“Catastrophe’s” Crash: Market In Dramatic Dive For Second Day As Soros Scoffs At Rally, Says Bear Market Will Endure

Apr 7, 2009 21 Comments ›› Pat Dollard

It would appear that George Soros has been appointed as the administration’s mouthpiece of catastrophe, since Obama was getting slammed for doing that job. However, needing to keep the country in crisis mentality in order to continue to expand the powers of the Federal Government, they had to find someone to do the job. Someone they know and trust and who people will believe.

That being said, ACTIVE’s economic team has advised me that 2010 and 2011 are going to bring very bad news, in that just like the sub-prime loans took us into the ter, so will the teaser rate loans that re-adjust in 2010 and 2011.

““It’s a bear-market rally because we have not yet turned the economy around,” Soros said in an interview with Bloomberg Television, referring to the rebound in stocks since March 9. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

Bloomberg:

April 7 (Bloomberg) — U.S. stocks fell for a second day as George Soros, the billionaire hedge-fund manager, said the rebound in equities won’t last and investors speculated Alcoa Inc. will kick off the earnings season with a loss. The dollar weakened against the yen, oil fell and Treasuries gained.

Bank of America Corp. and Citigroup Inc. slid at least 2.3 percent, while Alcoa slumped 4.4 percent. Applied Materials Inc. retreated 4.1 percent after a contract for solar equipment was slashed by $1.65 billion. Archer Daniels Midland Co. fell 7.4 percent after Citigroup advised selling the shares, while Exxon Mobil Corp. and ConocoPhillips lost at least 1.4 percent as Barclays Plc cut its earnings estimates for the energy industry.

The Standard & Poor’s 500 Index fell 2 percent to 818.4 at 9:35 a.m. in New York. The Dow Jones Industrial Average tumbled 133.57 points, or 1.7 percent, to 7,842.28. Both measures have surged more than 19 percent since sinking to the lowest levels in a dozen years on March 9.

“It’s a bear-market rally because we have not yet turned the economy around,” Soros said in an interview with Bloomberg Television, referring to the rebound in stocks since March 9. “This isn’t a financial crisis like all the other financial crises that we have experienced in our lifetime.”

European and Asian shares also declined today. Alcoa, scheduled to release its quarterly report after U.S. markets close, will be the first Dow average company to post results for the January-to-March period.

Earnings Watch

For S&P 500 companies, profits probably fell 37 percent in the first quarter, according to estimates from more than 1,700 securities analysts compiled by Bloomberg. The stretch of seven straight declines in earnings is the longest since at least the Great Depression, data compiled by S&P and Bloomberg show.

Bank of America lost 2.3 percent to $7.31. Citigroup sank 3.3 percent to $2.63. Both stocks more than doubled in the four weeks ended April 3.

Alcoa dropped 4.4 percent to $7.56. The largest U.S. aluminum company will probably report an adjusted loss of $398 million, after making $341 million in the year-earlier period, according to analysts’ estimates.

“The first quarter will be a reality check for investors, and they will be focusing on guidance,” said Charles Dautresme, a strategist at Axa Investment Managers, which oversees $651 billion in Paris. “We’ll decline from this bear-market rally, but have established a floor on March 9 and that’s positive.”

Faber, the investor who recommended buying U.S. stocks before the steepest rally in more than 70 years, said the S&P 500 Index may decline to about 750 and rebound after July.

Selling Banks

U.S. stocks fell yesterday for the first time in five days as Mike Mayo, analyst at Calyon Securities, advised selling bank shares and International Business Machines Corp.’s purchase of Sun Microsystems Inc. collapsed.

The International Monetary Fund will raise its estimates for U.S. bad debt to $3.1 trillion from a January prediction of $2.2 trillion, with estimates of another $900 billion of toxic assets from Europe and Asia, the Times newspaper reported today in London, without saying where it got the information.

U.S. earnings may drop 31 percent in the second quarter and 18 percent in the next before gaining 76 percent in the last three months of the year, analysts predict. Banks will be responsible for all of the rebound in the final three months of the year. Without financial companies, the gain turns into a 4.5 percent decline, the data show.

Applied Materials slipped 4.1 percent to $11.09. The maker of semiconductor wafer-fabrication equipment said a $1.9 billion solar-power contract was cut to $250 million.

ADM Downgrade

Archer Daniels Midland tumbled 7.4 percent to $26.60. The world’s largest grain processor was cut to “sell” from “hold” at Citigroup, which said slowing agricultural demand and overcapacity are negatively impacting sales and margins.

Exxon Mobil Corp., the world’s largest oil company, and ConocoPhillips, the second-largest U.S. oil refiner, after Barclays cut its 2009 and 2010 earnings estimates for the industry, citing lower natural gas prices and refining margins. The bank’s analysts said that first-quarter results are likely to be disappointing.

Investors should “underweight” U.S. shares as a rally is likely to end and other markets are cheaper, Citigroup said in a quarterly report.