Against the Grain

In late trading the DJI jumped nearly 11% as panic was replace by p/e bargain hunting sending the al producer Alcoa soaring 19%. The move was ignited by a market belief the Fed will cut rates 1% today in an aggressive move to halt the economic decline. Below this move was talk that the US car manufacturing icon GM might approach the government for aid. In this environment to what degree can officials not bow to the whim of the market for fear of an uncontrollable back lash? It remains to be seen how the massive government distortions to the world financial system now being executed in an attempt to stem the multiple failures eventually leaves the lie of the land. In recent times we have seen bank bail outs, huge rate moves, Iceland increased rate 6% y/day, and interventions in equity markets from market closures to short selling bans now IMF bail outs agreed in hours if not days. On top of this an array of government meetings all aimed at rush remedies which one suspects is more to help the leaders keep their crowns and deflect blame.

Asian stocks followed the US however without the same euphoria (Nikkei +7.7%, Hang Sang unchanged and Shanghai down) which tempered metal prices moves. The weekly US ABC / Washington Post consumer sentiment index improved to -49 from previous -50 just above the dubious record. From Japan a mixed day of data, Oct small business confidence was 37.6 (Spt 40.2), Spt industrial production rose 1.2% (Aug -3.5%) yoy +0.4% (-6.9%) and vehicle production rose 4.2% yoy (Aug -10.9%). Further cu production cuts in China as Tongling announced a 14% (80 kt) reduction in ’08 output. The LME stocks are in a grove most up except pb and sn.

The US Spt durable goods orders rose 0.8% (Aug -4.5%), however ex transport it fell 1.1% (-4.1%). After that equities led a stampede into anything the markets had scrambled to exit recently. The markets now wait for the Fed; the metals are beginning to show their old form as supply problem news trigger waves of buying squeezing out the recently confident bears. The rally does not surprise us as we have for sometime believed Wall Street has over reacted to its own problems.