Market Forecasts, China Passes U.S. Again, Currency Opportunity, IPO Revival and More!

by Addison Wiggin & Ian Mathias

  • Right for once, or contrarian indicator? Mega banks call for market plunge in March
  • Chris Mayer with market predictions of his own, and what he’s looking for in 2009
  • China takes yet another No. 1 from U.S.
  • One nearly dead market of 2008 now showing signs of life
  • Bill Jenkins with an “absolutely fantastic” currency opportunity

  We’re conflicted this morning. If you’re a true contrarian, here’s a clear “buy” signal: Both Goldman Sachs and Barclays suggest shorting the S&P 500 this week.

Goldman analysts yesterday released a target price of 752.44 for the index, nearly a 10% decline from Tuesday’s closing price. “Our U.S. economics team sees little evidence that the downward spiral is abating,” reads their report. Their people suggest a put spread strategy to take advantage: Buy March 825 puts and sell March 745 puts.

And Barclays said the same, with a smartass twist: “We suggest putting down the champagne glass and drinking a cup of coffee,” Barry Knapp, chief U.S. equity strategist at Barclays said in his report. “The policy euphoria associated with the ‘bad bank’ plan will prove to be short-lived.” Thus, Barclays forecasts a low of 750 for the S&P 500 by the end of the first quarter.

The trouble for us: We agree with them!

  Despite their short-term projections, both banks see the S&P 500 rising in 2009. Goldman’s forecast is 1,100, an impressive 33% jump. Barclays is guessing 874, a 5% bump.

“Optimists!” exclaimed our managing editor, Chris Mayer, this morning “barring some miracle earnings are going to be terribly grim this year. I wouldn’t be surprised to see the S&P down around 600. But at this point, my guess is about as good as Calvin’s (my 6- year-old son’s).”

  Market indexes were busy ignoring the macro picture yesterday. Most major benchmarks rose at least 1.5%. Big Pharma’s Merck and Schering-Plough led the way, both reporting better-than-expected earnings.

Traders found the most optimism in yesterday’s housing data… as we reported , pending home sales had a nice jump and beaten-down homebuilder D.R. Horton managed to top the Street’s earnings expectations, dismal as they were.

Then… at the market’s close yesterday… the party bus came to a screeching halt. Disney, Kraft, Time Warner, Electronic Arts and Costco all missed earnings in their after-hours announcements. The Dow managed to open up a few points this morning, but the mood is decidedly more defensive than yesterday.

“It’s no surprise so many firms are hurting,” Mayer continues. “If there is any doubt about your finances today, the market will be unkind to your share price.

“In recent months, I’ve really focused my efforts on companies that I am confident will survive — and have upside potential that makes the risks worth it. We can still speculate and play for big gains. But we’ll have to do so intelligently, by buying stocks in financially strong companies. So even if we’re wrong a bit on timing, we’ve got a shot to make the money back — and then some — when things get better.”

Provided they do get better.

  Auto sales in the U.S. plummeted again in January, this time to fresh 26-year lows. Automakers sold “only” 656,976 cars during the month — a 37% crash from this time last year and the lowest since Reagan’s first term.

Detroit’s Big Three led the way into the crapper. Here’s the breakdown:

  With January’s numbers comes this benchmark statistic: China likely overtook the U.S. in auto sales for the first time ever in January. Official data for Chinese auto buying activity doesn’t come out until next week, but the Street is anticipating sales exceeding 790,000 units, well above the U.S. January number.

China passed Japan as the world’s second largest car market in 2006. At this rate, China will easily be No. 1 by the end of the year. We’ve been expecting the rise of domestic demand in China for a number of years… now looks like 1.3 billion-headed hydra is beginning to rise from its slumber in earnest.

  The market for initial public offerings might be slowly coming back to life. Two tech companies filed to go public last week, the first of any IPO activity since November of last year. What’s more, they’re both venture-backed tech companies, a brand of IPO that hasn’t successfully floated onto an exchange since August 2008.

So if you’re curious, keep an eye on OpenTable and Medidata Solutions. The former is the industry leading online restaurant reservation service, and the latter makes software that manages clinical trials. Together, they plan to raise $126 million. Bonne chance, fellas… you’re going to need it.

  Uncle Sam announced plans to raise some money of his own this morning… $67 billion worth. The Treasury announced today a record quarterly offering for long-term securities. More than half of the $67 will come from rolled-over, maturing debt.

The other chunk, about $30 billion worth, will be raised through fresh bond sales. Suckers.

  The BlackBerry president announced a plan that will make some readers of The 5 happy today. He plans to set the salaries of CEOs running TARP-rescued businesses. Details are still under lock and key, but the Treasury has suggested that no executive receiving TARP funds would be allowed to make more than $500,000 a year.

Heh, that’ll go over well. Are functionaries in the Treasury going to be conducting salary negations on those firms’ behalf, as well?

  Employers cut over 522,000 jobs in January, ADP guessed today. The payroll firm’s now infamous employment report was slightly better than December’s numbers, but worse than most quants expect from the government jobs data due this Friday.

Frankly, we don’t know what to make of ADP’s number. For most of 2008, its number was much rosier than the BLS’. Then in December, it altered its calculation method and ended up overshooting by about 32%. Either way, the job market is still putrid.

  In the aggregate, Corporate America kicked 241,749 breadwinners to the curb in January — the most since 2002 . According to Challenger, Gray & Christmas – which only tracks publicly announced firings —  the pace of employees being “surplussed” has risen 45% since December.

  Commodities are lying low today. Oil and gold sell for approximately yesterday’s prices, around $40 a barrel and $905 an ounce. Still, despite the lull, Alan Knuckman is still laying on trades in the “millionaires market.” Find out more here .

  The dollar’s just a bit lower since we last spoke. The dollar index lost about a point from yesterday’s high, to around 85.3 today.

  “We have an opportunity ahead of us that could be absolutely fantastic,” our currency man Bill Jenkins tells us. “The eurozone is showing big cracks in its foundation.

“Germany is being asked to foot an ever increasing portion of the euro bill, which would largely go to floating other countries with far less fiscal discipline… like Ireland, Spain and Greece. These countries need cash, and they can’t get it cheap. Germany doesn’t want to pay. Yesterday, German Finance Minister Peer Steinbruck accused European Union members of ‘tossing around billions.’

“At the same time, Europe appears to be disintegrating at the edges. Riots have broken out in Latvia, Iceland, Greece, Lithuania, Bulgaria and Estonia. Nor have Spain, Italy, France, Denmark and Germany been spared.”

“The euro may not survive this crisis,” Bill tells us.

The crackup of the euro would be a travesty if you’re a fan of multinational fiat currencies… or if you’ve gotten used to the idea of a united Europe and are instinctually afraid of change. But this historic strife also represents a huge opportunity for currency traders. Mr. Jenkins — an ordained minister, by the way — likes to play events like this with options. If you’re interested in learning how to do the same… check his strategy out here.

  California, the trendsetter state, has just been downgraded by Standard & Poor’s … its credit rating is now the lowest of all 50 states. Heh.

  And how’s this for “depression done right”?

The neo-American bread line?

Lines stretched around the block at Denny’s restaurants across the country yesterday . In perhaps the most hyped Super Bowl promotion, the chain announced that it would be giving out free “Grand Slam” breakfasts all morning. The first batch of data suggests as many as 2 million Americans took in the complimentary 770 calorie feast of eggs, bacon, sausage and pancakes.

We know Americans are drawn to nearly any “something for nothing” sort of promotion, but this is amazing.

  “Home prices in 2010 as predicted by Lawrence Yun at NAR?” asks another reader. “It will be very interesting to see how that works out. I think the entire NAR is drinking Kool-Aid with a lot more than Everclear mixed in.

“The Credit Suisse mortgage reset chart shows Alt-A and agency resets, and a bunch of others, to some extent, all taking off in 2010 through the first half of 2012. Thirty consecutive months that will all look like October and November of 2008.

“No jobs in America, no money from any ‘assets,’ because there will not be any assets left anywhere on Planet Earth, add a couple of zeros to the number of empty and foreclosed houses by the end of that 30 months of economic disaster? Where will the prices of homes and anything else be?

“The legacy of Lehman Bros. and Bear Stearns might be that they got it all over with quickly and beat the rush!”

  “As a real estate broker in Utah,” writes a reader referring to our comments about the National Association of Realtors yesterday, “I closely kept tabs on what all the economic gurus at the NAR, Wells Fargo and Zions Bank were saying 2006 and 2007. I not only based my own real estate investments on their statements over a few years, I told many others about them.

“I have to take out a Chapter 7 bankruptcy as a result of listening to them and Alan Greenspan.

“Am I bitter? You are darn right. But most of all, I am angry at myself for not listening to my roots — which would have been and you, if I had known about you then. Obama is paving the way for America to go to hell with all his good intentions. Have you guys sent him your DVD or book? Maybe someone in the White House would read it and get a clue.

“Hey, send it to Michelle.”

The 5: Indeed, we sent a copy to Barack when he was still a candidate for the leader of the free world. He sent this letter in return, although we suspect the only light of day the pages saw happened as a result of wind flapped through them on the way into the bin.

  “I was old enough during the 1930s,” writes a reader, with perspective in tow, “to see what was happening. Not everyone lost their senses, but like now, there wasn’t a damn thing the nonelite could do about the insanity. In my family, the New Deal was known as the ‘Dirty Deal’.”

The 5: Good thing we learned our lessons then, eh?

Best regards,

Addison Wiggin
The 5 Min. Forecast

P.S. We see Sen. Judd Gregg, R-N.H., is working his way through the confirmation process to become the next Commerce secretary. Gregg sat in on the Q&A for our film at the New Hampshire Film Fest in October during the week he was championing the bank bailout bill in the Senate. We asked him about it in front of an audience of about 300 people. He gave an eloquent defense of the plan to buy up mortgage-backed securities and unfreeze the credit markets. And for the most part won the audience over…

“The lifeblood of the American economy,” he said, without a tinge of irony in his voice, “is easy credit. If we don’t do something now, it will be the worst financial crisis in American history.”

Of course, the Treasury didn’t follow the plan. But at least we know the new Commerce secretary will be “on message” regarding running up government debt during this crisis. Gregg had a decent cameo in the film I.O.U.S.A. suggesting that, apart from an Islamic terrorist getting his hands on a nuclear weapon and detonating it in a U.S. city, the retirement of the baby boomers represented the greatest threat to the future of the Republic. We wonder if he still feels that way this morning…

Gregg is from Rye, N.H., one town over from the one your more senior editor’s ancestors founded in 1630.


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