

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