How Low Can We Go?
Sep 28, 2011
Tough day in the markets today. Risk off in about every asset class. I know some of you have questions; you are asking if you missed the top in prices, if you should hurry and sell now. Hold on tight. I still believe we are fundamentally in a demand-driven market, and eventually that will become a major concern, but right now it is all about money flow and asset preservation.
To explain what happened today, you need look no further than fund managers who are "hoping" things in Greece and the European debt are getting better. Yesterday, the markets traded on this hope and pushed higher, as I said in my report. However, today was a different story, and hope seemed to disappear as we wait to see what Germany will decide in its vote tomorrow morning.
Another thing "big money" is looking at is that SocGen, the large French bank that I warned you about last week, has announced it is trying to sell its stake in Newedge. If you didn't know, Newedge USA LLC is the biggest commodity brokerage in the U.S., with the largest customer segregated account of all the futures commission merchants listed with the U.S. Commodity Futures Trading Commission (CFTC): more than $24 billion, according to the CFTC website.
I have been telling you for weeks that this European banking deal could be bigger than you think. SocGen controls a large line of credit for the global commodity market. I have heard it may also be selling its custody and securities unit, SGSS, but I cannot confirm that. Most in the industry doubt that any other European bank will be able to step in and buy Newedge, but there is some speculation that either Macquarie Bank, Australia's top investment bank, or one of China's top banks may be interested in swinging the deal. In any regard, it is extremely obvious that SocGen is trying to cut costs and sell assets to free up massive amounts of fresh capital. Larger rival BNP Paribas, I hear, announced a similar plan to unload riskier assets, and some analysts expect the smaller Credit Agricole to follow suit. Just realize as we move forward that there are many extremely fragile moving parts in this equation; it is not all about yields and acreage.
I prefer to be a realist; therefore, I continue to sit on the sidelines and view most rallies as a short-term anomaly. This Greek deal has to find a solution, and the European banking situation is certainly nothing to take lightly. As I said earlier, I still believe we are fundamentally in a demand-driven market, and eventually that will become a major concern, but right now it is all about money flow and asset preservation.