American Business Financial Systems

Posted on October 21, 2011 by Admin
American Business Financial Systems

American Business Financial Systems

Early in the week, the rumor that Europe was adding to its bailout fund, the European Financial Stability Facility, or EFSF, sent the S&P 500 surging back up to resistance near 1,230. I thought to myself "Finally, Europe gets it!"

Finally, European financial leaders (i.e., Germany's Angela Merkel and France's Nicolas Sarkozy) are stepping up to the plate. I've been writing all year that the Eurozone and its single currency would survive and that they would avoid a banking meltdown like the US had in 2008 -- even if it kills these leaders politically in their own countries.

For Germany and France to pledge themselves to more debt to bailout the weaker members is not an easy sacrifice. Thus, they drag their feet to their fate, further financial shackles and chains around their necks.

But they only have to look at what happened to world markets when the US financial system nearly collapsed to see their possible future if they don't buck up... or is that euro up? And we know Treasury Secretary Tim Geithner has been giving them lots of reminders of what a systemic banking crisis can feel like.

Not to mention the Chinese whispering in their ear about their financial interests in a strong and stable Europe.

Confidence Has a Price: Trillions

So the Europeans must buy confidence. And yes, confidence has a price that they will eventually pay --- no matter how many trillions of euros it takes. Here's what I asked earlier in the week...

Could Tuesday's late-day rally on the news be a mere "buy the rumor" since nothing is confirmed yet?

Yes, it could. Since the surge in the S&P to close up 2% on the day was a knee-jerk that only took us back up to resistance at 1225-1230, the market still has to prove itself and trade on the good earnings all around us making the market a value below 1200.

Well Thursday is bringing more "buy the rumor" events today as word that the Greek Parliament is approving austerity measures pushes indexes to new daily highs.

But I am still in the camp that the market is starting to price in a positive resolution to the European threat. And that since stocks are a bargain below 1,200, the market is merely "waiting to go higher."

US Still Stimulating Too

We got the Fed's Beige Book survey Wednesday and though nothing truly unexpected was within its bland covers, stocks sold off anyway. Normally released two weeks before each policy meeting, it is based on information gathered by officials at the Fed's 12 regional banks.

The Fed's anecdotal summary of economic activity noted modest improvement across consumer spending, business spending, and manufacturing. But one quote stood out that gave a tired market reason to sell-off into the close...

"Contacts generally noted weaker or less certain outlooks for business conditions."

And the Fed still "gets it," just like European leaders are starting to get it. Why do I say this? Because Bernanke has stayed the course with extraordinary monetary accommodation for three years plus, and he's not about to give up now.

He knows the economy is fragile. In spite of the handwringing inflation worry-warts in 2010 who wanted to know what the "exit strategy" was, he added QE2. In 2011, he stands ready with QE3 because he knows the mortgage market still needs government support to backstop the American consumer's balance sheet.

As Paul McCulley of PIMCO recently opined, now is the time for more monetary and fiscal stimulus, not less. Spoken like a true Keynesian.

Where ever you stand on the inflation-deflation debate, you have to understand the larger forces at work in this economy at the same time you focus on specific company earnings trends. It's good to know where the liquidity comes from when the US is still recovering from crisis and Europe still sits on the verge of theirs.

Earnings Trump Recession, and Euroquake

Once more clarity is bought with QE Next, both here and across the pond, stocks will trade on their solid fundamentals more and more as institutional portfolio managers have a burden of uncertainty lifted. I said two weeks ago that earnings would become more important than Europe, especially as they proved that a recession was slowly slipping off the table.

Give this macro perspective, the market is still "waiting to go higher" in my opinion. Today's mild reaction to European news flow was a yawner, not a panic. The reaction to earnings misses like that of Apple (AAPL - Analyst Report) and IBM (IBM - Analyst Report) has been tamer than most expected.

And since money managers have more risk to the upside than the down, by virtue of their mandates, the dips below S&P 1,200 will likely be bought for the rest of the year. So while the chart looks like 1230 is still going to be tough to crack, what's your risk of being long here?

You just have to decide when and where this is a likely top. I would use 1,150 now on the S&P as my line in the sand where earnings take a back seat again to recession and European fears. Till then, I'm buying the dips.

Kevin Cook is a Senior Stock Strategist with Zacks.com

Read the full analyst report on IBM

Read the full analyst report on AAPL

Sima Sahar Zerehi – There’s an old proverb: “The enemy of my enemy is my friend.”

This month, the enemy for the protestors of the Occupy Wall Street movement, who gathered in over 1,500 cities globally, were the banks and multinational corporations that had a hand in creating the economic collapse.

The media savvy movement, which has drawn its inspiration from the popular uprisings in Egypt and Tunisia, has been attempting to expose how the richest 1% of the world is controlling an unfair global economic system that is crushing the 99% majority.

The message in opposition to corporate bailouts and economic disparity has gained a great deal of support globally, with city after city hosting its own actions in solidarity with the Occupation of Wall Street.

While the people of North America revolted against the corruption in the heart of Wall Street and Bay Street the leaders of the Islamic Republic of Iran celebrated the cracks in the foundation of the American financial system as a personal victory.

Iranian leaders, known worldwide for their oppressive domestic policies and human rights violations, were almost tickled with glee by the images of protestors camped out in New York’s Wall Street in opposition to corporate greed.

Not wanting to miss out on the opportunity to undermine the Western socio-economic system Iran’s supreme leader Ayatollah Khamenei got into the action as an unlikely ally of Occupy Wall Street.

He confirmed that the protests are a reflection of the serious crisis that will ultimately topple capitalism in America. Khamenei went as far as stating that the United States is now in a full-blown crisis because its “corrupt foundation has been exposed to the American people.”

Speaking about the U.S. government Khamenei noted, “They may crack down on this movement but cannot uproot it.” He added, “Ultimately, it will grow so that it will bring down the capitalist system and the West.”

But do the leaders of the Islamic Republic of Iran have a moral high ground to stand on when it comes to economic disparity?  Is Tehran’s Bazaar any less corrupt than the corridors of Wall Street and Bay Street?

With a rapidly depreciating currency, where the exchange rate is around 10,600 Iranian rials per dollar, double digit unemployment, inflation, widespread corruption and the burden of billions of dollars of subsidies to keep basic necessities such as electricity, gasoline, and food staples below their true market value, Iran’s economic situation is no better off than that of the United States.

While Wall Street offers corporate bailouts and Bay Street tax relief to corporations Iran’s government funnels money to large religious charitable foundations called bonyads, which are exempt from taxes and government control.

Bonyads are a unique feature of Iran’s economy, controlling an estimated 20-30% of the central government spending.  Like Wall Street the bonyads in Iran are bloated entities that collect massive subsidies from the government.

While Wall Street collects the government bailout yet cuts jobs and increases the prices of goods and services, bonyads in Iran siphon off production to the black market and hand out scraps as charity to the poor.  In the end the Iranian version of a corrupt economic system is not much different than its U.S. counterpart.

These connections have not been lost on the youth across the globe organizing for change.  In fact, one of the strengths of the Occupy Wall Street movement has been its ability to draw links between the youth-led uprisings in Egypt and Tunisia and the youth-led occupation of corporate America.

The similarities between the anger felt by young people in the Middle East and North Africa and young people in the West over unemployment, corruption, and the uncertainty of their future under a failing economic system is striking.

The Iranian leaders should take heed of these parallels, after all the young people in Iran who took to the streets in 2009 following the fraudulent presidential elections were not only on the streets to demand their democratic right to vote, but also to stand up against a corrupt government that has failed to provide a real future for its large youthful population.