Markets Quiet Ahead of Blankfein, FOMC

Tuesday, April 27, 2010

The markets are opening lower today, an odd occurrence. Today we will watch a battle on Capital Hill as legislators tear into Goldman CEO, Lloyd Blankfein, about the bank's role in the subprime collapse. I'd expect a politically-charged debate filled with plenty of grandstanding. The FOMC begins its two-day meeting today as well; their policy statement will be released tomorrow at 2:15. Friday we will see the BEA Q1 2010 advance GDP release.

Have you seen the new General Motors commercial? New GM CEO, Ed Whitacre, walks a victory lap around the floor of a GM plant claiming the company has repaid its debt obligations to the government well ahead of the 5 years ahead of time. Seriously, Ed? Yes, they paid back the $8 billion in TARP obligations but somehow forgot to mention that the US government still owns 70% of the company's common equity valued at $45 billion. Taxpayers currently have no discernible prospect of getting its money back yet. As Wade W. Slome calls it: "General Motor's Amazing Debt Trick".

Guys over at Keefe, Bruyette & Woods downgraded AIG today slapping a $6 price target on shares. They offer compelling fundamental arguments for their call standing up to the momo crowd that has loved riding the ridiculous wave higher with shares jumping from $25 to $45 from just the beginning of March. KBW sees normalized EBI of $2.8 billion while owing $4.1 billion in annual interest on its preferred debt. Even assuming a wildly successful conversion of debt and further raising of equity, AIG would trade at significant discounts to peers in the P/B and P/E categories. Both estimates offer a $6 target. Breaking up the company, with optimistic assumptions on sale prices, would yield $79 billion against $141 billion in outstanding debt. Clearly, KBW believes the momo crowd better be quick to jump off the bandwagon before the party ends.

Here's some ridiculous stuff from the Elliott Wave crowd:
Bracing for dark times head
John Richardson

Factories are humming, consumers have resumed spending, and the Dow Jones industrial average is again above 11,000, said John Richardson. America is back, right? Not according to the Elliott Wave theorists, “a cult of chart obsessives who try to predict the stock market by following trends in social mood.” Known for correlating stock prices to everything from skirt lengths to the popularity of horror movies, the Elliott Wave folks believe that “the intuitive popular idea that economic conditions generate moods is exactly wrong.”

Changes in the national mood, say the theorists, precede changes in the economy. Under this theory, today’s national mood, with its “increased feelings of anger, fear, and polarization,” presages a second, cataclysmic dip in the stock market. That, in turn, could usher in a dark period in American history, in which “the pressure of gloom gets so big that violent and secessionist impulses can break out of control.” Civil war, they say, is “a distinct possibility.” Sure, the predictions of the Elliott Wave crowd have been wrong before. But they do have a point about the national mood, no? (The Week)
Will someone tell these guys to go home? I'm not sure I could have less respect for a particular stock market interpretation than I do for Elliott Wave theorists. If they really believe in their nonsense predictions they should be buying gold bars and holing themselves up in the North Arctic for the next couple decades.
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