Freddie Mac & Fannie Mae
The rescue plan announced for Freddie Mac & Fannie Mae shows the determination of the US authorities to support the financial markets and discourage a run on the dollar, but the near collapse of the two largest mortgage lenders and guarantors in the US coupled with the collapse of IndyMac, the largest California-based lender shows that the housing woes are not likely to go away soon.
The rescue of F&F is bound to shake the shorts and provide relief rally from the lows.
But for the stock market to stage a sustainable rally, two key ingredients are missing. The first one is an end to the slump in the US housing market, which hurts consumer confidence, bank lending and bad debts and causes a meltdown in the value of leveraged assets. The second key ingredient in the absence of a housing rebound is a major increase in corporate profits. But be careful, the comparison should not be to what analysts are forecasting, but quarter-on-quarter and more importantly year-on-year.
Otherwise, rallies will continue to be sold with US indices having joined their European counterparts in entering ‘bear market’ conditions – that is they are down 20% off their October 2007 peaks.
Impact on dollar
The rescue of F&F provided a temporary relief for the dollar, but this is likely to be short-lived since in the absence of a coordinated intervention by the major central banks, the market will force the euro higher to test the resolve of the Fed to defend the dollar.
Until now, the Fed & the US Treasury have been making verbal intervention, saying they support the dollar, but have not stepped in to buy the currency by selling some of their foreign currency reserves or borrow funds from other central banks and buy dollars.
With the problems of the US economy not likely to fade away soon, there is now a higher probability that the market will push the euro to 1.6000 and higher to test the resolve of the central banks and see if it triggers a coordinated intervention. If not, then the market will push the euro even more until it forces the central banks to put their money where their mouth is.
Pneumonia
When Wall St. sneezes, Europe catches a cold while Athens and Cyprus catch pneumonia. To prove our point, consider this. US indices were down 16% on average by Friday close compared to the start of the year, major European stock exchanges were 25% lower, while Athens was down 36% and Cyprus down by 43%.
The principle reason for this phenomenon is the lack of liquidity and the readiness of local investors to buy shares in Athens and Nicosia, which becomes an acute problem at times when foreign funds are selling.
So if the selling pressure continues on Wall St. and major European exchanges, then it does not need a genius to tell you that Athens and Nicosia will remain under pressure.
Bank of Cyprus
The decision by UBS to remove Bank of Cyprus from its recommended list reflects the Swiss bank’s strategy move to reduce the financials overweight. The prospects for Bank of Cyprus are excellent, but when all the major banks around the globe are declining, you need to be extra cautious.
No insider buying
The latest insider trading survey for European equity markets show that the recent decline of the equity market has not been used by CEOs and other insiders to buy their own shares. In March when equity markets hit lows, insiders were heavy buyers of their own shares. The lack of insider buying does not only bode badly for the equity market outlook, it also suggests that business confidence is in free fall.
As for Cyprus, the lack of buying in recent weeks by major insiders is because we are in the ‘closed period’ ahead of the announcement of first half results after which company insiders will be permitted to trade in their own shares.
Bank of Cyprus Chairman Theodoros Aristodimou and Marfin strongman Andreas Vgenopoulos were the two major buyers of their respective shares during the previous months.
Hellenic Bank
The share price of Hellenic Bank (HB) touched a new low amid the doom and gloom affecting markets, but we are encouraged by the news that Yiannis Telonis has been appointed to become the new General Manager of Hellenic Bank’s Russia operations.
This is the best news that Hellenic Bank can provide its shareholders since by appointing Telonis to head the Moscow office, it is sending a clear and resolute message that once the final permit is received from the Central Bank of Russia, it will move quickly to set up its office and commence operations, hopefully, the latest by the first quarter of 2009.
The meticulous planning and organizational skills of CEO Makis Keravnos when combined with Telonis’ zeal for hard work and his ability to deliver results is sure to help HB’s Russia operations become a key contributor to Group future profits, unlike the difficulties faced in Greece.
Financialmirror.tv
We rarely use this column to talk about ourselves, but we believe that we are justified to share the news regarding the launch of Financialmirror.tv with our readers, which we hope will become a valuable tool to provide you with timely information about developments in markets.
In fact, we believe that the launch of Financialmirror.tv is the most important milestone since this newspaper made its debut in 1993.
Access to the newly upgraded web site at financialmirror.com or direct via financialmirror.tv to the video-on-demand section is free and available to all those with Internet connections, preferably with high bandwidth DSL.
In addition to our daily news bulletin in Greek, our site will also provide constant updates from own and third party sources such as Reuters and major financial companies based in Cyprus, Greece and the UK on all major economic, financial and business news happening around the globe in Greek and English.
Financialmirror.com will become a useful tool not only for investors but also our major companies such as Bank of Cyprus, Marfin Popular Bank, Hellenic Bank, Alpha Bank, Eurobank, Piraeus Bank, Shacolas Group, Louis, SFS, Aspis, CYTA and so many more eager to convey their messages through Cyprus’s first business channel.
And remember, in addition to business and finance, we also cover technology, property and new services to be launched soon. Be sure also to check our ‘cool stuff’ section for funny videos and advertisements.
