On Thursday the market made a huge rally and the cheerleaders came back out of the woodwork to restate "The worst is behind us", maybe this time those "RA RA" cheerleaders will shut their mouth - I think it is becoming a bad omen. The next day (Friday) the market sold right back off
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CITIGROUP
Citigroup's CEO Pandit (remember this is the guy that sold his hedge fund for a billion dollars to Citigroup, then they hired him to run the company, shortly after they hired him his hedge fund went bust) is going to give his employee "town hall" meeting. Gasparino on CNBC said the inside news is that Pandit is going to announce a layoff of 50,000 jobs (that's correct - 50,000). Citigroup has 350,000 jobs worldwide.
While that is a big cost cutting measure, Gasparino pointed out (which is probably true) - that Pandit will start the cheerleading afterwards as the "worst is behind them". Usually job cuts send a good jolt to a stock - because cost cutting improves margins. However, the future is not looking so rosy - so it will be interesting how the market reacts to Pandit's "Town Hall" meeting.
Side note: Banks have been cutting credit limits and other issues. A friend of mine who has some property with (NO MORTGAGE) has a credit line available. The bank wants to CHARGE him now to keep the credit line open, revalue the credit line, and probably limit it. I have also heard from several people that their credit card limits have been reduced, now it happened to me as well on a card. Additionally, a couple of people that have balances have told me they have received letters that will accept 60 cents on the dollar if they pay down the whole balance (I am sure if they did the card would be closed). Of course the first thing that went through my head when I heard that (a little demon told me) to max out the card and then wait for the 60 cents on the dollar letter to arrive and pay it off - that's a 40% discount on purchased items. Of course don't do that - but that is pretty much what the credit card companies are telling you to do. I reminds me of Freddie and Fannie to encourage lending with no money down with an option-arm. Stupid!
What does all this tell me - the lending firms (flushed with tax payer bailout cash) are REALLY hurting. Ask yourselves these questions.
1. Why would a bank charge for a credit line (and shrink it) on equity with NO MORTGAGE on someone with a perfect credit score?
2. Why would banks reduce the spending limits on credit cards for people that continue to pay off their cards or carry small balances?
3. Why would a bank accept 60 cents on the dollar for those that carry a balance or maybe delinquent?
The answer to those questions spell a negative picture for these banks. Add one more question, why is Pandit announcing laying off 50,000 people - they seriously have a income to burn rate problem. Is Citi the only one with problems.
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Goldman Execs forgo bonus.
While it is a fairly big chuck of change, it's more of a gesture than anything else. Many people have gotten on the bandwagon blaming those huge bonuses as that is hurting the bottom line, sure they are big numbers - but let’s get real with the numbers. It's fair to say they you may feel that someone is getting TOO MUCH, but at the same time the amount they get pales in comparison to the losses we have seen. Be that as it may, the gesture by the execs at Goldman to give up their bonuses is a good move and may signal other firms to do the same. This MAY bring some confidence (hopefully) to these firms - but these are the days where the fundamentals is setting the stage.
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What about us?
Senators from the southern states that have several factories owned by foreign auto-makers (BMW, Toyota, Honda, Subaru, etc.) are opposing the GM and big three automakers. Simply put the Big Three did this to themselves - blame what you will - whether it be poor management, UAW, legacy programs, expansion in to credit lines (GMAC), etc. The question remains why do THEY get a bailout and those automakers (while seeing a slowdown) that are not facing bankruptcy from poor management decisions carry the weight (from their corporate taxes) and get absolutely no break.
The Democrats have been doing everything in their power to get Paulson to steer $25-$100 billion of the bailout package to GM, Ford, and Chrysler. So far Paulson has stood pat on helping the credit markets - what the bailout was intended for. Several have told the Democrats that if you want an Auto-bailout then create some legislation and vote on one, but don't take from the bailout package that was intended for credit markets! Others have commented that Hank has already changed his mind and has started investing in the banks themselves, instead of doing what he said he was, to buy toxic debt.
The Democrats are in bed with the UAW promising jobs - so the fight is on. The big issue here (for many) is this opens the door even more to nationalizing business (socialism) as the suggested bailout includes a government stock holding in the company. Most foreign automakers are opposed to such a move and one has even stated (depending on how much increase in the corporate tax rate) they will move their factory out of the US.
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Futures Pre-market
We are significantly below fair value - and the action continues to fluctuate on the downside. A little rise came on the futures from Citi's cut of 50k jobs - but then started to fall back off. ARB traders may step in to buy the futures depending on the spread and short the basket. Expect pressure on the downside at the opening.
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Support / Resistance
The up and down Thursday/Friday jerk move has caught several traders out. IT looks like we could retest those low-lows.
INDU 8000 (8500) 9000 (We are going to be below the 8500 level at the opening - do we touch the 8k level like on Thursday or move back up towards 9k. It's volatility time!)
NDX 1150 (1200) 1250 (It's a narrow range compared to the other indices - however a breakout down to 1100 or up to 1300 is always in the cards. Play it tight with gamma - watch hard deltas.)
SPX 850 / 900 (Again tight range - we could see a break out today.)
RUT (450 / 500 (We are at the bottom range in the RUT - which doesn't make me happy and we don't want to close below 450 - because that would show that the broader market is not holding.)
Watch the close - watch the RUT to see if it can close strong above 450.
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Conclusion
We are still in very uncertain times, even after the election. The big write-downs at Freddie, Fannie, AIG show that even after the government has taken them over there is still more to problems. And now the credit cards cuts going into the holiday season, several of them cutting the limits, offering 60 cents on the dollar, or even cutting credit lines - not a good sign for holiday spending (or that the banks are getting in front of the curve.) If banks are starting to limit credit like they do with mortgages - that will seriously curtail consumer spending (a big chunk of the GDP). It's credit that carries this country. Pandit’s 50k job cut is also showing they have a ways to go before getting in front of this.
The G20 meeting got a lot of positive press. The only thing positive I saw was they admit they are in a sh#t storm and they agreed to meet. Sure it was a good first step to meet and admit you have a problem, but just like in AA admitting your an alcoholic is just the first step. If that is any measure the G20 has another 11 steps to go.
The wave of socialism and nationalism is coming - that to me (whether you are a free market person or not) is a terrible sign of the future - simply put the government has failed balancing their own budget and has failed with Freddie and Fannie - what makes them think they can do better with GM, AIG, or others? Additionally - what NO ONE is talking about is the dollar bubble - how much money do you continue to print until that also pops?
Hold on - the ride is going to be a wild one!
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