We had a blasted first week and the increase in unemployment coupled with payroll not even hitting the lowest estimates has put the market on shocking alert, as if we didn’t know that was coming. The sell-off was massive in the tech sector – but remember the sell off is less about fundamentals and tech, rather it is more about need liquid cash at many of these firms. Selling assets, cut spending, and reduce exposure across the board is the motto at many firms – we will continue to see a ramp in layoffs in the financial sector (chiefly the bond sector), many companies shedding assets (including public holdings), and all of them looking for the cheapest place to borrow money over-night.
While we probably hit a VERY short-term bottom yesterday – and maybe getting a bounce – don’t let it fool you as if that was it – stay hedged!
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Commercial Real-estate Next?
I saw two very interesting reports (Bloomberg over the weekend and CNBC this morning – NH) where they are seeing a large slow-down in commercial real-estate in many areas of the US. The Bloomberg report was interesting in that it reflected the largest slow-down was in retail store frontage in suburban areas – economist sighted more online purchase and the increase of gasoline prices that is keeping the consumer at home. It also included one area of increase in commercial real-estate – which was down-town districts increase in both smaller boutique type retail and smaller office spaces (maybe it is the SAME reason of gas prices – as people want to huddle more closely – to save or maybe a societal aspect of communal security – those are only guesses on my part).
The CNBC spot this morning was brief, but covered NH (and the primaries) – what was interesting was the slowdown in commercial spaces (retail and offices) – but I noted that it was similar to the findings (as far as suburban) as Bloomberg. They showed a massive store that has been sitting empty for almost a year (in the Suburbs).
My personal experience? I live about 15 minutes from downtown Sarasota (not much of a big city – but plenty of office buildings, banks (private and commercial), government, and boutique stores and restaurants. It all seems fairly ok downtown. The vacancy rates (as I have been told) is in the single digits. However, just a couple minutes down the main artery out of town toward my home – the road-side office plazas are EMPTY and lease signs everywhere. I live in an area that is known as “Future Row” – lots of furniture stores – 4 of them are closed (including Ethan Allen). So I too am seeing (on my local level) the same thing that CNBC and Bloomberg are reporting. The suburban commercial market is starting to get hit, while downtown seems to be relatively stable.
Is commercial real-estate the next shoe to drop. I most certainly think so – as far as suburban retail – if unemployment is up, consumer spending on the slow, the dollar weak, and the debt mounting – the shopping sprees will probably slow dramatically – while some of the bigger stores (Wal-mart, Target, etc) may only see sales shrinking and are able to ride out the storm – many more specialty stores (Ethan Allen) will probably close up shop.
The other shoe will drop – how hard?
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Jim Rogers – joins the “Recession” Train
There are few people that I give weight to their financial views. My criteria for doing so is: Have they been in the market a long time, have they made huge returns, are they not swayed by the latest trend, are they willing to challenge the conventional or populist view, are they skeptics of government and government reporting, and are they WILLING to put their money where their mouth is. When you boil it down the list is fairly short – but they are ALL big names (Ross, Buffet, Pickens, Turner, Gross, Rogers, etc.) These are all old school big money players – who’s words CAN and HAVE moved markets. They are not afraid to go against the grain and put their money on the line.
Rogers has made his fortune and probably should retire, but like the rest he is still in the game. He made the big call a couple of years ago on China, Oil, and Commodities (along with some of the other big players) I remember last year when oil pulled back down to through $55 and CNBC was goading him into admitting he was wrong. He said “You will not see oil at $50 again for a long time – it’s time to buy a lot more!” He made rational argument for his decision and put his money where his mouth his. He made the same call on gold back at $400 an ounce.. I believe he has a place in Shanghai and Singapore and his children are learning Mandarin as a second language (no joke). He makes investments based on sound decisions – and is not afraid of being wrong and knows what risk is and how to manage it! So when I see one of the bigger and wiser players are making a statement or interviewed on a network – I take the time to listen. You can’t argue with decades of success!
Here is Roger’s blurb from Bloomberg.
Jan. 7 (Bloomberg) -- The U.S. economy is heading for a recession and investors should sell the dollar as global currencies weaken, investor Jim Rogers said.
``It's going to be one of the worst recessions we've had in a while because we had so many excesses going into it,'' Rogers, chairman of New York-based Rogers Holdings, said in a Bloomberg Television interview today from Singapore. ``It's going to be bad for all of us as currencies come under more and more stress and we have more inflation in the world.''
The U.S. and U.K. governments have been ``lying'' about inflation, Rogers said, adding that he's sold their respective currencies. Rogers is also buying the yuan and the Swiss franc as other currencies weaken.
The dollar fell last week after data on Jan. 4 showed U.S. unemployment climbed to a two-year high. The U.S. currency fell to its lowest against the euro in November.
``I hope by the end of this year all of my assets will be out of the U.S. dollar,'' Rogers said. ``The dollar is a currency that's terribly flawed and it's going to be under duress for many years to come.''
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Futures Pre-open
We were getting a little pop in the pre-market, but it is starting to come off. Oil is back to unchanged (after being down in the early session). After last week I think the Arb traders are taking it a little easy and not trying to take too big of a leg in the pre-open. While we are looking to open higher – after last week it is anyone’s guess.
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Support / Resistance
I got a few calls about “bottom picking” on Friday (if this was a bottom). It’s like I continue to say – WHY TRY? I think the news is pretty negative out there and while I would NORMALLY get long at these levels – I would only do so FULLY HEDGED – because if you are wrong – well we could have another massive down day – is it worth the risk? I think not!
INDU 12750 / 13,000 (We broke through 13,000 like it was butter and 12,750 is NOT really a support area as much as a psychological PLEASE HOLD area. We are probably lining up for a massive “upside” knee jerk – if only the FED could make that 50bps cut tomorrow (pleads the bulls) - as if another cut is going to be the saving grace. – I do expect a massive pop – but maybe not today)
NDX 1900 / 2000 (OUCH!!! We are in la-la land – there are NO GTC orders to keep this for touching 1900 – only hope and speculation. The volatility of the top 10 (AAPL,GOOG,etc) keep this thing whipping around. Retail investors are HEMORAGING money picking bottoms and hoping. Expect MORE up and down volatility between 1900 – 2000. After 1900 look out. We need to be above 2000 at the close to show ANY sign of turning around.)
SPX 1400 / 1450 (This is CRUCIAL – if we close below 1400 you might as well put a fork in it and we are now in a bear market (according to many tech experts). CNBC has a tech analyst on today that was TRYING to make a case for the bulls – but he said we needed to close above 1450 and that if it can NOT for the week – then well – it’s bear time)
RUT 700 ??? (If the broader market is ANY indication – well none of the supports will hold. We may get a little pop – but for the broadest market well – it’s support is today’s resistance 740!)
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Conclusion
I would normally look for this as a positive bottoming area – but with the RUT in free fall and more uncertainty on the horizon – all positions are OVER HEDGED and have been since the last expiration cycle. The transparency (fog of war) is so cloudy at this point, I don’t even think the economist really know. They have been wrong on their estimates for a few months now (very wrong) – of course we cannot rule out a little “Tom Foolery” on the government’s behalf (it’s been known to happen).
The numbers that sent the market into the crapper have put the 50bps noose around Bernanke’s neck and the CEO’s of the financial firms are banging his door down for a BIG CUT. The firms are still very tight on liquidity and the borrowing needs to ease up for them to keep going.
This morning they had a very short segment on CNBC about the bond insurance company – and no wonder BUFFET is starting a company – according to one analyst – many of these bond insurance companies are ready to collapse and their ratings are pretty much a joke.
We are at that tipping point and a good leader is going to have to navigate through these unchartered waters – Bernanke is a second rate skipper and is being directed by his crew – rather than making any bold decisions he KNOWS would be the right ones. We will not get through the storm without getting a few knock-downs, hopefully we will not get de-masted, or worse cap-size.
The 50bps will probably inject a HUGE upside spike – abet very short-lived. Expect anything!
It’s principal protection time – leave the trading to the traders (and market makers) – don’t TRY to pick bottoms, don’t listen to analyst, look to hedge your positions.
Note: These are great times for good traders (like big wave surfers at Mavericks – you need to be willing to risk big to catch the big wave – and not unlike Mavericks – a few surfers may lose their life (or wallets).
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