Well Bernanke was drawing dead, as expected. His “Three Week Raise” talk about inflation was nothing more that to TRY to keep the dollar from falling. However, there was NO WAY he could even attempt to raise rates as continual stories come out of the financial sector. So what did we get this time? More talk and more talking heads trying to decipher the talk. Rick Santelli (CNBC) said traders left the sound off and pretty much went golfing – they knew he was bluffing and called his bluff. As I mentioned the time to load up on those inflationary hedges (calling his bluff) was before that river card was revealed. Now the dollar is getting hit again. So I wonder what kind of hand Bernanke will be dealt in the next hand. Only time will tell and we will have to see how this continues.
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North Korea ?
What is Bush doing? It’s like he is flopping around trying to create some type of Legacy after 8 years of procrastination. One thing we could rely on is that Bush was a stubborn SOB and stuck to what HE THOUGHT was the right thing. However, that is not that case anymore. I am sure if Kim-Dong-Yong-Song-Bong (forget how to spell the last name) knew that all he had to do was supply a piece of paper with some information to get dropped from the “Axis of Evil Doers” list, he would of done it years ago.
I don’t know how this is going to affect the market today – but so far the futures are not liking it – if there was to be any correlated conclusion to be drawn.
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Euro-Banks taking a lead from U.S. Banks
More dividend cuts and special share sales to raise capital. Fortis (Belgium’s largest financial company) has scrapped their $2 billion cash dividend and is snow selling shares to raise capital, just after Barclay’s did the other day. Many Euro banks have bought CDO debt paper from the U.S. based on that coveted AAA credit ratings (now garbage). They also began duplicating many of those same strategies in their own country – repackaging debt paper and selling it.
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Unfortunately the EU doesn’t have a EU version of Freddie or Fanny (the toxic waste dump) to unload some of that paper on. Expect to see a continued ripples of more write-downs, dividend cuts, and fund raising – as the wave hits the shores of the EU. Kind of reminds me of the 97 Asian Flu when the currencies started unwinding in South East Asia, then headed West to Russia and Europe, made the hop across the “pond” and hit the Americas.
I think this time the US was the epicenter and it is now spreading to Europe as they catch the Credit Bug!
Expect to see pressure in the banking sector.
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Surprise, Surprise, Surprise….More write downs at CITI
Pandit, the new CEO that had sold CITI his Billion Dollar hedge fund that later collapsed and told us they would not cut their dividend, fire any more people, and the worst-is-behind-us, is no probably going to have to get on his soap box and say ok “Now, FOR REAL, the worst is behind us!” after he writes down ANOTHER $8 billion.Goldman Sachs, after looking over the convoluted massive reports, is saying they are going to have to write-down another $8.9 billion (most likely). Goldman lowered their rating to Neutral (instead of “Get Short NOW!”, in fear of Citi doing the same to them). The turnaround promised in the 1st quarter by Pandit, then the 2nd quarter, and now the 3rd quarter – may not even happen in 2008 for Citi, according to Goldman.
I suspect they will be also cutting the dividend AGAIN and more lay-offs. Pandit had to announce 13,000 layoffs earlier this year, something he didn’t want to do when he first took the helm after the first round of layoffs.
The problem is Citi is just a monster of a company with too many departments that are reliant on debt obligations. From credit cards, mortgages, and other types of equity loans to insurance and margin. They are less of a bank and more of a massive giant DEBT company. Kind of like the U.S. government. They are thanking their lucky stars that they are one of the larger shareholders of the Fed and have the Bernanke Bat Phone at the ready.
Another reason to see pressure in the financial sector!
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Futures Pre-Market
The market called the Bernanke Bluff and now is getting WHACKED after oil, commodities rally and the dollar slides! Expect a gap down opening. Hope you weren’t planning on “Dollar Cost Averaging”! The spread is fairly wide in the pre-market so expect some BIG selling pressure at the opening from the Arb traders.
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Support / Resistance
I think this could be it and the market “PLUG” is going to be pulled and we will see a SUCK out at the support levels. If the pre-market futures are any indication today is going to be a BEAR!!!
INDU 11750 (That is the only number to look at – we will probably break down through that at the opening. Unless euphoria is going to step in at drive it back up – we have broken support! There is NOT a next stop on this elevator down – no supports below.)
NDX 1900 (We got a good rally which is going to be fully sucked out at the opening – 1900 needs to hold, otherwise grab your chute!)
SPX 1300 (It is in the cards at the opening – needs to hold)
RUT 700 (We didn’t STAY above 720. As I said that was the signal that money was going to get sucked out of the market. Now it’s all about 700)
The opening looks REALLY ugly – not that it is a down opening – it is a DOWN opening at the BOTTOM SUPPORT levels. Where or When will the buyers step in?
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Conclusion
Value trumps euphoric perception – today could be marked as the day that the supports failed in 2008. It will be about the close. Do NOT be a bottom picker on a day like today. This could get very ugly very quickly very fast. We COULD have one of those late session euphoric rallies – but it would have to be on “hope” because the fundamentals and Bernanke’s Bluff and tough talk look like serious weak sauce.
Where is the bull market? It is right here – but you are looking in the wrong direction. As Rogers said this is the Greatest Bull Market Ever (in commodities!!!). It is also a great bull market for NON DOLLAR BACKED securities. Stop being patriotic with your money – invest to make money not to show that you are a “Made in the US” fool. Vote at the ballet box not in the market. Look at what IS in a bull market and stop trying to pick bottoms in the equity market.
Remember what I said in January – this will be the Year of Volatility. The VIX WILL get back up to 30 – expect it. Rallies and Sell-Offs will be followed by more Rallies and Sell-Offs. The problem – we do not have enough MONEY to cover the leveraged positions. Until these banks can find a bottom – the credit crisis is with us and inflation will only mount!
The credit problem was always here, but we ignored it. Banks borrowed 5:1, 10:1, 20:1 against deposits. As long as they didn’t lose greater than the deposit amount – they could play that game. Now they are writing down (mark-to-myth) these losses (and NOT taking them) to keep themselves opened for business. Bernanke is the back-stop and is pouring money into the system faster than a pole-cat in a hen house. The inflation spickets are Wide Open Throttle (WOT). We never noticed it until the banks started to lose.
Expect some crazy action today – another GREAT DAY for traders and a PUKE DAY for those long-term dollar cost averagers!
Gamma is your friend!
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