Traders,
Stay tune for this weekend’s new release, “Bear Stearns Part Deux” – Lehman is in a race to find some type of buyer of their company or assets, the FED and Treasury are looking to broker the deal (probably with some Federal backing on future write downs). Of course the shareholders want the same deal the Bear managed to get in the end, but that doesn’t look like it is going to happen. The real question is there ANY bank out there that can AFFORD to take on more debt. Rumors were that Bank of America was to take a bite of the poison apple, however they are still hemorrhaging the recent takeover of Countrywide – which seems to be a mess (with more write downs). This time any buyer of Lehman can really squeeze the terms and the Fed and Treasury. Expect any deal to be extremely one sided – with billions in Fed guarantees. If that doesn’t happen, we may just have a new National Bank of Lehman.
The market rallied hard into the end of the day – because again “the worst is behind us” that the Fed was brokering a deal and BofA was going to buy Lehman – more rumors and more hope. The futures are coming off this morning as the reality that another major financial firm is about to disappear and be absorb by someone.
_____________________________________________
IKE making landfall
IKE is reported to increase to a Category 3 before landfall (those are Katrina levels) – currently it is a Cat 2. Refineries are already shutting down and the path is going right through the heart of many rigs and targeting Huston. Texas is doing a great job of evacuating and managing preparations for the oncoming hurricane. However, oil and gas inventories are already very low – (good news is demand in the US is down) – however with low inventories already the need of refinery capacity is not to be ignored. The question is not about Oil supplies, but refined supplies and the ability to get back online quickly.
Gas prices are already starting to jump, oil is not seeing too much action (in the 101-103 range). Now we wait – let’s hope that (regardless of energy issues) that the people are safe. Are thoughts are with those in Huston.
______________________________________________
WaMu – the next IndyMac?
Washington Mutual has been trenched in rumors of failing and in need of capital quickly. The Stock has been slaughtered down to 2.50-3.00 and they are facing about $19 billion in bad home loans. They are looking (like Lehman) to sell off parts of the company to raise much needed cash, they have been revisiting the Discount Window as the debt ratio (loan to book) increases into the f’ugly levels. The sad thing is there only real value that is worth anything to a buyer is their deposits, but that is something they need. Credit Ratings have dropped to BBB1 (by Fitch) stating that they LACK flexibility to add capital and deteriorating asset quality. Moody’s states “…expect franchise erosion.”
If WaMu is able to sell off its branches and deposits, what are they left with? Their credit card and mortgage related businesses – yeah great – isn’t that what got them into this mess. Currently neither of those two business models are moneymakers in this environment and are only adding MORE debt to the books. It’s too bad they could not sell off the credit cards and the mortgage related businesses and keep the deposits – but that is not going to be the case.
Conclusion: WaMu is what’s for dinner!
______________________________________________
Producer Prices fall .9%
It may seem that inflation pressures to producers has eased some as prices paid to producers fell. The drop was more than forecast, which followed a 1.2% increase in July. However, this time it’s the “CORE” that is showing inflation – (that include food and energy). It seems that the recent retreat in commodities has helped (in the short-term) eased inflation measurements, but the much touted “Core” continues to increase.
The problem is that while in the short-term this could be a good sign, the reality is that easing in inflation is coming from energy prices (which are volatile) and not the core components – what we really need to see is the non-food/energy related goods ease in price. That could happen by the next quarter if the dollar remains strong.
My concern is twofold – I think the dollar rally (on the back of more government debts, credit crisis, and bailouts) is a very short pop of euphoria that we will see retreat soon and also the recent drop in food and energy could just as easily rally again.
It IS good news in the economic storm – but it is a far cry from the “worst is behind us” talk.
__________________________________________________
Future Pre-market
We were up with a little volatility as rumors about HOW Lehman would be handled (rumors of BofA takeover) keep futures from falling (a continued rally into yesterday’s close) – however it seems reality has set back in and the futures are heading lower going into the opening. Arb traders will probably buy futures into the opening and short the basket if the spread remains. Expect pressure at the opening to the down side.
___________________________________________________
Support / Resistance
We got a nice rally into the close – but not on any fundamental news – but rather certainty and rumors that Lehman (another bank failure) was going to be rescued. Rallying because banks are failing and getting bailed out is just nutty.
INDU 11,250 / 11,500 (We got up close to resistance – I think we may be hard press to break through support – but if the euphoria that Lehman is going under is construed as good news – well anything is possible. I expect people will NOT want to hold long positions into the weekend as the Fed tries to broker a deal and we really don’t know the results. I am guessing a weaker close is in the cards.)
NDX 1750 / 1800 (We may stay in this narrow range – however 1750 is not a place to get long – but rather flat – we could break easily and head down to the 1725 or 1700 level. The question will be if there is NO certainty as to the Lehman deal and we have to wait till Sunday to figure out who and how much the takeover is for – many may not want to hold positions going into the weekend.)
SPX 1225 (1250) 1275 (We are in the pivot point – it is looking lower at the opening if the futures are any sign – but I think it will be hard to stay at 1250 – expect to move away from there – it is the straddle strike.)
RUT 700 (720) 740 (What did NOT get the big rally yesterday was the broader market. To me that shows one thing – the market rallied into the close on the narrow based indices because of the hope that Lehman’s butt would be saved. The broader market didn’t react to that – but rather just sat there.)
_____________________________________________________
Conclusion
How many more bailouts can the Fed broker and guarantee? Truth be told an infinite amount if we don’t care about national debt – they have the mightiest of weapons – the PRINTING PRESS. What is very disconcerting is that the dollar has been rallying as our nation doubles down on its nation debt and continues to poor money into the system and is lending 100s of billions in short-term loans (many which will never be paid back – fact is Lehman and WaMu have both borrowed – do you think they are paying back the Fed? NOT!)
I couldn’t figure out the closing rally yesterday – seemed a little nutty to me – it seemed like a free ticket to buy some hedges as there is NO panic. The financial markets are at tipping point and several large institutions are failing or on the brink of failing – so far no one seems to be panicking about it. You have to hand it to Congress, the Fed, and the Treasury – they are doing a great job selling the faith and that they are “Strong dollar people” – but at the end of the day – math is math and talk is cheap.
You hear people complaining about the War and the national debt that Bush has left us with (I agree it’s bad) – however I haven’t heard one person COMPLAIN that we just doubled that after buying the GSEs….take a moment to think about that for a second. The national debt is around $9 trillion (according to the debt clock) the War is between 1-3 trillion (depending on who you ask) – we just (in one day) bought $5 trillion of mortgage debt with over $1 trillion none performing and after doing so we are dumping another $200-$500 billion into them! How about some thank you cards to Bernanke, Paulson, Pelosi, Frank, and Dodd that lead that charge into doubling the debt. This is not a Republican vs. Democrat thing – this is just a big STUPID government thing.
Sorry about the rant – but this nation has lots to answer for and we are seeing some serious issues that have not surfaced. I really feel bad for McCain or Obama – reality maybe they just might be a one-term president as we (Bush, Congress, Senate, Bernanke, Paulson) are leaving the new Administration a big pile of you know what!
Let’s just hope that Ike passes without incident and the citizens have gotten to safety.
No comments:
Post a Comment