Traders,
Yesterday we just hovered around – as if waiting for the next shoe to drop. That shoe is probably Lehman – as I have been reporting they are in serious trouble and the question everyone is asking – does the FED come to the rescue or not. I don’t know what their counter party (OTC) position looks like, but at Bear Stearns it was big enough to panic Bernanke into brokering a deal. Could that same thing happen to Lehman? It really depends how big the counter party position are.
Yesterday I reported on Silver and Gold – hard to get the physical asset. Later in the day – my local dealer had 63 Morgans that came in – I quickly ran down to buy them – everyone. It was the first silver to show up in some time (not even “dirty silver”). Maybe he’ll call me again today. I have been also hearing echoing concerns about the physical shortages on silver and gold. The biggest dealers in the US are tapped out – none. Even several of the Silver Mints (not the US mint) in the US (they mint 1oz rounds) are looking at 10-20 weeks in delays. There has been some reports that a couple large banks have amassed huge silver and gold positions of the physical assets and those same banks are also SHORT the futures – the one story said their position rivals the Hunt Brothers as they tried to corner the market. I will try to get some detailed information and report it – for now – it seem more circumspect – would like some hard facts or details.
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Hurricane Ike strengthens
Ike is in the gulf and moving towards Texas – so far oil hasn’t really responded, but the storm is getting stronger – those forecast models have it hitting several spots in Texas. Oil this morning is looking lower – so no panic yet.
Here is a interesting site to track IKE – there is even a button to see all the forecasted paths.
http://www.operationstormwatch.com/main.html
If the storm gets stronger going into the weekend and starts to move east again – expect some upside pressure to return to oil.
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Lehman – I smell smoke
Lehman doesn’t want to sell their most prestigious unit, Neuberger, but it has too to raise money. They are on a short lease and for whatever reason their talks with the Korean Banks has faded into the sunset. Who is to know if it was CEO Fuld’s reluctance to come to terms with them or if they just walked away after looking at the debt ratio. If they don’t sell off Neuberger or a major asset to raise money – the curtain IS coming down.
Now it’s FED watch time – does Bernanke scramble this weekend with Fuld and other CEOs to negotiate another last minute take-under with more implied government backing? The FED and Treasury are really tapped out, just like the consumer. If you visit any data on the Discount Window lending – it would make you want to puke. They also just added $5 trillion in mortgage paper from the GSEs to the ledger, of which some reports indicate that over $1 trillion is non-performing. Of course we could always just PRINT more money.
There is a serious disconnect on that too – the government just doubled its debt, will probably start seeing failings at the discount window (Lehman probably the first) and the dollar has been rallying? Ask any currency trader – and they’ll tell you something is a foot – because this has nothing to do with fundamentals and everything to do with positioning in the market. The dollar on lower rates, government taking on more debt (doubling their liabilities), seeing failing on short-term loans, and closing the gold/silver mint – means the dollar should be falling but it is doing the opposite. One person told me – hey this is an election year – wink wink. Take that for what you will. The reality - we can’t afford another bailout – we couldn’t afford the first one.
Will Lehman be the straw the breaks the dollars back – maybe not until after the election – wink wink.
I noticed new option strikes listed (twin strikes) - a spin off, take under, something...No details from the OCC yet!
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Jobless claims fall – but trend still high
The jobless claims fell to 445,000 – not as low as the expected 440,00 forecast average. However – we are still in a high range and have been trending higher. The surge in jobless claims really didn’t hit until July – but Bloomberg is reporting that could be contributed to the government’s extension of jobless benefits legislation that was signed in June. So far we are unable to quantify the results of the extension – however there are more remaining on claims (which rose by 122,000) since the extension.
Between the auto slump, financial layoffs, and other sectors tightening their cost – expectations are for more of the same.
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Futures Pre-Market
Well Lehman is getting the wind knock out of it again and as more concern continue with the credit crisis – we are seeing the futures get knocked down pretty hard in the pre-market. The Arb traders will certainly buy futures going into the opening to short the basket if the spreads continue to remain this wide – looking at about 10-15 points in the NQ right now. Keep an eye on fair value going into the opening – to see if more or less pressure will be put on the market at the opening.
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Support / Resistance
Supports? Hmmm…..
INDU 11,000 (11,275) / 11,500 (We are back in a weak support area of 11,275 and the futures look to take out about a 100 points at the opening right now. Breaking down into the upper 11,100 ranges is not support but rather scrambling volatility ranges. A suck out could send us plunging to the 11,000 range – which is a very important support area – if that doesn’t hold – well.)
NDX 1700 / 1750 (The futures are looking lower going into the opening – the question is do we hold down at the 1700 range – a key support area. We may not break it today – it would be nice to see recovery going into the weekend up at the 1750 area – but I don’t think ANYONE wants to hold anything going into the weekend. We could have another Lehman bailout weekend.)
SPX 1200 (1225)/(1250) 1275 (The inside range is 1225-1250 , but it looks like we could blow down through the 1225 area on the opening. The question is heading into the close. 1200 is also a very important support area – a place we just visited intraday and didn’t close there.)
RUT 700 (720) 740 (We are at a pivot point and have not broken down through the 700 level – the broader market is still holding up better than the narrow based indices. However, 700 is key support. If we close below it – then expect the rest of the market to follow downward. Don’t pick bottoms.)
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Conclusion
Something is a foot – the dollar has rallied and the economic storm on the credit and GSE side is looking worst not better. The short interest in metals is getting massive and if you were just to look at the broad spectrum of positions across the board there are only two conclusions (from just the math and positions) – one there is a propping up of the dollar and/or there is a race to control physical hard assets.
One strategy (which can work affectively) is to short otm puts and then drive the price of the underlying down. There has been trades using warrants/bonds against common in similar strategies. The short interest in the ETFs and Futures (of the metal markets) – vs. the some of these possible OTC put obligations looks like a similar strategy. Of course this is just a speculative conclusion. But if you wanted to corner a market – you wouldn’t want to be OPENLY buying futures – that just drives up the price – making it harder to corner. If you could force down the price in the paper market via shorts into the “wheel-house” of your short OTM OTC contracts – you would not only be making money on the spread – but taking physical delivery at the same time. One thing is for sure – if the stories about a couple of these institutions is true – amassing physical positions – that means they too probably don’t have much faith in the dollar’s recent strength and are also concerned about the mounting government debt and continual bailouts.
Remember those that have fallen - today is 9/11
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