The equity markets began to sell off as the rumor of an early release of Google’s earnings proved to be correct. The earnings were significantly less than the market consensus and thus Google stock dropped 13% quickly, bringing the Nasdaq and S&P indexes down with the heavily weighted technology giant forcing a market wide sell off. My take is that this was not a mistake but Google testing the market.
Remember that Google has previously shown its animosity toward Wall Street conventions by doing its initial offering by Dutch auction on-line. It may have wanted to test the impact of a negative earnings report on the markets while they were open and let it digest the news rather than having the post markets with limited liquidity set the tone for the morning’s opening. If Google did have a plan of this nature, it would have proved very productive for while the Nasdaq remained very weak the DOW and S&Ps both regained much of their Google-inspired losses.
My opinion is supported by the recent comments by Marc Cuban, the successful technology and media entrepreneur who has been criticizing the High Frequency Trading combine and Wall Street in general. (Cuban believes that the capital formation purpose of the stock market has been turned into a casino by the high-speed traders.) Whether my conjuncture is correct, I believe that the overall market outcome a positive result. The definition of insanity is continuing doing the same thing over and over expecting different results. Maybe the Google error will yield an unpredicted positive outcome.
***The Financial Times had an article on its front page, “France steps in to save Peugeot unit–financing arm.” The story has to be on our radar as it reflects the disposition of the Hollande government. Merkel and the French are battling over austerity plans and a fiscal union, but the Hollande’s socialist government will not destroy the economy to placate the tough budget tightening stance of the German’s. The Peugeot financing group is important because it can bring down the entire corporate edifice in the same way that GMAC and Chrysler financial helped to signal the death knell of the U.S. automakers.
The article goes on to say, “France’s Government is likely to use any aid for Peugeot to put further pressure on the company over its redundancy plans, although it has all but accepted the carmaker’s proposal to close the plant at Aulney, near Paris.” A socialist government with +11%unemployment is not going to force workers to be laid off–austerity is not for the French. This is confirmed by the EU summit that is taking place today and tomorrow.
The FT reported that divisions between France and Germany deepened over the idea of a quick implementation of a banking union. Chancellor Merkel is proceeding with caution but Hollande insists, “the topic of this summit is not a fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year….” It seems that President Hollande is taking his negotiating stance from Wimpy of Popeye cartoon fame: “I would gladly pay you Tuesday for a hamburger today.” The Euro crisis is far from over and will play out for a long time.
***ArcelorMittal announced that it wanted to sell 30% of its Canadian iron ore mine in Quebec. As iron ore prices have dropped dramatically it appears that the global steel conglomerate took on a great deal of debt in buying up its global competition. This is an important story because of the credit issue and for the potential impact on Australia. In present market conditions there is just too much iron ore and steel making capacity. We will watch to see if the Chinese mining companies or Sovereign Wealth Funds step in to secure a foreign holding and gain the needed raw material base. Some analysts maintain the today’s weakness in the Canadian Dollar was due to this news. I am skeptical as it may well be a bullish outcome for Canada’s natural resource industry.