MP 3/31/08

Traders,

Being the last day of the quarter – we may see some rolling and closing of positions – for SURE we will see some marking (as it has happened every quarter that I have been involved in the market). Also – we are seeing the new power of the Fed moving forward with the Paulson Plan – hopefully it has better controls and ability to manage than previous or existing government businesses (but I doubt it).

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Citigroup – ejects the credit card business!

While the housing bubble (credit problem) is deflating rapidly – the next inline is the credit-card business. The credit spending in this nation is what (single-handily) drives consumer spending. Wal-mart actually measures the credit spending at their store – and last holiday season it had hit an all-time high (as people have no savings – but still feel the social NEED to spend money – thus tap their credit cards.)

The problem – while you may have a booming holiday season – the next few months put consumers further behind the 8-ball as they try to catch-up on debt (or just move it around to other debt instruments – other credit cards.) You KNOW this nation has a problem – when you see at least 1 or 2 commercials a night advertising the ability to get your CREDIT PROBLEMS squared away.

Citi is trying to get in front of their problems – they are taking it on the chin from the housing market (and are expected to take MORE write-downs) the next shoe to drop for them is their credit card unit – which defaults are ramping. So they will spin it off! Should of done that with their mortgage unit back in 2006 – opps! Additionally they are trying to overhaul the company – (cut 6,000 jobs and reorganization). However – while reorganization will help get them focused – it will not eliminate the losses. You could say it’s like rearranging deck chairs on the Titanic.

While in a traditional market – this might be good news and see a pop in Citi – not today – it is a clear sign that their problem has become infected! Of course they could get an upgrade by Lehman (see Market Preview from last Friday to get the joke.)

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Paulson Speaks – the NEW PLAN?

Paulson speaks today and it is fairly clear what his talk will be – giving MORE POWER to the Fed. After they engineered the take-over of Bear Stearns (with JPMorgan) – the belief is that they can regulate, mandate, and manage the problems in the financial sector.

However, if the Bear Stearns deal is indicative of future power that will be handed to the FED – I am not too sure how great that will be. Remember – the FED has posted $30 billion of (tax payer money) to guarantee a portion of the credit risk (which may not be enough and Bear could still fail) – additionally the deal CHANGED after the FED had negotiated it with JPM. The shareholders had threatened - and the stock deal increased 5 fold from $250 million to $1.3 billion (nothing the FED could do) – and they are still posting the money. There was NO regulation in that deal and no time for due dillegence on either the Fed's or JPM's part. The only thing the FED could do is get it approved without all the regulation and post government money - great. You mean No regulation and More power.

So it will be interesting to see what Paulson’s Plan is - seems like a get out of jail free card. Paulson (being the Ex-CEO in the financial industry) is looking to make sure his old-boys are solvent – it’s not about MORE regulation – but more about bailout. If these companies were NOT in serious credit problems – Paulson would NOT be making this speech. Remember, coming from the industry – he is one for LESS regulation not MORE. But in order to bailout all these banks (the industry) he has to concede some more regulations, give the fed power, and get that discount window flowing with much needed cash. And why not stick the tax payers with losses – we already do with all the other social programs that have failed. No doubt – bailouts = more taxes or depreciated dollar. It’s funny when you think back in 2007 the financial industry had some of the biggest payout bonuses – the tax payer didn’t participate when things were great – now they will when they suck. Where do I buy a Paulson Plan?

I can’t blame Paulson – he needs to figure something out – but using the government as a backdoor to keep failed risk management and business models (thus the companies solvent) – is not my idea of a free market. Let Bear Stearns fail – they screwed up.

I bet if Kenny Lay was the Treasury Sec. he would have a similar plan to bailout the likes of Enron and other troubled companies. Hey – you protect what you know.

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Futures Pre-market

The futures are front running the cash by 3-5 points in the premarket. Expect a slight pull back in the futures as the ARB traders click on the buy-programs at the opening.

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Support / Resistance

The market fell off pretty good last week and we are in the center of the range. Being the end of the quarter and strong regulation words from Paulson could spell a strong rally today.


INDU 12000 (12250) / 12500 (Friday I said that 12250 was an interm-support area to get flat – but not long. However today with both the Paulson speech and being the end of the quarter we could get a strong rally into the close. Watch 12500 – it’s an area to get flat to short – hedged. However any bad news will send it down to 12000).

NDX 1750 / 1800 (We are ranged bound – but we could see the resistance today.)

SPX 1300 / 1350 (We are in the bottom of the range – unless we get some selling pressure I expect a revisit to at least 1325 today – maybe)

RUT 650 / 700 (We are squarely in range. Flatten at the support or resistance.)

Watch the close – we could get a good pop with MARKS at the close of the quarter.

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Conclusion

Things are more serious – Goldman has forecasted an additional 10-20% drop in home prices and more write-downs in the financial sector. To have the Treasury Sec. (an ex-CEO – who is not one for MORE regulation) speak about regulation and giving MORE power to the FED – is a clear sign that Bear Stearns may NOT be the one trick pony that everyone thought. There may be more problems on the horizon. So while his speech may sound great – what does it really mean (that there is more to come).

We may get a pop going into the close from quarter end marking – so watch it close.


Today is a day not to take long hard deltas without hedging them. If we close strong and get a pop, but are short of the resistance we could get a follow-through tomorrow. Get FLAT at the resistance on any pop – unless the FED is going to bailout the entire sector (nationalize it).