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Tuesday, November 13, 2007

Ben 'Helicopter' Bernanke Left Holding The Bag

This morning Wal-Mart is providing just enough ammunition to inspire an oversold, short covering bounce.

Wal-Mart Profit Rises After It Offers More Discounts (Update2): “Wal-Mart Stores Inc., the world's largest retailer, said quarterly profit rose more than analysts estimated and boosted its full-year earnings forecast after luring customers with holiday discounts.

Wal-Mart shares rose 3.3 percent in early U.S. trading.”

Don’t let the ‘good’ numbers from Wal-Mart fool you. They are the product of MASSIVE and EARLY price cuts.

Home Depot Has Profit Decline on U.S. Housing Slump (Update3): “Home Depot Inc., the largest home- improvement retailer, reported lower profit and cut its full- year earnings forecast after the U.S. housing slump reduced sales of kitchen cabinets and appliances.

Home Depot said it will take a “cautious stance” on completing its $22.5 billion share buyback because of the volatility of credit markets and housing sales. Third-quarter revenue of $19 billion missed the $19.3 billion average estimate of analysts in a Bloomberg survey.

Chief Executive Officer Frank Blake is spending more than $2 billion this year to improve customer service and the appearance of stores in a bid to reverse market-share losses to Lowe's Cos. Sales have declined for two straight quarters amid the worst housing slump in more than a decade.”

Legg Mason, SunTrust Shore Up Money Funds for SIVs (Update2): “Mason Inc. and SunTrust Banks Inc. are propping up money-market funds to cushion them from possible losses on debt issued by structured investment vehicles.

Legg Mason invested $100 million in one of its money funds and arranged $238 million in credit for two others, the Baltimore-based company said in a Nov. 9 regulatory filing. SunTrust Banks Inc. received approval from regulators last month to protect two money funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay the Atlanta-based bank.

The 10 largest managers of U.S. money funds have $50 billion in SIV debt, some issued by vehicles such as Cheyne that defaulted because of losses from securities linked to subprime mortgages, according to reports from the companies. At least four companies -- Legg Mason, SunTrust, SEI Investments Co. and Wachovia Corp. of Charlotte, North Carolina -- have stepped in to make sure their funds don't “break the buck,” or fall below the $1 a share net asset value that all funds seek to maintain.

“This is the first real case” of securities held by money-market funds defaulting, said Peter Crane, founder of Crane Data LLC, the Westborough, Massachusetts-based publisher of the Money Fund Intelligence Newsletter.”

I don’t like hearing the words ‘propping up’ and ‘money market funds’ in the same sentence. There will be more that will ‘break the buck’ only to be quickly and quietly ‘propped up’.

German Investor Confidence Drops to 15-Year Low (Update2): “German investor confidence dropped to the lowest in almost 15 years in November after the euro reached a record and the price of oil neared $100 a barrel.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations fell to minus 32.5, the lowest since February 1993, from minus 18.1 in October. Economists expected a decline to minus 20, according to the median of 38 forecasts in a Bloomberg News survey.

Growth in Europe's biggest economy will probably slow, ZEW said. The euro has risen 8 percent against the dollar in the past three months and reached a record $1.4752 last week, eroding the competitiveness of German exports. At the same time, higher energy bills have sapped companies' and consumers' spending power.”

Do not expect the rest of the world to make up any slack from the US economy. In Europe at least their economies have very similar problems to those of the US economy.

China's October Inflation Matches Decade High of 6.5% (Update4): “Inflation in China, the world's fastest-growing major economy, accelerated in October as food prices jumped, increasing pressure on the central bank to raise interest rates for a sixth time this year.

Consumer prices rose 6.5 percent from a year earlier, matching the decade high in August, the National Bureau of Statistics said today, after gaining 6.2 percent in September. That was more than the 6.3 percent median estimate of 20 economists surveyed by Bloomberg News.

Pork prices jumped 55 percent, vegetable costs were up almost 30 percent and three people were killed last week in a stampede for cooking oil in Chongqing. Rising food costs threaten to fan unrest, spur wage demands and undermine the stability of an economy that grew 11.5 percent in the third quarter.”

China is starting to lose control over inflation. At this point, any action would have to fairly drastic. Significant rate hikes and bank reserve increases. It does not appear that the political leadership currently has the will to test the wrath of the people...

Investors Shred Bernanke's Outlook, Bet on Rate Cut (Update2): “Federal Reserve Chairman Ben S. Bernanke failed to convince investors that there's no need for further interest-rate cuts soon.”

Another cut won’t help. It would simply light a fire under crude and gold while destroying the dollar. The result would be higher long rates and massive import price inflation.

Looks like Alan ‘The Maestro’ Greenspan knew exactly when to exit the world stage, leaving Ben ‘Helicopter’ Bernanke holding the bag. Well played. Well played.

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