10/16/08 (CPI unchanged? Debate Yawner!)

Traders,

Well yesterday the bottom fell out again, we are back at those support level. That means we face a fork in the road - either a double bottom and we rally hard out of this up to the 10k level, or it breaks with no known support going forward. That uncertainty will keep premiums pumped. What is the catalyst to make us move from this level. We have some big numbers today, CPI, job numbers, a couple of big earnings, and how is Libor doing.

LIBOR 3-month is down another 5bps today to 4.50% - good sign that credit is starting to flow - however it is still very high. That is giving a slight hope that this could be a double bottom - but it is going to take more than a 5bps drop in LIBOR to ensure support here - it helps - but not enough - yet.

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CITI earnings

It's a beast for sure - many vertical markets (banking, brokerage, loans, credit cards, insurance, etc.). They are in the last round fight with Wells over Wachovia - and although Wells looks to have won, Citi probably will not sit idly by and will probably drag this out in court. So how are the earnings looking after all this, not good but I guess you could say they could be worse.

It's the 4th straight quarterly loss, with - you guessed it - MORE write downs. $2.8 billion in losses (60 cents a share) - which came in slightly better than expected. Citi is on the receiving end of that bailout package and is expected to get 25 billion from Hank. With at least 13 billion in write-down and debt losses this quarter, a total over 61 billion in losses so far - well that 25 billion is going to be a nice Christmas gift. However, will it be enough - expect some double dipping by Citi.

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UBS needs MORE money?

The Swiss are not being so secret about their banking problems as they pump a 60 billion bailout package into UBS. They are getting 6 billion francs from the Swiss government and also moving 60 billion francs of toxic paper into a fund that is being backed by the central government. This bailout should rid UBS of all its U.S. toxic paper. The moved higher, off the lows in Europe as the news was released.
Could the worst be behind UBS - well if true and they were able to dump ALL toxic paper - that would be a big head start. I am sure that they will not jump head first back into the US mortgage, CDO, and SIV market after this. I am also sure that the Swiss government would have something to say if they did - namely here is your 60 billion in toxic garbage back.

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Merrill Lynch earnings

Merrill follows Citi down the long road of more write-downs - this time 9.5 billion. It was a 5.58 per share loss (net losses of 5.15 billion). The write downs continue and I am sure there is probably more to come. Rumor has it that the CEO of Bank of America that just agreed to buy Merrill for $50 million and had earlier this year bought Countrywide - just barfed up his breakfast - of course I am kidding. But B of A with their own problems are buying big problems at Merrill and bought MASSIVE problems with Countrywide.

Expect B of A in the soup line with their handout hoping that Hank will give them a nice heaping bowl.

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CPI unchanged?

The PPI and CPI are an enigma, wrapped in a riddle, shrouded in mystery. I say that only because the methodology changes from administration to administration. Not to mention that Bernanke has shifted focus on the "CORE" inflation, thus ignoring Food and Energy (the "Head Line" inflation) as prices in oil and food went up. But now that they are coming down, his focus has shifted from the "CORE" back to the "Head line". As you can see shift focus on which everyone is going down, or whichever one is going up the least.

That being said - PPI's CORE numbers came in higher than expected yesterday, twice as high as economist thought. Thus showing the price squeeze on the production side. The question today, have those higher prices trickled down to the consumers?

The market was poised this morning with futures flat to down - waiting for the CPI. It was released at 8:30 am (ET) to show that is was UNCHANGED! That's right NO inflation (according the CPI) - which is sending futures up hard and fast in the pre-market. Hurray - recession just might not come to town and this also means the Fed now has an excuse to cut rates again (since they will point to the CPI being flat and say their previous rate cuts have NOT affected inflation - thus we can Cut, Cut, Cut so more).

Sarcasm aside - oil and food prices have come down to off-set the rise in core goods. That is a good thing and will help consumers - since they are not getting drained at the gas pumps, nor the grocery store. But even the CORE prices only rose .1% - lower than expected. Clearly producers and companies are NOT passing on higher costs to consumers OR they are sitting on inventory and are dumping them at fire sale prices. I personally think we are seeing a back log of inventory (in the core goods) and prices are dropping to move them. Thus CPI is not reflecting inflation as much as it is a stalled economy with companies trying to unload inventory. No doubt food and gas prices coming down is a HUGE load off any and everyone's shoulders.

On a separate note the Labor Department said initial jobless claims fell last week - first-time claims declined by 16,000. But expectations expect the jobless claims to keep rising into 2009. Companies and businesses move slowly - they are not going to start hiring into the election and the credit crisis - so expect jobless claims to be high for some time.

The futures are getting one hell of a big pop off these numbers!

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Futures Pre-market

We were flat to below fair value - waiting on the CPI and job numbers - when it came in better than expected - bam - the futures rallied hard out of the gate - maybe a little too much. The spreads are fairly wide - so expect Arb traders to short the futures and buy the basket into the opening - which should get the market a good pop at the opening.

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Support / Resistance

We are at very key supports, like I previously mentioned - this is either a double bottom in which we rally from or we continue to fall off. Usually we can measure supports and resistances by cumulating volume and market depth - but with this volatility the levels are more psychological than anything else.

INDU 8500 / 9000 (As I mentioned yesterday 8500 was a key support area (with 8000 below as the oh-no support level) - if we stay above 8500 into expiration it could help build more support.)

NDX 1200-1250 / 1400 (We blasted through the 1300 support yesterday in this hyper volatile index. 1200 is KEY we would like to see a 1300+ close to help build support - if we close on a low of 1200 - that will be a knife edge for sure.)

SPX 900 / 1000 (We got right to support yesterday and stopped. We NEED to hold 900 and the futures are showing a higher opening. If we break 900 and close below it - that is not a good sign at all. Getting back to 1000 is in the cards by expiration - call me crazy. One thing you CAN bet on - 900 is not a place we are going to sit at - if we break down it's bye-bye time - this is the big support area.)

RUT 500 / 550 (Again right to support yesterday and stopped. This is very important - we need to hold the 500 level. A break in hear could be ugly for the whole market. Getting back to 550 is in the cards and the futures are pointing higher.)

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Conclusion

Talk about another yawner of a debate, "He said...", "His plan that...., "My plan this....", "He is name calling", "No you are!" - my god have these two knuckle heads figured out even what the word debate actually means? Oh wait - I forgot these televised debates are for the Sheeple - not really for anyone of any intelligence. Of course being the lazy and complacent country we have become we will focus on style, looks, appeal, and rhetoric. I seriously doubt that even 1% of the voters have bothered to visit any of the congressional websites to read up on their actual records, votes, and legislation. Instead the sheeple will just listen to a couple debates, place a stupid bumper sticker on their car, and hope for the best.

I really hate to say it, but the American sheeple in a very sad way - deserve they bloated, misleading, debt ridden, crap of a administration and congress that we have today. This nation has turned into the obesity of consumption capped off by an addiction to credit spending as if were crack. And now the government, in all their wisdom, is going to give us a free pass and eat up all that toxic fiat currency debt that we spent and dump it on their own books. The problem is that we have NOT learned our lesson, we the people are getting a get-out-of-jail free card with NO punishment. Add to that a government (both Republican and Democrat) that has mastermind this bailout from billions to trillions on the back of you and me - coupled with putting our currency at risk - well we deserve either of these two horrible jokes of a party we call Democrat and Republican.

At the end of the day - we will either have Obama, with a Democrat Congress/Senate who already votes 97% along party lines. We know that the Congress/Senate with a 9% approval rating have turned this problem into economic chaos with Freddie/Fannie and the bailout package. Or you have choice two, McCain who may really want to change things - but will be head-butting Congress/Senate that are fully unorganize and will be pissed off that their man Obama didn't win. Either way it’s a big loss for the American people.

Look - I like both Obama and McCain - but people are so focused on the president that they fail to realize the bigger problem is the House. It is the house that passes legislation, it is the house that decides the budget, it is the house that just voted for a $700 billion bailout. Sure the president can veto this or that - and at which point we can point fingers at him. But we the people are so focused on the figure head (captain) that we fail to realize our crew (the house) can't even raise the mainsail.

You have made up your mind long ago about the president, please spend some time thinking about your representatives - they are the ones that do all the really work.