Now let’s get this straight: Citigroup, the US banking giant that has been rescued at least three times by the American Government, the most recent just a month ago, is now the catalyst for the rebound in sharemarkets around the world?
Stranger things may have happened, but I can’t think of them. A memo to staff saying the bank had had a profitable January and February (no mention of write offs) from CEO Vikram Pandit set up the surreal response on the Street.
This rebound happened on the same day as the head of the IMF joined the World Bank in forecasting an actual global recession with growth around the world in 2009 being negative:
The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes. Continued deleveraging by the world’s financial institutions, combined with a collapse in consumer and business confidence, is depressing domestic demand across the globe.
World trade is falling at an alarming rate, and commodity prices have tumbled.
So the bank, 36% owned by a Government desperate to staunch the bleeding among the country’s tottering financial giants (Also known as The Zombies), is the catalyst for a 5% plus surge around the world and a drop in tensions in credit markets which had flared in recent days.
There’s an element of catch up here, thanks to speculative interest and solid Chinese buying, the likes of copper and corn have risen in recent weeks, or rather, not fallen more sharply. But oil has been the stand out: up 50% at one stage this week on its 2009 low as all the talk of OPEC cutting output and some big speculative plays work their magic on investors.
Now the idiots among analysts, who confidently asserted that we would see oil at $US200 a barrel last year, are back whispering about oil at $US60 a barrel. Anything to get trading revenues and fees higher for hedge funds, exchange traded funds and other short term investors.
The Financial Times’ Lex column cautioned that “investors should not lose their heads …Citi having a bumper top line is nothing to get excited about. That ‘profitable’ remains unquantified.”
How dare they rain on a bounce!
Here in Australia our market will start strongly, as will other markets in Asia, especially in Japan. Apart from China, markets in Asia and the economies they represent, have been hammered the hardest of all in 2009 as investors realise the slump is hitting home.
Local investors will forget the looming jobs crunch: we got a foretaste of that yesterday with gloomy forecasts from the NAB and the ANZ. The NAB will add some of its own tomorrow with its business revamp and forecasts of big job losses. That will come the dame day as the February jobs figures which are expected to show the loss of 20,000 jobs and a rise in the unemployment rate to 5% from 4.8%.
Malaysia became the latest country in the region to reveal a huge stimulus package: $US16 billion over two years and much more than any analyst had previously forecast. In Japan a big real estate investment trust promoter has failed with debts of $US1.7 billion in the third biggest corporate failure so far in 2009. The Philippines revealed a 41% drop in January exports to an 8 year low. Ouch!
China reported that consumer prices fell 1.6% last month, but producer prices were down a very nasty 4.5%, and house prices in the country’s 70 largest cities fell 1.2%: that’s the outcome of a slowing domestic and international economy, and falling prices for raw materials.
The country may be soaking up raw materials like copper, lead, zinc and cotton on commodity markets, but that’s the very low prices allowing government buying agencies to rebuild strategic stockpiles, not a function of a recovering economy, as some analysts still assert.
In The US, Fed chairman Ben Bernanke showed he still understood that Citigroup’s claims to be back in the game were a bit shaky. In a major speech he said the current situation wouldn’t be resolved until the US financial sector, especially banking, was stabilised. He called for better and more streamlined regulation within the US and globally.
“Until we stabilise the financial system, a sustainable economic recovery will remain out of reach. In particular, the continued viability of systemically important financial institutions is vital to this effort.”
There are some on Wall Street who now think that’s all for someone else to solve: they sniff a rebound, one the market has been looking for since late last year and tried to run through January until more fears erupted about banks in America: specifically (you guessed it) Citigroup and its fell zombie, Bank of America.
A total of 17 small US banks have failed this year (the latest happened last Friday in Georgia), while major US banks are being stress tested by regulators to see if they can withstand a crunching recession deeper than what we have now (unemployment at or above 10% is said to be one the tests).
But all this was ignored as the the Standard & Poor’s 500 Index, which had closed at a 12-year low on Monday, jumped 6.4%, with the Dow and Nasdaq soaring as well. Earlier, Shanghai was up 1.9% , London, nearly 5% and Frankfurt and Paris had 5% gains
HSBC’s Hong Kong-traded shares recovered 13.9% yesterday after the sharp and very worrying 24% plunge late Monday in Hong Kong, that is being investigated for market manipulation by the Hong Kong Stock Exchange, which has never been noted for its love of market transparency.
So what sparked all of this? Well, the careful leaking in late Asian trading of a memo sent around the would to Citi’s 300,000 late on Monday night. CEO Vikram Pandit, said the bank had been profitable in January and last month and was experiencing its best quarter in more than a year.
You can just imagine the chief going over the accounts on a spreadsheet, his eyes lighting up as he say black ink and not a sea of red and saying to himself: “We didn’t lose money, we must be profitable.”
“I must tell the troops, they will perk up.”
Of course, so will the share price: up 38%, the brief fall under $US1 late last week gone, a memory, until the next crisis.
It helped other stragglers like embattled General Electric which has been tangled in the financial damage at its finance arm. GE shares had their biggest since in 28 years, up 20% in the day. ‘Thanks Vikram’, you’d imagine GE boss, Jeff Immelt whispering down the phone late last night.
The Lex column summed it up: “It remains a brave investor who believes that this time bank revenues can overwhelm the writedown bogeymen.”