Imagine this scenario, a small pasty man with a beard enters one of the many casinos in Vegas. He steps up to the craps table, not fully understanding odds or statistics, he sees a big area on the green felt called the “Field”. “That seems like a lot of numbers”, he says to himself and places his entire amount, all $200 billion on the “Field”. Rubbing his hands together, he picks up the dice and throws (noting a very weak throw that barely makes it the full length of the table). Moments later the immortal words that are echoed every minute of every hour of every day – we hear… “Thanks for playing, new shooter coming out!”
The $200 billion – as expected was too little too late. The loss of confidence on the world stage of the US economic picture has been reflected in the falling dollar. Cutting rates and injecting billions into the system is causing massive inflation which is ramping up. I am totally and have been, opposed to Bernanke’s handling of the situation. By his focusing on trying to shore up the big banks from crappy risk management he is sending the economy further into the toilet. His job is NOT to bailout banks or investors. His job is NOT to make the stock market go up. He job is to STABLIZE the economy and keep the dollar on even keel. You have heard my stimulus package – and while it would send the market down, and also some banks would fail, the dollar would be strong, citizens would have more money in their pocket, and domestically the economic picture would be strong.
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Retail Sales DOWN
Go figure between the dollar falling, inflation ramping, oil up, and consumer credit lines drying up – what do you think is going to happen. Of course there are those still arguing whether we are going into a recession or not. Forecasts were for a rise of .2 % (by 79 economist) – which I found the forecast rather optimistic. Some are talking about a surprise that it unexpectedly fell. The drop of .6% included autos, purchases that excluded autos was a decline of .2%. No matter how you slice it – it is showing a serious slowdown in the economy – there is NO credit lines to tap any more.
As many retailers track sales by credit, which ramped last holiday season (Dec.), however those lines are tapped out. Also, forget that second mortgage – it’s not happening. For the land of consumption and praised credit ratings – it seems that the well has dried up.
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Carlyle Group going to fail?
I seriously think not. Many tend to forget the President’s father, along with a long list of senior Republicans and world leaders are members and have or currently serve on the board. They are leveraged out 30:1 according to reports and are facing a $400 million margin call against mortgage backed securities. There are threats of creditors seizing assets. Their mortgage back fund stated it defaulted on $16.6 billion of debt yesterday and the balance of debt will probably go in to default soon.
While things are looking very bleak for the Carlyle Group and their mortgage backed fund there is an interesting side note, they stated its so-called agency debt has an “implied guarantee” from the US government. I am sure it does, the list of investors and board members have very close ties to the President and several Saudi Royal family members. I am sure Bernanke will have to head back to the basement and start cranking on the printing press so more.
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Futures Pre-Open
The futures are getting a pretty good whack today in the pre-market. They are front running the cash and the Arb traders will be closing the gap ($5 points in the NDX) going into the opening. Expect pressure at the opening with sell programs kicking in as the Arb traders get long futures against the basket.
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Support / Resistance
The market got a good jolt to the upside the other day, and yesterday it gave it up going into the close and started heading lower. In a traditional bear market you have violent up moves from short-covering rallies and then it continues back down on its path. The exact opposite of a bull market, with big down jerks and then back to its slow rally.
INDU 12000 / 12250 (We are seeing pressure this morning and it may follow through during the day. Keep 12000 on your radar – that is a short term support, but don’t load up any long positions there without hedging.)
NDX 1700 / 1750 (1700 again is short-term support – careful getting long at those levels)
SPX 1275 (1300) 1325 (The 1300 level is the pivot point we will probably dip below that this morning – but going into the close it will need to hold above it to show ANY strength)
RUT 650 (If we hold above 650 then it will be fairly good for the narrow base indices – however if we don’t then the rest will pull down further)
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Conclusion
The economic picture is NOT getting better, even after the $200 billion injection. The combination of the retail sales numbers going negative (unexpectedly) and the highly coveted private government tied Carlyle Group in serious trouble shows how bad things are getting. If the President can’t bail his own private hedge fund – well what hope do we have for the economy as a whole. While I am sure that Carlyle will weather the storm and get SOME bailout or some help because they have friends in highest of high places, it doesn’t reflect well for the economy.
Traders – I am sure you are having a great time in this market – but avoid hard delta positions. Hedge off (at least) delta neutral ITM or Hard Deltas. Take deltas (sure) and massive ones – but make sure they are OTM soft deltas with boatloads of Gamma. Finding the magic option in which Gamma > Delta with little premium would be nice and hard to find. But load them up if you find them.
Investors – make sure you are hedging long deltas and continuing to put on inflationary positions (FXE, FXF, GLD, etc.)
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