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To begin with, the $30 Billion ‘Brazil Bailout’ wasn’t really a Brazilian Bailout at all. Rather, that the U.S. backed IMF quickly decided to pull together the largest single country bailout package in history was simply a matter of convenience. After all, why risk having to possibly bailout out a U.S. financial institution(s) and creating a domestic panic when you can temporarily keep hope alive by throwing money at one of the flashpoints abroad? And yes, ‘hope’ is the correct word given the circumstances: with U.S. banks on the hook for roughly $25.6 Billion in Brazil the hope is that only $4.6 Billion from the new package ends up in Swiss bank accounts.
Elections Around The Corner = Pump Up The Markets
The Fed held secret meetings in late July (rumored), Sir Greenspan dined with Bush a couple of weeks ago, and ‘intensive discussions have taken place in Washington with a visiting Brazilian delegation’. (IMF) Furthermore, and just as the ‘Fed cut’ rumor mill started to churn, it was announced that Greenspan would be Knighted. Although it is uncertain whether or not Greenspan’s fairy tale ending as Fed boss helped the markets, it surely took some of the focus away from all the bad news.
Suffice it to say, Washington is doing everything possible to restore investor ‘confidence’ (or investor ‘ignorance’ dependent upon how you look at). To be sure, O’Neill is contradicting everything he previously said concerning bailouts, Bush hasn’t repeated his mantra that ‘corporate America must be punished’ ever since Citigroup and J.P. Morgan got slammed, and some are even speculating that following Uruguay and Brazil bailouts Argentina will be tossed a few scraps. You may remember that Argentina was allowed to openly fail… when the U.S. economy and stock markets were doing O.K....
Mind you, the above points on market manipulation are just speculations. After all, in a couple of years time no one will be talking about how the Fed made a special point of announcing that it wasn’t holding secret plunge protection meetings at the exact moment the stock markets ‘bottomed’, thus giving such rumors an extended life.
Thank You Sir Greenspan, Can I have Another Cut?
There is frenzied speculation about whether or not the Fed will lower interest rates next week. Why such speculation is impacting the markets is somewhat uncertain. Could it be because all the ‘long-term’ investors are not looking past next week?
The Earnings Recovery Will Have To Wait, Again.
In the background of the ‘stabilizing’ stock markets analysts continue to take a clever to 3Q02 and 4Q02 earnings estimates, consumers are showing signs that they are tired (even when shopping at WalMart), and auto prices just registered a 1.5% drop in July (PPI). No matter how devoted an optimist the investor is it is difficult to envision how falling earnings estimates, slack growth at WalMart, and reduced margins at GM is good news.
Unless the climate for corporate profits quickly turns around 3Q02 is shaping up to be a disappointment. Moreover, with nearly 1 ½ months exhausted from 3Q02 time may be running out. Facts are facts: right now companies are not doing well enough for the markets to sustain a rally. Moreover, First Call’s Chick Hill sees 3Q02 estimates possibly trending from +12.4% to just +4% by the time E-season rolls around.
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“The July drop brought the expected 3Q02 gain down to 12.4%. At that rate it will be at only 4.0% by the start of the 3Q02 reporting season. It may not come to that, but it won't be at 12.4%”
C. Hill
Once again, the best the bulls can hope for is a repeat of last year: or when investors were able to disregard 3Q02 earnings and keep looking forward (in fact, investors have done a fairly good job of disregarding 6 quarters of negative earnings results due to ‘expectations’). With this in mind, if corporate America can somehow blame falling stock prices for soft 3Q earnings and the markets are higher in October – voila! - everyone hops on the ‘things are improving’ train.
The alternative, which is sure to be a little bit closer to reality, is that everyone panics for any number of reasons and the stock markets crash heading into the worst month of them all (September) and the best known crash month (October).
Whatever the case may be, Brazil got $30 billion and Sir Greenspan may cut rates. Hope is alive! Now that I have repeated these headlines a few times have you forgotten about 3Q02 earnings? Some investors have…
Enjoy the weekend everyone. Next week promises to be an interesting joust.
All data and information within these pages is thought to be taken from reliable sources but there is no guarantee as such. All opinions expressed on this site are opinions and should not be regarded as investment advice.
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FallStreet.com
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