Taiwan: What happens to stocks when they cut rates?

I asked Andrew Barber to put this data set together, and I was actually expecting a different conclusion. I am looking for reasons to get positive on Chinese and Taiwanese Equities, but being data dependent has it's realities.

One reality is this chart's output. The 1st cut in a cycle doesn’t call the bottom in stocks. Quite the opposite actually - look back at the rate cut cycle in 2000.

This morning Taiwan cut rates for the 1st time since 2002. They unexpectedly cut their benchmark rate to 3.5%, and the stock market sold off on the news, closing down -1.2% on the day.

After we get through this domestic tsunami of economic issues in the US, the masses will be forced to get back to business and realize that it is global this time, indeed.

The chart that the Street will focus on next week...

This morning's jobless claims number was a large one. Coming in at 493,000 (see chart), this is the highest print we have seen since the 4th of July.

Notwithstanding the disclosure in the report (that the government attributes 63,000 of the claims to hurricanes), the number is the number, and it takes the 4 week moving average up yet again to 463,000.

This week, next week, and the weeks after that, the proverbial hurricanes in the US Financial Services industry will have to be accounted for as well don’t forget.

Come "bailout day", there is an economic cycle underneath this financial crisis that will not stop trending in its current direction. Conversely, it will worsen throughout Q4. The September employment report looms next week (after the short sellers are allowed back into the game).


Restaurants @ Research Edge – My Perspective on Keith’s Trading Calls

Keith’s Trading Call: PFCB looks like McCain, swan diving in AZ; going to 22.72 next

My Perspective: PFCB - I don’t think they are doing enough to offset the macro.

Keith’s Trading Call: SNS looks nothing like CHUX or RT... Looks like it is going to discover the cure for something actually

My Perspective: SNS - The market wants to believe the new CEO (aka boy wonder) can save this ship.

Keith’s Trading Call: RT looks like one of their remodels; bad... and people not coming back

My Perspective: RT - The banks are going to need to step up and save the day.

Keith’s Trading Call: PNRA feels like watching a WWF cage match, broke its nose today off the turnbuckle, but remains conscious

My Perspective: PNRA - In 2009, YOY wheat and gas prices should be favorable, but the consumer is an issue.

Keith’s Trading Call: CHUX looks like it had a shot on the zero line

My Perspective: CHUX - A third tier company in an unforgiving market.

Keith’s Trading Call: DPZ trading with TED spreads b/c of their debt ... nuts, but reality; stock breaking down

My Perspective: DPZ – A good operating model, with a leveraged balance sheet.

Keith’s Trading Call: BWLD - tough day, but hangin' tough... bullish still using a 37.83 line of support

My Perspective: BWLD - Well positioned concept, but I don’t like the move into Las Vegas.

Keith’s Trading Call: GMCR finally broke my line today, $31.36 target

My Perspective: GMCR - The acquisition of Tully’s will buy them time, but long term margin trends don’t look good.

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Isreal, post Olmert...

Vladimir Putin is no longer the only former secret agent that has risen to be Prime Minister of a nuclear power; ex Mossad spy Tzipi Livini has accepted Shimon Peres’s call to form a coalition government over the next 42 days replacing the outgoing Ehud Olmert who is facing prosecution for a series of corruption charges. It is clear that Livini will not be able to make the transition without friction as right wing parties have called for early elections instead.

If successful in forming a functioning coalition, Livini will be prime minister of a nation facing multiple challenges beyond the mounting tension over Iranian nuclear ambitions. The Israeli economy, largely dependent on the tech sector and other high value added industries, has begun to feel the impact of a cooling global market with Q2 GDP coming in lower than expected at 4.41% growth year over year. With CPI up 5% for the last 12 months Stanley Fischer, governor if the Bank of Israel, chose to raise the benchmark rate by 25 basis points for 4 consecutive months before pausing at 4.25%.

During the most recent monthly public meeting. Israeli bank leaders have made much noise regarding their limited exposure to toxic US mortgage markets to little avail as investors sold off financials on the Tel Aviv exchange in sympathy with Europe and the US.

The taxpayer bailout of the US financial system is beyond Ms. Livini’s control, but if she can successfully form a functioning government she may help Israeli stocks find their footing as investors decide that the glass is half full after all.

Andrew Barber

S&P 500 1244.11 Is My Line

In the Hedgeye Portfolio, I have been covering and buying so far this morning. Risk management in front of this bailout potentially getting done is the immediate term squeeze "Trade".

The S&P 500 has room to run to the 1244.11 line. That's not my religion. That's what my process tells me. While I don't think they should rubber stamp this fear mongering bailout, that certainly doesn’t mean they won’t. The intermediate “Trend” remains negative.

Now that I am being flashed every 3 minutes by someone new telling me this is a "done deal", the other obvious risk management scenario to keep in the back of your mind is what happens if it the bailout doesn’t get done...

Fire engine chasers are abound out there – be careful on the way up.

BWLD – Betting on Las Vegas

BWLD announced yesterday the completion of a $23 million asset acquisition of nine BWLD franchised restaurants in the Las Vegas area. The company expects the transaction to be neutral to earnings in 4Q08 and accretive to earnings in FY09.

Based on comments from other casual dining operators, now might not be the best time to enter the Las Vegas market as Nevada is often highlighted as a region of relative weakness. On its 2Q earnings call, PFCB said that Arizona, California, Florida and Nevada accounted for 84% of its total comp decline at the Bistro. Also following its 2Q, CAKE said it is “seeing a bit more weakness in the Las Vegas market.” RRGB stated that California, Arizona and Nevada continued to be under a lot of pressure for them in the most recent quarter, and “it’s probably not getting any worse but it’s certainly not getting any better.” Additionally, my partner, Todd Jordan, is bearish on the Las Vegas market.

For reference, BWLD said that average weekly sales of the acquired restaurants declined about 3% in the 12 month period ending June 2008. In 2Q08, BWLD’s franchised restaurants on average experienced a 5.4% increase in average weekly sales, which highlights the below average performance in Las Vegas.

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