Market Morning: Happy New Year, Brexit Backtrack, Sears Saved, Italy Passes Budget

Market Morning

No Recession Ahead, Says Allianz Chief Mohamed El-Erian

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Former PIMCO CEO and former head of Harvard’s endowment Mohamed El-Erian doesn’t think a recession is ahead of us in 2019. “You would need either a major policy mistake or a massive market accident to push us into recession.” Seemingly, according to El-Erian, 7 years of zero percent interest rates is not considered a policy mistake, nor is $3.2 trillion in quantitative easing. He may however be referring to a policy mistake by political leadership rather than central bank leadership, meaning the exacerbation of a trade war with China, which could indeed accelerate an economic decline, as the economy is trade by definition. He does believe that volatility will continue in stock markets. We’ll file his remarks on the economy for later in the coming year.

SEE: New Age Beverages Shares Up After Morinda Merger

Futures Up

Meanwhile futures are up this morning with the Dow up 200 points, the Nasdaq over 50 points higher and the S&P 500 climbing 20. This would be the 3rd day of the last 4 trading days to post gains, assuming we close higher today, possibly indicating a short term bottom for stocks. Both oil and gold are up as well, pushing $1,285 an ounce. Gold has been up one day and down the next, but overall has been climbing rather quickly in step-like fashion since mid November, about 6.6%. The big question is oil, which has collapsed by almost half since early October and seems to have found another plateau, though nobody knows if this is the final one before a rebound or if we have another step down.

Brexit to be Cancelled?

It turns out Brexit can be postponed, perhaps indefinitely, because the politicians in Brussels and London are really scared of a no-deal Brexit, and Brussels refuses to tweak Prime Minister Theresa May’s Brexit deal by a hair breadth. There is virtually no chance of May’s deal passing parliament because Brexiters do not want an “Irish backstop,” which is politically obfuscated language for staying within the confines of the European Union law without having any representation in the Union itself, sort of like being a vassal state, taxation without representation, that sort of thing. It is looking more and more likely that Brexit could be cancelled outright since the word of the people doesn’t really matter in democracies anyway. This is the opinion of British Trade Minister Liam Fox, who believes that if May’s plan is voted down, the chances of Brexit even happening are 50-50. If Brexit gets cancelled, look for British stocks (NYSEARCA:EWU) to pop higher, briefly, especially British bank stocks like HSBC (NYSE:HSBC) and Barclays (NYSE:BCS).

Lampert Non-Bindingly Saves Sears At Last Minute, Maybe

Sears (PNK:SHLDQ) chairman and owner of half the company’s shares, Eddie Lampert, has offered to buy the rest of the company for $4.6 billion in cash and equity in a non-binding offer that could be reversed at any time if he can’t actually come up with the money. In a prepared statement of the obvious, Lampert’s hedge fund, ESL Holdings, which he founded, said, “ESL believes that a future for Sears as a going concern is the only way to preserve tens of thousands of jobs and bring continued economic benefits to the many communities across the United States that are touched by Sears and Kmart stores.” Sears is down to its last 500 stores after having more than 4,000 just six years ago, counting both Sears and Kmart. Even if liquidated however, it is likely that the brand name would continue on by whoever ends up acquiring the rights to it. Sears is down to $18M in market cap, and it has a Q in its ticker now, not generally considered a good sign.

Italy, Brussels, Agree Italy Should Go Into Even More Debt, Crisis Averted

In another expected 11th hour rescue, Italian lawmakers heroically agreed that the solution to their debt problem is, once again, more debt, and they know they number they need precisely. Brussels and Italy agreed that the indebted state’s 2019 budget deficit should be exactly 2.04% of GDP instead of 2.40%, which apparently solves everything, according to Eurozone officials, who are fine with this. The perfect exactness of this deficit number is probably going to require some on-the-fly tweaking to the definition of GDP, as in the past the EU has added, for example, illegal drugs and prostitution to its GDP measures, allowing member states to expand their economy by magic, lowering their debt to GDP ratios and making their bonds (the financial ones) more attractive, but putting law enforcement in the awkward position of trying to shrink the now-official GDP.

Good luck to Italy in this herculean venture, though we don’t expect the Italian markets (NYSEARCA:EWI) to buy it. The temporary success of this plan requires Italian interest rates to stay low, though the chances of that happening are small as the European Central Bank is no longer buying any Italian bonds as of tomorrow.




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