U.S. stock index futures were once again pointing to a
slighlty higher opening on Monday. Asian markets tumbled and European markets
were mostly lower. The market is clearly oversold, but still faces lots
of pressure.
Investors should also remember that the stock market has a seasonal tendency
to rise at the start of a new month due to new pension money moving in.
Today's Economic Calendar:
- Personal Income and Outlays 8:30 AM ET
- ISM Mfg Index 10:00 AM ET
- Construction Spending 10:00 AM ET
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
News For Thought
Changes in the drug war approach appear. According to Reuters: "Convinced
that the four-decade-old, U.S.-led war on drugs has failed, Argentina, Brazil,
Chile, Ecuador, Mexico and other countries are relaxing penalties for possession
and personal use of small amounts of narcotics. Critics warn drug abuse and violence
will rise if the small-scale consumption of cocaine, marijuana and other drugs
is tolerated, but policy makers in much of Latin America argue the new laws will
free up resources to go after big traffickers and treat addicts. The shift away
from zero-tolerance policies has picked up pace in the past year and U.S. President
Barack Obama's administration has voiced little opposition to the changes. That
is a dramatic switch after decades of Washington's resolute opposition to any
easing of laws against consumption."
UBS could "collapse" says Swiss Minister. Want a little drama? Check this
out. According to Breitbart.com: "Switzerland's justice minister warned in an
interview on Sunday that top bank UBS could collapse if sensitive talks with
the United States over a high-profile tax fraud investigation fall through. "The
actions of UBS in the United States are very problematic. Not just because they
are punishable but also because they threaten all of the bank's activities," Eveline
Widmer-Schlumpf told Le Matin Dimanche newspaper." Yeah, that would be a great
thing to have happen on your watch; wouldn't it?
When in doubt: create another derivative. Insurers now want to be protected
against people living longer. According to The Wall Street Journal: "Eight investment
banks and insurers have come together to develop an organized market to help
them spread the financial risks and costs of an aging society more widely. The
Life and Longevity Markets Association, which launches Monday, aims to take instruments
known as longevity swaps into the mainstream. Most of these deals have so far
been private, over-the-counter transactions between insurers and reinsurers.
The initiative, which involves Deutsche Bank AG, J.P. Morgan Chase & Co.'s
J.P. Morgan, and Royal Bank of Scotland PLC, as well as insurers Axa SA, Legal & General
Group PLC, Pension Corp., Prudential PLC and Swiss Re, aims to replicate the
success of insurance-linked securities markets. These enable insurers to pass
on some of the risk from unforseen events, such as natural disasters, to outside
investors like hedge funds." Seems fitting, since hedge funds bought into the
supbprime mortgage market near the top, why not see if we can have them hold
the bag one more time?
If there is one thing that seems certain is that people that do what we do, find
potential inefficiencies in the system and try to figure out what the potential
outcomes, risks and profits are likely to be, have job security. As long as there
are politicians, insurance companies, and banks out there.
2010 budget is another record breaker. The 2010 Obama budget is projected
to raise the federal budget deficit by $1.56 trillion, according to the White
House's own estimate. The overall initial impression seems to be that the White
House is still "tinkering around the edges" of the deficit and that there will
be some significant battles ahead.
Today's news suggests that nothing has changed and that the U.S., will continue
to trudge and carry a heavy load, politically and economically for the foreseeable
future.
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The stock market is clearly in correction mode, and money
flows as we expected are moving into the U.S. Dollar.
There are plenty of international reasons, especially the issues that face Greece
and the European Union. What's interesting is that the conventional wisdom says
that the dollar's rally is more out fear for Europe than expectations of improvement
in the U.S. economy.
The cynics point to the potential for gridlock in the U.S. as a reason to rejoice,
as Mr. Obama's agenda is now sidelined. Yet, that's not a slam dunk, as the Obama
thing is very complicated and has the potential to resolve itself in very unpredictable
ways.
Last week's most interesting development was Mr. Obama's visit to the Republican's
retreat in Baltimore. And here's how we think it all fits together.
Obama Ventures Into Lion's Den
The media is having a field day with the president's visit to the Republican
retreat in Baltimore. Lots of coverage points to the inevitable soundbytes about
the president referring to not being a "Bolshevik," and the "testy" tone of the
debate. Here's our take on it.
We watched about ten minutes of it, sitting at a Sonic on Interstate 175, south
of Dallas. Lots of common folks, truck drivers, farmers, and the like were in
the restaurant, which shares space with a convenience store. No one but this
reporter was paying any attention, despite the sound being on and the big flat
screen TV being at a good central location.
We paid attention, to the president, and to the overall lack of attention in
the shop. It was a little creepy to be sure.
What we saw on the screen was, pardon the vernacular, "way cool." The president
walked into the enemy's den and fought for what he stood for.
Now, here's what the media is missing. To us, it seemed as if the president may
actually be torn. All of his life, he's believed that the left's ideals are the
way to go. All of his life, he's waited for this moment, when he can put that
plan to work. Now, he's there, he's got the backing, and very few are going along
with him.
That's got to be a shock, especially when the harder he pushes, the harder it
gets. The polls don't lie. We talk to people all the time and they reflect the
polls. Even some on the left, cling to the ideals, but wonder how much damage
the president will do to them if he gets his agenda passed.
So Obama will fight. But what he'll fight for is what's uncertain. The market
may be catching on to the notion that the president may be wavering, internally,
with what he believes, or at least the fact that no one is buying what he's selling.
The problem is that he's in charge of the biggest country in the world. If he
starts having doubts, many things may happen. And they are all very unpredictable.
More than anything, the trip to Baltimore was for scouting. Obama is looking
for a way to get something done, and he went to Baltimore to get a closer look
at what he's up against. Maybe he even went there to see whether there was a
chance of some kind of improvement in relations, an opening, a loophole, anything
at all. That's a sign of rising doubt in his mind, not about his beliefs perhaps,
but about his inability to get something done.
What no one is saying, and this is the key to the whole thing, is that president
Obama is learning on the job. He's finally figured out that this is the big time
and that he's got to raise his game. The question is what is he learning, and
how will he use his new found knowledge?
Here's an interesting take from Peggy Noonan, who asked a person that she described
as a Republican who is friendly with the president, why the president had not
moved toward the center. The answer"
"Because he is more "intellectually honest" than that, he said. "I don't think
he can do a Bill Clinton pivot, because he's not a pragmatist, he's an ideologue.
He's a community organizer. He mixes the discrimination he felt as a young man
with the hardship so many feel in this country, and he wants to change it and
the way to change that is government programs and not opportunity." The great
issue, this friendly critic added, is debt. The public knows this; Congress and
the White House do not. "To me the Republicans are as rotten as the Democrats" in
terms of spending. "Almost." "I hope we have big changes in 2010," the friend
said. Only significant loss will force the president to focus on spending. "To
heal our country we need to get the arrogance out of the White House and the
elitists out of the Congress. We need tough love. We need a real adult in the
White House because we don't have adults in the Congress.""
As far as we can tell, everything is now way up in the air, much more than when
Obama was first elected. If we aren't wrong, and we don't think we are, President
Obama is fighting for his soul right now, no pun intended. He is trying to figure
out what he stands for, and how he will come out of this with something to show
for it, without selling himself out.
The problem is that some people think he already sold his soul somewhere along
the way. No matter what, Within a few weeks, or less, more will be known. Until
then, it will be big, huge levels of "high anxiety" everywhere. Maybe after that,
things will get even worse. No one knows what lurks in the hearts of men, except
The Shadow.
Conclusion
America is in play, and so is Obama. The problem is that we've never been here
before, at least not like this, or to this degree. Presidents have usually been
cut out of the same general mold. They've been mostly middle aged white males
with a certain degree of education and a past book of things they've done to
help us predict the future.
Mr. Obama is not the usual guy. His background and life experience are different
than that of other presidents' in recent times. This means that the way he looks
at things, in some significant ways, falls outside of the standard view for past
presidents. And while it's not necessarily a good or bad set of precedents, the
fact is that these things are different. Put plainly, Mr. Obama is hard to figure
out. No one can really tell if he's telling it as he sees it or if he's playing
games.
With Clinton, you knew that some kind of compromise lay ahead. And with Bush,
it was his way or the highway. You didn't have to like what was coming but at
least you knew which way things would roll. This time around, no one knows anything,
and that's whay everything is up in the air.
While Clinton wanted to look for ways to get things done, and Bush bulled his
way through things, Mr. Obama wants to "work through" difficulties, suggesting
a certain psychotherapy approach to work. And while compromise can work, and
just being plain tough will often yield results, psychotherapy is much more muddled,
with "working through" meaning that governing is something that is to be survived
and conquered, instead of something that will provide results that will do the
public some good.
What that means is that Mr. Obama is a fundamentally different animal than his
predecessors, and that we're going to head into some kind of high volatility
and high uncertainty scenario, as Mr. Obama and the Republicans figure out which
way they're going to play this thing out. As far as the Democrats go, we wouldn't
be surprised to see them get shut out of the whole thing altogether. And there
are few thing worse than a party scorned.
But then, we're just speculating here. Because the truth is that we don't know
how this is going to turn out any better than anyone else.
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Gilead Sciences (Nasdaq: GILD) rallied last week, in the
midst of an otherwise dreary market.
Chart Courtesy of StockCharts.com
First, it's good to see that Gilead can rally during
a tough market. That's a sign of relative strength,
and it makes the stock stand out and worth consideration
for ownership.
So the first inclination is to see why the stock rallied. Off we went, and lo
and behold, there was a reason, the company is buying back stock.
To be sure, there are good reasons to buy back stock. One is that by buying back
stock the balance sheet is improved, although there is an outlay of cash. Also
by reducing the amount of stock outstanding, earnings look better as there are
fewer shares among which to divide the gross profits.
Still, you'd like to see a biotech stock rally because it has a blockbuster drug
or a killer pipeline, not because its' buying back stock. And then you have to
wonder if the company can't find anything better to spend its money on, such
as maybe developing better drugs or raising employee salaries during tough times.
Sure, the company's HIV drugs are selling briskly, but that was announced three
days before the buyback. Yes, the stock rallied on the news, and then it rallied
further on the buyback. But the big question is what about the future blockbusters?
Shouldn't that billion dollars be used for drug development or something along
those lines?
What's the bottom line? The charts rule, but they serve you better if you look
behind them once in a while. We'll be watching Gilead closely, but are holding
on to our powder here. What would make us change our mind? A continued rally
in Gilead may lead us to reconsider our position, at least on a trading basis.
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