A big announcement came out this weekend. Remember how much was made of the $700 billion package when it finally passed through the legislative process? Well early today (China time), the Chinese government announced a similar measure, a $586 billions stimulus plan. And for a while this morning, it looked like the markets were in for a celebration.
But then reality set in as numbers starting coming out from 3 different industries. First, reports came out that Goldman Sachs (GS) would continue to struggle. Goldman has continued its layoffs and is now down over 70% from its high. Barclay’s expects a loss of $2.50 per share for GS in the 4th quarter. Deutsche Bank has also announced additional layoffs.
Then, giant US automaker GM (GM) lost 25% of its value as it continues to tumble. Last week, GM announced that at its current rate, it will run out of cash before year’s end. The government will surely get involved to help out but we do not know in what form. Deutsche Bank believes it could make the current stock of GM worthless. “Even if GM succeeds in averting a bankruptcy, we believe that the company’s future path is likely to be bankruptcy- like,” the analyst wrote in a research report.
And even tech suffered as Google (GOOG) is at the center of speculation about flat growth for its 4th quarter. Google is now trading at 314, down about 5% more today!
Of course, it might have been too easy to look at the number out of China and assume that markets would race up. After all, this measure was done by the Chinese government and while it will surely help global trade and the global economy, its aim is obviously not the rise of the US market. A big winner of a rise of the global economy is of course oil and oil was up today by 7%. Actually, I’ve been hearing more about playing oil for any views of the global economy. Think everything will get better soon? Then, go long oil (could be through USO). And opposite, if you believe there will be a long global recession? Then you might want to go short oil. The Chinese government announced that a big part of the stimulus would also be used for infrastructure building and so companies related to materials such as steel are big winners.
All in all, yesteray was yet another example that we are far from being out of trouble, and it is not any one time sum that will get out of this big mess…
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