Well as expected over the last couple of days we are starting to “get off the mat”. Keep chanting “All News Is Good News” and maybe we can revisit those resistance levels (and beyond). Oh – wait – Bernanke is speaking this afternoon, oil is up, etc. So stay vigilant and hedge.
[SARCASM ON]
Thank God our political leaders can cast aside their differences and unite to tackle one of the most serious problems facing this nation. Their tenacity, focus, and investigative prowess is getting to the root of the problem and after a 2 year investigation, subpoenas, testimonies, and the full utilization of our intelligence agencies – we might be able to through a few doctors and baseball players behind bars for using – SHOCKER – steroids!
[SARCASM OFF]
Another perfect example of a waste of time and tax payer dollars (suspected to be in the millions). Having US senators, congressman, and federal agencies pouring resources into whether Bonds, Clemens, and others used steroids – what a complete waste of time and energy. If they could only focus that energy and effort into the Bond Insurers, Economy, Iraq, Afghanistan, and many other issues – well maybe would could get something done. I couldn’t even listen to Bloomberg during the day and had to turn it off “He took Steroids!”, “No I didn’t!”, “Yes You Did”, “No, I thought it was Ginseng!”, “Don’t Lie!”, “You Lie!”, etc… It was completely embarrassing. I saw some of it on TV and thought I was watching a Saturday Night Live skit – with all the pomp and circumstance you would find in a SERIOUS government investigation (such as Watergate, Patriot Act, of Judge confirmation hearing) – instead there sat Roger Clemens saying he thought he was taking Ginseng or something like that.
Don’t get me wrong – I love baseball – but the money these players make and the owners – hell they even have their own Commissioner and governing body – to waste tax payers money, valuable resources, and the time of our political leaders to baby sit a bunch of multi-millionaires caught up in a lie about taking steroids? Give me a break!
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MBIA – sacking up and saying they’ll go it alone – yeah right?
MBIA the world’s largest bond insurer is in a serious pickle. Let’s look at the issues one at a time and I think it will clearly show how this little issue can bring down the house of cards.
1. The bond insurers have expanded out of their traditional muni-bond (no risk) line of products and have insured products that are tried to sub-prime mortgages. Collectively the top insurers insure close to $2 trillion in assets.
2. The bond insurers just like the products they insure RELY on a credit rating by Moody’s, S&P, or Fitch. They need to be at the same or higher credit rating to insure the products of similar rating.
3. State Funds (pension plans) and many other large conservative investment funds are required to have their (bond) investments insured and those bonds need to maintain a certain credit rating for them to continue to hold them.
4. As the credit rating agencies have started dropping the ratings of certain bonds (Fitch has downgraded 130,000 bonds already), the bond insurers are NOW insuring what may have been traditionally a AAA rated product which may now be a AA, A, B, or even worse – meaning the underlying principal is now at risk.
5. None of the Bond Insurers have ENOUGH money to cover the mounting defaults of some of these bonds. They have openly asked for money. Warren Buffet made an offer to take $800 billion in muni-bonds (those that don’t have risk) and leave them with the junk (Great if he can pull it off, but I don’t thinks so). Wilbur Ross is looking to take over one of these Bond Insurers – but you know he will trim the fat and cut it up just like Buffet.
It started with the bond insurers "ASSUME"ing that a triple AAA rating was as safe as mono-line muni or government bonds. The ratings are the same. You know what they same about the word AASSUME (it makes an ASS out of U and ME). So they started insuring these products because they seemed safe because of the credit rating. Little did they know that the credit rating could drop and in some case go to D (which equals DEFAULT).
The concerned first surfaced when Merrill Lynch (relying on the bond insurers) realized they could NOT cover the write-downs and Merrill Lynch took the losses to the tune of $1.9 billion. Lots of eye brows went up (especially at the state on government level who rely on the bond insurers as the stop-gap measure). If Merrill says the insurance is no good and the likes of MBIA and others don’t have deep enough pockets – then there is NO insurance.
Traditional mono-line MUNI bond insurance is like Title insurance. It’s just a free-money maker with almost NO risk. Title insurance is only risky if the idiot does NOT go to the court house and look to see if the title is free and clear. The same was true for Bond insurers that only insured “technically” government paper. They knew the government would always pay – so insurance was redundant. But as they decided to spread their wings – well let’s just say this is a lot bigger than people first thought and if they can’t solve it – it COULD be the next big shoe to drop. Specially since S&P have indicated that there will be about $250 billion in losses this year – if the bond insurers can’t cover that – some State funds are going to take some real losses. Remember Orange County California? Florida is already getting in that jam right now. Merrill Lynch is already eating crow too. Who is next?
Today Ambac and MBIA will be making their presentations in Washington today and if the government puts the same amount of effort and resources they did to the Baseball concerns – it could get ugly. However, I am sure it will be a game of smoke, mirrors, and lots of miss-direction. I will place serious money on the fact that one of them will place BLAME on the credit rating agencies that said these products were AAA!
The both need to maintain their credit ratings of “super star status” – I am still shocked that they have that – but we all know how the game is played. If they lose that – the cards come tumbling down fast.
The Socialist Hawks (Spizter’s) bunch will want MORE oversight, MORE regulations, MORE this or that. But in reality that is too late and too little. If they mud was slung at me – I would probably tell them – well you did a hell of a great job with Social Security, Fannie Mae, Freddie Mac, and all those other heavy regulated government oversight institutions. Note: for those that have forgotten Mae and Mac were caught in one of the biggest accounting scandals ever and have lost billions – and we all know how well Social Security is going. Also – don’t forget it’s an election year – so expect some stump speeches from both side on how they WOULD solve the problem.
I seriously doubt we will get a peek behind the curtain today – and these CEOs have been geared up with rhetorical questions, doublespeak, finger pointing (the credit agencies), - believe me the will be able to deflect any broadsides – they HAVE too, in order to keep the straw house from falling. They have to say they can WEATHER the storm.
However – let me assure you that the Vultures don’t circle unless something is dying (Buffet and Ross would not be making plays unless they saw some exposed flesh on a dying animal). Too bad the government didn’t get in front of this a couple of years ago, oh wait I forgot they were focusing on Bond’s steroid use back then – no time for the serious issues.
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Jobless claims fall – but still in range of a slowing economy…
Remember the mantra “All news is good news!” – Just read the headlines and listen to spin – do NOT read too far into anything. This market is rallying as I have said over the last couple days and all news is GOOD news right now.
The new claims for unemployment fell for the second straight week (decreased by 9,000) to 348,000. However, the 4 week moving average has climbed to the highest level in over 2 years. Economist expected a larger drop to 347,000 (based on 40 economist).
``It confirms the economy is going through a slowing, but whether we are going into a sharper downturn remains to be seen.'' As stated by Mike Englund, chief economist of Action Economics, LLC , who participated in the poll.
The moving average is up but slowing. He has a point – but there are other factors in play that are not included in the jobless claims to see the whole picture. This is only a piece of the puzzle to forecast the economic future of this country. (Oil, Inflation, Dollar, Commodities, Consumer Spending, etc.)
Be that as it may, some “talking heads” are yes – spinning the fall as good news. So we could get some follow through today. Keep chanting “All news is good news!” it’s working!
For those that have not read the book “The Secret” – just think it and it will come true – ask Oprah! – at this point I will include a great quote by PT Barnum “No one ever lost money underestimating the taste of the American public!”.
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The Dynamic Duo are making their rounds…
Bernanke will be speaking today – his recipe – a dash of concern, a sprinkle of rate cuts, and a whooping ton of smoke. Of course all that matters is what he does. Fed Fund Futures are predicting another rate cut 100% for 50bps and 20% for 75bps – and that is what we should be focusing on.
Paulson, who’s superfund has received the cold shoulder treatment, will be talking “CHANGES” (isn’t that Hilary’s mantra?) – anyway he will talk about changes – but will be very careful how he steps. Remember, he is for LESS regulation not MORE – but he can’t deny the problem we are in.
The Dynamic Duo will testify today – but they want one thing and will be pushing it – OPEN THE SPICKETS!!!
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Futures Pre-Open
They are looking fairly flat in the pre-open, I was “hoping” for more positive spin to the lower jobless claims – but I think between the Bond Insurers testimony, along with the Dynamic Duo – there is going to be trepidation. The ARB traders are sidelined this morning. After the opening is anyone’s guess – but if we can maintain optimism we could continue higher – that’s my “Hope” strategy.
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Support / Resistance
We continue to move higher and could get another jolt. Let’s get to those resistance levels before we unload!
INDU 12500 / 13000 (The BIG number to burst through will be about 12,750 if we can break that than visiting 13,000 should be fairly easy. The 13,000 number may only be an intra-day number IF we visit it. I would start rolling up my hedges and OVER hedging to the downside at 12,750 – but I would not go full short at that point.)
NDX 1800 / 1900 (1850 is the magic number to bust through – again treat this just like the 12,750 level in the INDU)
SPX 1400 (That is the number to unload the longs and start going short. – let’s keep the “hope” alive!)
RUT 700 / 740 (This is looking good to help the narrower indices – 750 let’s go!!!)
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Conclusion
Don’t mistaken my bullishness over the last couple of days as to the economy has bottom and we are not facing a recession, that is not the case. I believe the market’s move on PERCEPTION and FUNDAMENTALS. Today and of recent we are moving on Perception and casting aside our concerns. We need, want, and hope to get off the mat – even if it’s just one more time. The market is bigger than anyone – so DO NOT short into perception – just get on the train with it. But hedge and get ready to load up to the downside when everyone realizes the book “The Secret” doesn’t work!
Sorry for the heavy sarcasm today – was pretty much tired of the baseball stuff – which has been going on for years now!
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