Traders,
(still no pictures yet - sorry - little busy)
I miss a day of Market Preview and the market takes a plunge, I guess I need to keep writing to keep it from falling. Actually I was in transit in the morning, so I do apologize. No doubt how the market closed on Friday (on the lows), that Monday had a pretty good chance of a follow-through.
Amazing how fast and how far we dropped yesterday and there IS a Short-Ban in place - I guess we really can't blame the short-sellers anymore. The trading curbs did not kick in and I also believe that traders are getting numb to these moves - while pointwise it was a massive swing we still didn't hit the 10% move, nor have we seen one of those 22% crash moves like the 1987 crash. What is alarming is that while 1987's crash was bad - there was NOT the credit crisis behind it - so the market quickly got back on track and it wasn't too much longer that it headed higher.
Yesterday also saw a flush of anything and everything that had a price - why? Because firms and investors just needed capital (or wanted to be out). We saw equities, commodities, and currencies take a drop - in a panic to liquidity. However, we did see a good rebound going into the close - and yes, I even heard a couple of people say "The worst is behind us!" ???? True we did have a good rally going into the close and it sure was not profit taking from the shorts. However, a technical move in the market doesn't mean the fundamentals have changed. I even heard them say - "We'll be talking with an analyst today that says the market is oversold!" on NPR as the cheerleading continues.
One thing to expect - more volatility!
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Wachovia - fighting over the red meat.
Citi, which had a deal in place to buy Wachovia saw them kicked to the curb as Wells Fargo came in with a better deal. It wouldn't of been a problem if it was an open bid, but Wachovia, Citi, and the Fed had pretty much consummated their relationship. So now it is turning into a little fight - it looks like they might split the company up between Citi and Wells. It's pretty amazing at that they are fighting over a company - that without their bid to take them over, they would pretty much be bankrupt and just another FDIC bank. It's really about one thing - DEPOSITS and deposits = money.
Every bank and lending institution is still getting severely squeezed, they can't borrow money anywhere, they have tapped out their equity (even bad equity) at the Fed Discount window - now it's about handouts. Even LIBOR and other interbank lending pipelines are barely a trickle.
We are really waiting for the deleverage to finish and it seems like we have a ways to go.
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Dollar Strong?
If we didn't look at the fundamentals - we would certainly assume that the dollar is fundamentally strong. But this is more reminiscent of that guy that lost his job and starts paying his rent, lease car, and bills on the credit card - he looks good today - but what about tomorrow. The bailouts of AIG, Freddie, Fannie, Bear ($300 Billion), Discount Window lending to non-members ($300 billion), the new Bailout ($700 billion). No one is asking the simple question, WHERE are they getting the money? Of course you will hear politicians say it's the taxpayer - but it isn't (maybe in 5 to 10 years) - but TODAY - where are they getting the money TODAY? The answer: No Where - sure they sell treasuries at auction - but we are even seeing that diminish - remember that story I mentioned January 2007 when China said they would let 1 trillion dollars of US treasuries expire and not renew them? I think that is coming back to bite us.
More countries, even with their own problems, don't want to lend to US institutions nor do they want to buy more treasuries. Bernanke will certainly be lowering the target rate (based on the Fed Futures contracts). Taking an already very low rate to 1.75, 1.50, possibly even to 1%. Of course that is NOT get any foreign investors excited to buy MORE. So we get back to the question - WHERE is all the money coming from? Actually nowhere! It is just piling on the debt.
So while injecting cash TODAY will keep some of these banks and firms treading water - what happens down the road? That is the question. My prediction - we will see a dollar crisis (ramping inflation, possibly hyper-inflation) as the MASSIVE printing and lending of money continues. It may take a 1 month, 3 months, even 6 months - but it WILL happen, just like the housing bubble burst, and the deleveraging.
Remember, all those people that said the housing market would NOT collapse? I was one of those they kept saying this housing market was going to tank - friends and family kept saying I either didn't know what I was talking about or that I was a Perma-Bear - whatever. To me it seemed simple and I couldn't figure out why anyone else couldn't see it; you can only build so many houses, there are only so many people, and people can only pay so much - before a top is found. Once we started seeing 80/20 negative interest option arm loans - I said that has to be the top! Why? Because when someone can't afford a 30 year fix, not even a straight interest only, and now doesn't have a DIME to put down and is paying even less than the interest rate - that means the prices are too high. Just like the JP Morgan story, when the shoe shine boy is giving stock tips - there is no one left to buy. In the housing market, when the tweener at Starbucks is studying for his real-estate license and is giving you housing investment tips it is time to run, not walk for the exit door.
Remember, all those people that said the credit markets are fine - this is only a sub-prime problem, even Cramer said Bear Stearns was SAFE! Again, I shook my head, the problem again is simple. A bank has only about 6-10% of capital vs. the balance sheet. If they only have that much capital they need to borrow to keep liquid. If EVERY bank is playing the same game, borrow to lend and only has 6-10% then it's just a matter of time before there is NO MORE money! The credit crisis was just simple deleveraging. You can only leverage up so much - before ONE hit (like the home foreclosures) puts a huge crack into the system and now it comes down like a house of cards.
So - the next problem the dollar crisis. We are simply injecting too much money into a system that is just eating that money to cover losses. We are shifting the debt from people and companies to the government - the very same institution we rely on to build confidence in a faith backed currency. And they are printing faster than a polecat in a hen house.
So for those of you that believe the bailout (which they will be back for more) is the RIGHT option - you are being VERY short sighted. Sure it may give much needed capital to failed companies and even buy off the bad debt, but the national debt is growing faster than ever before. Think about this for a second - the FED has loan more money in one month then their entire 100 year history. How long do you think they can keep that up. And some of these short-term loans at the Discount Window have defaulted. What do you think happened to WAMU, Lehman, and other failed companies loans at the Discount Window?
Some of you may believe things come in three, some of you may believe that Voltaire was right, some of you may be from Mexico, Germany, Thailand, Japan, Russia, or Brazil - where you have seen hyper inflation - or the birth of several fiat currencies. For the rest of you - those that haven't seen devaluation or a switch to another fiat currency. Those that believe that the government knows best and is got a good handle of this situation - it's now time to look at this without those rose colored classes.
The housing bubble created the credit crisis, the credit crisis (injecting fiat capital) is creating the next crisis - the dollar crisis.
Side note: In Europe they are having problems in the housing market too - but most European countries do NOT have a sub-prime market where they issued a mortgage with NO money down, negative interest, option this or that. Their problem is nowhere as deep as this country's. I was with a friend over the weekend (from Grand Cayman - British) - he just couldn't figure how a bank was allowed to make such mortgages or even that a bank would want to make such mortgages. My answer - American Greed! Europe’s biggest problem is being in BED with America on the lending train. Sure they are having a mortgage problem - but their big problem is the defaults they are seeing after lending billions to their US counterparts.
It's time to get on your next hedge - the dollar hedge - now - not tomorrow.
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Bernanke - where are you?
Bernanke has taken a back seat to Paulson - who has taken center stage. No doubt that Hank, being an Ex-CEO and having a commanding presence makes Bernanke (an academic) looking rather weak. Well it is now Bernanke's turn to speak.
Bernanke speaks today at 1pm he is also meeting with the ECB and other central bankers later this week. He is also gearing up for his next FOMC meeting and is expected to lower rates. One of Bernanke's most important job is selling the Faith - but he has failed at that. We need to have faith that the government has a handle of this - but it doesn't seem like that is happening.
Bernanke has also started what many are calling the Hidden Bailout or Shadow Rate Cut - by massively increasing the cash auction to $900 billion on with little if any secured financing. Remember those negative-interest-only-option-arm-no-money-down loans in the housing market, well Bernanke has created a similar lending policy to banks and companies. One thing is fore sure the mortgage companies have taught Bernanke about creative financing. Nothing to be concerned about - he can just print more - right?
The big problem - that will take center stage - is that banks are NOT lending to each other. This is not a liquidity problem this is a deleveraging solvency problem. The money injected is just paying down losses and there is a long way to go before we find a bottom. The purpose of Libor, Target, and other rates - is for banks to lend to each other. But that has fully seized up - the Bernanke and Central Banks members of other countries will talk about unclogging the bad plumbing.
If they can fix Libor - that will go a long way to free up the credit markets. The problem is simple - does anyone have any money to lend and how to we bring confidence back to the lending train? So far the leadership has failed to bring confidence and pouring money into this credit drain has not loosen the clog.
Bill Gross stated (which is scary to think about): "The Federal Reserve must now act as a clearing house'' for banks and ``must also take another bold step: outright purchases of commercial paper.''
BREAKING NEWS 9am EST:
The Fed just announced the new Special Purpose Funding Facility (SPFF) will purchase commercial paper directly from eligible issuers. The futures are getting a good pop from the news. We are also seeing inter-bank lending rates drop slightly. This is good news for the credit lines between banks – however it also means more debt for the government and could put more stress on the dollar in coming months.
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Futures Pre-market
The futures look to have a little rebound in the pre-market, but we are now seeing them pull off and they are below fair-value. The Arb traders are on the sideline - since they don't really want to take a long cash position and secondly if things go south they can't short. Expect a lower opening.
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Support / Resistance
We broke ALL supports - there are no supports. Checking market depth - there are no big levels of GTC orders or levels to find support - all those massive GTC orders have been canceled and the books look pretty empty to the downside. Who wants to be first calling a bottom? No one!
INDU ???9500??? / 10,000 (I put 9500 in as a psychological support level - nothing more or less. It would be also good to see the market close above 10,000 - but at this point we didn't just dip below it - we were hammered through support.)
NDX 1300 (1400) 1500 (1400 could be support, but I think it is more of a pivot point that could send us higher or lower. It's a fools game to pick a bottom - it's time to trade that gamma and roll positions in to hedged positions.)
SPX 1000 (1050) 1100 (1050 just like the NDX is a pivot point - nothing more or less.)
RUT 550 (600) 650 (The RUT broke down on Friday - that was VERY bad news as the broadest market now failed support we saw it fall further out of bed on Monday and it doesn't look like it has found a bottom. Make SURE you are hedged to the downside.)
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Conclusion
We are far from over or believing that we have found a bottom. I am becoming very concerned about the dollar and believe this is an opportunity to get the currency hedge on. It also seems that investors and market participants are not REALLY panicking - sure the market is down pretty bad, but we haven't seen the trading curbs kick in and are not caught by surprised. The reason? We have become numb to the housing market, credit crisis, and big market moves. Hope rallies - quickly fade to panic sell offs. However, we really haven't seen a panic - sure the moves have been big and we saw a pretty massive rally into the close yesterday - bring back HOPE again. People are no longer shocked to hear a massive bank fail, or even Billion dollar loans. It's like they have become numb to it like after seeing too much violence.
It's like this market NEEDS to crash but the government intervention is just letting this market bleed slowly.
Housing crisis gave birth to the credit crisis. Expect the credit crisis to give birth to the dollar crisis. Don't ask me WHEN it will happen - I don't know - but I do know it WILL happen.
A juicy morsel for those wearing tin-foil hats:
There are rumors already going around about the NAD (Amero) - sure the US
government, Canada, and Mexico have openly discussed the NAU back in 2006 and 2007 - however rumors are spreading that they have taken action on those talks. I chalk most of that up to conspiracy theories, but after NAFTA, SUPER HIGHWAY, etc...well maybe the conspiracy "tin-foil hat" people maybe on to something.The NAD sure would wipe the debt off the books. I just don't see how they could do something like that, but they managed to do it with the ECB/EU/EURO.
I remember when the rumors about the EURO came out - of course everyone that did mentioned that Europe would adopted the EURO (before the government openly discussed such an endeavor) were also called conspiracies. Could we get our own Euro? Sure - why not.
If the government is SERIOUSLY talking about an NAD/NAU or whatever - one thing you can BET on they would keep it a secret - it could and would create a dollar panic.One thing IS in question - how much MORE money can you print before a NAD (Amero) starts REALLY making sense?
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