(sorry - still no funny pictures - no time in the morning)
The market was mixed yesterday waiting to see if the new and improved bailout plan from the Senate would pass the vote. The morning saw the market start to fall - primarily on the back of GE that started as a negative news story with problems from the credit squeeze to a manufacturing slowdown. Then Buffet from left field and pulled off another stellar trade (just like Goldman).
Buffet got off another trade of the century, just like when JP Morgan cleaned up in the Depression. Again in a similar deal as to Goldman, he was able to secure both a 10% dividend and 100% warrants (5 years). It's all most a no risk long-term trade for him. These types of deals would NEVER happen if not for the crisis - they are DREAM deals that will (in 5-10 years) will more than double his profits. Make no mistake - these billion dollar investments that he has made at GE and GS are NOT votes of confidence - they are skillful and very profitable deal. Buffet is a very nice guy and the public LOVES him - (I like him too). A hedge fund manager at Solly (that knew Buffet during his Solly investment days) - said of Buffet, "The public sees an nice old man, I have meet a trader that would make Machiavelli proud!" - of course this is a complement. Maybe I should ask Buffet if he is open to any "with" traders? Cause I am "WITH" for "SIZE"!
Anyway - one thing is for sure Buffet is doing more for the credit crisis than Congress. We should "can" the bailout and just let the capital markets work this out and let the Buffets, Ross, Pickens, BlackRocks, Rogers, etc. bailout companies. I guess you could say there is something to be said for the Barbarians. The Gate is Open - here they come.
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Senate Passes the Bailout
The Senate passes their version of the bailout package, which included: $150 billion tax break, delayed the AMT tax for 24 million households, increase of the FDIC insurance from $100k to $250k (tell that to all those at IndyMac - day-late dollar-short), suspending accounting rules that requires companies to report greater losses on certain assets (?) and a $17 billion in benefits for companies working to produce alternative energy. There were others items - but these were primarily the big changes. I am sure there are more than a few ear-marks O.o
Now it's up to the Congress to vote this through. There is a little "egg" on the face of Congress as Frank (who helped draft the Congress version) along with Pelosi (the leader who said it would pass) - now have to vote on not THEIR version, but rather the Senates - which spent less time playing politics.
The Senate's handling of the bailout package (even with the two presidential candidates) made Congress look like a bunch of kids at day care after pumping them full of sugar.
Hopefully - Congress will remain sugar-crazed children, because I sure do NOT want this passed. Also - unlike the Congress - there were fewer Senators up for re-election.
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Fed starting to see losses from the bailouts
The Fed's first bailout of Bear Stearns (in the deal negotiated with JP Morgan) - the Fed agreed to take the $30 billion in assets - Assets that JP Morgan deemed too RISKY to hold - and instead gave the toxic paper to the Fed. However, Bernanke stated that any losses would be very small and this was just done to help close the deal and secure Bear Stearns. Now the first bailout of the year is coming back to haunt the Fed.
Today the Fed will announce its quarterly estimate of fair value of their $30 billion holdings. The estimated losses from analyst could be as high as $6 billion - but let’s see if the Fed can come up with some creative accounting (mark-to-myth) of their own.
That's the irony of this, Fed's Maiden Lane, LLC which holds the assets now needs to determine the asset value by the very methods that the Fed criticizes. Putting Maiden Lane in that same boat that every other bank is going through.
Judge for yourself, if they only report $1-$2 billion in losses - while holding the most TOXIC paper - while others that have a mix of paper report greater losses. I would have to say - the Fed has mastered the skill of Mark-to-Myth accounting.
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ECB remains at 4.25%
Even with Europe now facing several banks in trouble, their Central Bank remains at 4.25% interest rates. It's a different strategy than our Fed, as they continue to focus on inflation as being their number one concern. While our Fed has pushed inflation on the back burner and is clearly focusing on bailing out companies, buying toxic paper, and printing money - a chief cause of inflation.
The approach could not be any more different. One thing, I believe, that our nation has failed to take into consideration is the dollar. We are so self absorbed with the NOW and the companies that are having problems that we are jeopardizing our future - that future being the value of our currency. We are seeing short-term rebounds in the dollar, short-term strength, because of the bailout packages and the printing of more money today. I guess a good analogy would be someone out of a job and paying their rent, bills, and everything on credit cards. It solves the problem today - but what about the future. Maybe not tomorrow, or even 3 months, but just like the housing market, credit market, and everything else - the printing of 100s of billions (loaning money) on top of very low interest rates (that will go lower) will probably be the crack in the dollar that will create hyper-inflation and massive devalue. However, we are so focused on the NOW - that we can't see the trees through the forest. But that seems to be the history of the US, we ignore Social Security debt until it's too late, we ignore foreign oil supplies until it's too late, we ignore pollution until it's too late, we ignore all the problems until it's baring down on us then we scramble around pointing fingers at everyone but ourselves. Our government continues to be RE-active and not PRO-active.
The Europeans are seeing the longer-term picture. They have been around longer than we have and seen several FIAT currencies collapse, they can't afford to bailout a few companies and lower interest rates to zero today and risk their future. Sure they may lower rates some - but I think (so far) they have proven there is a BIGGER picture - that is the value of their FIAT Currency.
I know you may get sick of hearing it, "Paper money eventually returns to its intrinsic value - zero!" Voltaire
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Futures Pre-market
It doesn't seem the Senate Vote is creating any pre-market rally, instead the LIBOR spread continues to widen which I think is taking center stage at this point. Futures are getting whacked - unfortunately the Short Ban, which was supposed to be lifted today has been delayed until the House votes for the bailout plan. That means don't expect the ARB traders to step in and buy futures to short the basket - because they can't!
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Support / Resistance
The market is still in a holding pattern waiting to make another knee jerk move up or down. Yesterday we sold off - but got a Buffet investment optimism rally into the late session.
INDU 10,500 / 11,000 (We are holding here - we did see the market sell off a couple hundred points before it rebound. Stay tune for volatility.)
NDX 1500 / 1600 (We are loading up a BIG charge and flagging right now - hidden volatility is ramping ready to send this index higher or lower on a 3% move - the more it stays in a tighter range - the bigger the breakout.)
SPX 1100 / 1200 (We remain at the pivot point ready to move up or down - waiting....)
RUT 660 (680) 700 (We sit poised for a move, unlike the other indices we have NOT broken down through the low supports - yet)
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Conclusion
The bailout package is too little too late. IT's not going to solve the problem of unwinding the leverage, even the Fed is now in that boat with their Maiden Lane, LLC which holds the most toxic paper that Bear Stearns vomited before being absorbed. As I continue to say passing debt over to the government doesn't make it disappear - just look at Maiden Lane, Freddie, Fannie - the toxic waste is building on borrowed money (or printed money out of thin air) - pumping 100s of billions into the system on short-term loans HOPING that they can sell enough treasuries at 2% or lower or sell off the remaining hard assets (which is rumored to be running dry) - is setting us up for some SERIOUS problems in the coming months or years. That is when the really BIG problems will surface. But don't listen and don't worry about it - just ignore it - we are REALLY good at it. Just like the person that eats too much and is slowing putting on more weight and increasing their chances of heart disease and diabetes - then they wake-up one morning to big to even get out of bed. That day is coming to his government - unless we start addressing the debt issue NOW - not tomorrow.
Expect more volatility, more knee jerky moves, more government intervention, and more problems to surface.
We are in a recession or going into one - there is NO stopping that. It's now up to the government as to how long it will last.
By the way - for those that asked, the song "Ship of Fools" is a Grateful Dead tune.
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