10/15/08 (Wet Paper Bag Stops Obama and McCain!)

Traders,

Well if you didn't get your hedge on yesterday, ouch. At the opening (and pre-market) the futures craned their neck - but no brass ring. It's a tossup whether we head all the way back to 8000 or meander in this range. A 10% or more rally on Monday in this economic landscape is nothing more than euphoria. I was reminded yesterday, "Just like in a Bull Market when short down spikes interrupt the higher trending market, the Bear Market sees short huge pops to the upside as it continues to slide lower." Whether we are in a Bear Market or at the bottom of a new Bull Market - only time will tell. One thing we can bet on is more volatility. In this kind of market - when you are given big moves to take off long hard deltas (or hedge them) - you do it, you don't ask questions, or guess what is going to happen next - as Nike says "JUST DO IT!"

Those gains didn't hold long - by midsession the market gave back huge gains pretty quickly. And many continued to tumble into the close. Are we to revisit those lows? Chances are fairly good that we do. At least we know them to be supports now, rather than uncertainty.

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Coke, Pepsi ???

Yesterday PepsiCo’s earnings - as they reported a 9.6% fall in profits, things going forward are not good for them. Expected lay-offs are in the 3000 range and forecasts are lower.

Today it's Coke's turn. Net income increased 14% (81 cents a share). They beat estimates and don't look to lay-off anyone. Maybe they could hire some of those PepsiCo freshly unemployed?
There was no doubt a slowdown in the U.S. as drinks sold dropped 2%. Think globally.

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LIBOR drops for a third day

Sure LIBOR is still high - but it has come off - three straight days in a row (the longest decline in 7 weeks.) The 3 month lending rated slid 9bps to 4.55 for the dollar. The one-week dollar rate fell 25bps to 3.83%. Still very high - but it is nice to see it come off.

It is a good sign, though there are some that want to see it to come crashing back to the 1.7% level - but that is not going to happen - it will be a steady-eddy decline.

World Central Banks are pumping trillions into the system and the gears are starting to slowly turn.

I actually heard, "The credit crisis and capital freeze has been the best thing to boost the Obama campaign to take the lead over McCain. If LIBOR comes off to fast and the market rallies it could be good for McCain."

It's certainly true that Obama got a huge boost with the credit crisis rising right before the elections, but if the beast is tamed and it returns to the ashes in short order - does that help McCain?

Who knows?

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Producer Price Index (PPI)

Inflation increase along with weaker sales are putting the squeeze on producers. Sure the PPI fell by 4% - but that was headline inflation, which includes the lowering fuel cost. But the CORE, what Bernanke has been reporting since he took office as the key or true measure of inflation, is on the rise. If we are to believe these numbers - the lower fuel costs have helped companies (with shipping). That is most certainly a good thing - but it is also a volatile measurement - fuel prices could see another shock to the upside. It's the core prices (excluding the fuel) that saw a surprise jump, doubling economist estimates. That is the biggest jump in 17 years.

Companies are lowering prices on existing goods, concerned about inventory, but consumers are NOT biting - primarily there is no credit available to purchase big ticket items. This is hurting forward estimates for many companies on several fronts - core prices up, credit freeze, large existing inventory, and cost cutting efforts hurt future production.

Those companies that relied on a very weak dollar last year and the beginning of this year to move merchandize overseas are not getting that advantage as the dollar as regain some of those losses.

It is very much a state of flux - but the big underlying concern is the consumer - they make up 3 qtrs of the GDP - if they are NOT spending then Sales decline - regardless of the PPI.

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Futures Pre-market

The futures were already looking weak in the pre-market - but with the core rate increase - coupled with consumer sales slowdown is putting some pre-market pressure on the futures. The futures are front running the cash 30 mins prior to the opening, - expect Arb traders to purchase the futures and short the cash - which will put some pressure on stocks at the opening.

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Support / Resistance

We got the mother of all rallies on Monday, a follow through on Tuesday morning and then it just gave up the ghost and headed south bound. We are looking lower at the opening. We are in that range between the recent tops and the previous supports. Remember these supports and resistances are very suspect because they market had not had time to consolidate at these levels - it's a knee jerky market - so expect these to be more psychological than anything else.

INDU 8500-9000 / 10,000 (If we don't hold the 9000 level - we could slip to the 8500 level. These are NOT levels to get long - but rather flat against gamma positions. If you didn't get your hedge on Monday or Tuesday morning - well sorry. We could still visit 10k - but don't hope on that. INDU futures got to 9900 maybe that was it for the short-term.)

NDX 1300 / 1400 (We saw the futures yesterday morning trade 1499, that was it the short-term top. I was off by a point - sorry - hee hee. Anyway 1300 is in the cards with the futures already down 20 points 30 mins before the opening.)

SPX 900 (1000) 1100 (We are at that pivot point - futures are showing pressure. 900 is more likely than 1100 right now.)

RUT 500 (550) 600 (We almost got to 600 - but faded fast and hard by mid day yesterday. 550 is the pivot point - sure 500 is in the cards - maybe not by expiration Friday - but you never no.)

It looks like we COULD be starting to forum a double-bottom - and rest the lows. If they hold and start ramping higher - that will be a second wind to get long (fully hedged of course) - right now is the pain of getting to the second bottom. If the second bottom breaks the previous supports - we'll need to find that next level - that is the big unknown.

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Conclusion

LIBOR is unfreezing but at the expense of dumping tons of fiat currency into the system and the problem - treasuries are NOT going to be able to soak up the spread between government printing vs. current credit lines. Yeah - just like Middle America - the government is moving into the big debt red zone - with NO MORE credit lines.

We are watching the nationalization of the mortgage industry and now the banking industry - and citizens or should I say the Sheeple are just sitting idly by. The NEW NEWER DEAL is coming and it should make every socialist proud. This isn't a Republican or Democrat thing - it's a big government that thinks they know best thing. Do you really think Sen. Dodd, Sen. Frank know what is best? Do you think giving Carte Blanc to Hank and Ben was out of foresight or hope? McCain and Obama voted for the Bailout Plan that was loaded with Earmarks and Pork - right under your nose.

Is Obama really about change? Sure - Democrat change - but they have been running both Houses for almost 3 years and they haven't done any better. I wish we had a third party - instead of two parties that are more alike than different.

Oh and these TAX CREDITS are anything but. They are the government spending more money and yeah raising taxes - where is the money from the Tax credit coming from? It's a play on words. See Obama and McCain think you are idiots, in fact they KNOW you are Sheeple. See they took a page from Vegas, who have mastered not only math, but also the English language. For those of you that don't know the difference between the words "TO" and "FOR" when making a bet in Vegas (and how it changes the math) are the same people that think a TAX CREDIT is the same as LOWER TAXES.

Someone asked me -why not tax business to help the middle class? I said - why do you think businesses move out of one state to another or move overseas? The Sheeple don't realize that government does NOT create jobs (that is just vote getting talk). Business create jobs - if you make it less attractive to do business - well business will not come.

I hate debating people on business and politics - because most people want to use the Utopia Socialist debate and cast math into the trash can. If you can't do the MATH don't bother debating your point - you can ignore math - look what happened to the economy - you just can't avoid math!

One thing you will NEVER see in the Presidential Debates, is a REAL Debate. Two people hoping to get teed up to pump out their stump speech and regurgitate what has been recorded to muscle memory is NOT a Debate. I seriously don't think that either Obama or McCain could actually debate themselves out of a wet paper bag.

I am still trying to figure out if Fascism or Socialism is better - since that is the road we are heading down.