Another slide yesterday as the expanding bailout concerns continue. Investors seem to be waiting on the sidelines and watching those that are left waiting to panic.
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8K 47 - Rat-a-tat-tat!
The "transparency" story I covered on Monday and yesterday continues. A respected friend came in my office and dropped an 8K filing on my desk. "Stop sounding like the media that there isn't any transparency!", he said. I looked at him and initially I think he missed my point. We had a slight friendly debate. I contested that people like ourselves can take the time to read through a 8k filing, but part of Congress job is to be the oversight of the Fed. While the Fed does report an bi-annual record to Congress - the Fed has changed the rules so many times this year (extend the Discount Window period from 30 to 90 days, taking all levels of credit including junk, involved in bailouts outside of the $700 billion package) that if the Oversight (Congress) asks to see the Fed's balance sheet (in-between meetings) because they want to KNOW the money and collateral being lent - then they should be able to see it. As my friend pointed out, Congress could look up the 8k filings.
True - but there are a couple of problems with that.
1. How many companies do they have to go through to get a estimate of what has been borrowed by the Fed with what collateral.
2. Hoping the companies would be transparent enough as to how much they borrowed and what collateral they did put up. Congress, being the oversight for the Fed should not expect to be a forensic accountant to figure out how much the Fed has loaned.
However, my friend is correct on two points. One the media is blowing this out of the water as per transparency when they should be saying that the information is available but the Fed is not sharing. Second, since this a market report - everyone can look up a company’s 8k filing (which are becoming more frequent). His second point is very important and yes it is transparent we just have to do some digging.
Here is a little information on the 8k.
A business must report when something changes in their company (prior to the 10k/10q quarterly filings). It must be filed in 4 days when something changes. Here are a few items that need to be reported that may give clarity as to a Fed's involvement.
Asset movement, sell, dispose
Result of operations and financial condition
Material Direct Financial obligations (bonds, debentures)
Triggering events that accelerate a material obligations (defaults on a loan)
Unregistered equity sales
Modifications to shareholder rights
SEC investigations and internal reviews
Changes in control of the company
Change in credit
Here is a link with more information: http://en.wikipedia.org/wiki/Form_8-K
Thanks for pointing it out - I hope I am still invited to sail on his nice gaff rig. It is good to see the people are reading this and also getting charged up about the events of the day - and the economic turmoil.
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Bailout Mania
Pelosi is leading the charge and has set the agenda - we will be bailing out the big three if her posse has anything to do about it. However, they gave Paulson the check and the control to pull the trigger on who gets the money. The pressure is on - does Paulson spend some on GM, Ford, and Chrysler? He can't spend on one - because the others will say unfair. Would it be just a loan or another nationalization (Like AIG, Freddie, Fannie)?
After the auto industry - who is next? Of course Congress has a backdoor bailout method - incase Paulson doesn't budge. It's called the Fed - remember the Fed bailed out Bear Stearns. Congress could direct the Fed to take a similar stance with the Big Three.
The flood gate to socialism and nationalism is starting to open. Pretty soon the printing presses will be on fire printing money. Remember Zimbabwe, they had IMF and other loans. They printed off a trillion dollars to start paying it off. And it took a couple of years before inflation started from the massive printing of money (also they were not a reserve currency and fairly isolated so it went faster) - the bottom fell out of the currency.
More and more firms (after TARP) are asking for tax payer money. American Express now has access to that money - just by applying to be a bank. It is one thing for a bank to get money from the government (simply because they are very regulated and also a member of the Fed and FDIC) - not that borrowing money is right - but they have a system in place that already gives them access to the Discount Window and other methods of borrowing. However, if the TARP veers off the financial system bailout to start giving money to the GMs of the world then you have changed the standard of the bailout - Airlines, Retail Stores, Manufacturing, etc.
So YEAH - I want to see the Fed's balance sheet!
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Retail looking to slow
Like we didn't see that coming. Best Buy cuts annual profit - as sales forecasts are lowered. Circuit City is gone and now the U.S. largest retail electronics store is lowering expectations. The stock is seeing pressure in the pre-market - which is helping fuel a selloff in the futures (that were up about .5-1% in pre-market trading prior to the Best Buy announcement.) Expectations are for a 10-15% decline in sales over the next 1-2 quarters.
However - if we can get a little surplus check that may help boost sales into the holiday. Sort of a last hurrah. It's funny to think about the government buying thousands of flat screen TVs from Best Buy - but that is exactly what they are doing if they give out another surplus check. It would a sort of fake rally in same store sales and a convoluted increase in the GDP. Some fools might even use the data to PROVE there is no recession. Yeah - the government can keep printing money and finance consumer spending so we are never in a recession. Sounds crazy - but there are politicians and talking heads that actually believe that to be true. It might work for the short-term - but what happens to the dollar and inflation over the long-term, that should be an easy math question even for those that failed high school math.
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Futures Pre-market
A little bummer from Best Buy has sent futures down from positive territory in the pre-market. The inverted spread across the board may have helped Arb traders that had been shorting futures to buy the basket at the opening, now are covering the short future position into the opening. It's pretty cool that pre-open Arb traders have a built in positive correlated bias to their hedge, if they are wrong they still make money prior to the opening. However, I am not sure we will see them go long futures to short the basket because of the fast move down on equities in the pre-market. Expect a down opening - but slightly mixed. The spread is in - but because of the inversion there is probably not too much one sided action.
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Support / Resistance
Another slide towards those support levels are not triggered the buyers to step in yet. It's like a slow motion downward move.
INDU 8500 / 9000 (We are still in the range as per yesterday and slowly moving down. We haven't hit the 8500 level - today might be the day. The question - do we hold and suck in some buyers at those levels?)
NDX 1200 / 1300 (Again - slipping down to 1200 right now - only 25 points away at the close and about 5 points as per current future prices. Do we get some buy action in there - maybe bailout announcement of the automakers sends a euphoric cheer and rally into the market?)
SPX 900 (We are RIGHT at the support level in here. Do we hold? The next level down is 850. Watch the close!)
RUT 450 (500) 550 (We broke away from the pivot point yesterday and slipped lower.)
Watch those support levels - set alerts a break down and a close below those levels means things are not going to be rosy going forward. However, we could see a rush in of buyers at those levels. It is all about the close.
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Conclusion
As I previously mentioned this country is in a holding pattern between presidents and the Congress is really running the show (as far as the economic scene is concerned). So far Congress (while the data IS transparent) is not getting any help from the FED and Paulson is beating to his own drum. Pelosi wants to bailout the entire auto sector and plan is in place to do so - but that requires Paulson and/or Bernanke to get on board.
My concern is that bailing out auto makers opens the flood gates even more to other sectors. The companies the government has bailed out are still reporting dismal earnings and bigger losses (AIG, Freddie, and Fannie). AIG needs a second bailout of $150 billion. Fannie Mae, just yesterday reported another $29 billion loss - the SICK think is it admitted to knowing some of the problems back from the first quarter - that the HUGE tax credit they had is pretty much worthless. Of course hindsight (not admitting it at the time) doesn't seem as bad. Remember to things - first Freddie and Fannie had direct oversight from Congress and second they were involved in one of the biggest accounting scandals just a few years ago. It makes me sick that these companies - with their 100s million dollar lobbyist continue to get favored treatment, cook the books, don't get reprimanded, get bailout out AGAIN, continue to report losses, and the OVERSIGHT (our Congress) acts as if they can take on MORE toxic paper. It's idiots like Chris Dodd (Banking) and Barney Frank (Finance) that run these committees that seriously don't see a problem with this. As my sarcastic 4 year old son would say, "HELLO!!"
Last night I was telling him a story about going to the moon and the astronauts got out and in a car and drove on the moon, he interrupted - "Hello, it's called a Rover, daddy!" - Sorry - your right it's a Rover. I can just see him now, "Hello, it's called DEBT, Barney!"
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