Gentlemen, Start Your Engines

Hang Seng up 14%, Nikkei up 6.4% and Germany so far up 4.8%. What gives? Bloomberg attributes it to BP Plc's earnings topping estimates and stocks globally being at low levels. Both accurate points but stocks being low is nothing new, and one stock beating estimates does not a bull market make.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1cgRaO.u4o8&refer=home

Nonetheless, there is a lot of capital out there on the sidelines waiting to get back in the market, so it may not take too much of an excuse, especially with increased noise lately on nearing a bottom. I don't see an extended bull run until things globally calm a bit, but this could have legs for a couple of days. There are a lot of terrific values out there as the MSCI World Index shows, so this will eventually take hold, but I suspect we will bounce around for a while as we gyrate from occasional good news to more bad news.

More Good News

On the good news front (and better news than just one company beating estimates), credit continues to thaw, at least for most the world. This is still a slow thaw and rates are still horrible compared to traditional norms, but keeping this going in the right direction is an important step. It indicates credit is becoming available from entities other than the governments.

http://www.bloomberg.com/apps/news?pid=20601087&sid=abK4GvSOlofE&refer=home

And Some Not So Good News

The Baltic Dry Goods Index continues to languish. Given the fall off in demand, one would expect this to happen, but perhaps not to the extent it has happened. Yves at NakedCapitalism has for some time suspected that it is not due to simply a drop off in demand. Rather, it is in part due to traders unable to secure necessary letters of credit. Apparently they are not at the top of the banks' lists in terms of credit-worthy applicants and without letters of credit, trade collapses. This is not a situation that can be allowed to persist and hopefully will soon get the attention of the governments of the world. This also might magnify the looming food crisis as crop exports sit in ships and rot. A world dependent on global trade will hopefully soon wake up and realize it cannot smell the coffee because the coffee beans are still sitting on some ship in South America.

http://www.nakedcapitalism.com/2008/10/confirmation-of-role-of-financing.html

And Some Decidedly Bad (Potential) News

Jim, at Survivalblog.com points out some reasons why he thinks a depression today could be far worse than the Great Depression. He largely ties this to people today being less self-sufficient and the country in general being more dependent on foreign trade for what we need. He makes some sense, so let's hope we don't go there.

http://www.survivalblog.com/2008/10/letter_re_the_depression_of_th.html

I Didn't See That One Coming

Here is an interesting piece on how Goldman Sachs and Morgan Stanley becoming banks, Bear Stearns merging with a bank and Lehman going under may have contributed to the problems in emerging economies and currency changes. Capital requirements for banks are more stringent than for securities firms (especially after the SEC loosened requirements for the securities firms a few years back), so when these companies became banks earlier this year, they had to rein in credit. Unfortunately for hedge funds, this meant a lot less credit from their prime providers of credit, which came at the same time as unprecedented redemptions. The result was lots of hedge funds liquidating assets, including, apparently, lots of emerging market investments. Undoubtedly this had an impact on the markets of developed countries too. The question you need to ask yourself punk, is do you think the hedge funds have any more bullets left in that gun.

http://www.nakedcapitalism.com/2008/10/emerging-markets-capital-flight.html



Auto(matic) Problems


GM and Chrysler are still debating a union of two negatives making a positive. Meanwhile, Ford is no better off. And with the Yen appreciating big time, who knows the impact on Toyota. Short story, car companies, wherever based, are going to suck air for a year or two. Long story - very long story - unless you think some new company will come in with biodiesel, solar, hydrogen, electric or some other alternative energy cars that totally change the dynamic, then some of these car companies will survive and thrive. The trick, as always, is timing and picking the survivors. The U.S. auto companies are on the ropes and likely will only survive with (more) help from Uncle Sam, which I suspect will be forthcoming. But who really knows?


http://www.bloomberg.com/apps/news?pid=20601087&sid=aET247KR5diM&refer=home



It could be that the winner here will be Volkswagen. Up over 50% today in the German market on an announcement that Porsche will raise its stake in the company to 75%. I saw one report that, at least temporarily, VW surpassed Exxon as the largest company in the world in terms of market cap.