Another suck out to the downside and now it looks like the Big 3 are getting bailed out. No Chapter 11, No self funding (via cost cutting), No emergency stock offering/bond issuance - just a good loud collective WHINE backed by the UAW - and boom - you too can get the government to dump billions into your company. One thing interesting - I think this is the first time the UAW and Management has worked together.
Does this mean that ALL sectors should get a bailout? Well if you are a Keynesian - whose motto should of been "the government should prime the pump" - then yes you believe the government should bailout any and all sectors that need it. Of course we system in place to do that - it's called bankruptcy chapter 7 or 11. The problem is (for us Tax payers) the Big Three AND the UAW are big contributors to the political process - that means "I give you money and votes - you scratch my back."
There is always a severe problem with a bailout - the government's focus is creating JOBS! Why is that a problem, simple - a SOUND business model creates jobs not tossing money at a failed business. This means the government will NOT be reviewing the business model, management, UAW, or even TRY to come to a conclusion as to WHY they are or have failed. They are LISTENING to the current management and UAW that collectively created this mess. The message of management and the UAW will be simple - our business model is fine - it is the market that is creating this disruption - (YEAH RIGHT - that is why Honda, Toyota, BMW, etc. are also facing bankruptcy, oh wait they are not) - it's really not the market - just their failed business model - they just need to sell it to our government. Of course those on the receiving end of the political favors will HAVE to buy it. Let's hope a few Senators and Congressman can see past the BS and tell them NO!
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YAHOO - Don't be Yanging my chain!
CEO Jerry Yang is on the way out - and not too soon by some accounts. The stock has fallen significantly and every deal seems to on ravel - instead of turning to gold it's turns to mud. Unfortunately he and Yahoo are in the awkward separation period before the divorce (they don't have a new CEO - YET). So he stays on as captain of a ship with no direction (failed MSFT merger, failed ad partnership with Google, failed talks with Time Warner AOL, etc.).
Of course Carl Icahn has stirred the pot and is seriously not happy with Yang - rumors are it was his move onto the board, fueled investments, and serious string pulling that put Yang on the ropes. Remember Icahn being a large shareholder is looking for return on investment - via exit strategy, merger, or partnership. Yang on the other hand is looking to be captain of a ship and doesn't want to be steered by a large shareholder. CEOs tend not to be the one to have their hand forced to merge in order to save the company - it makes them look - well for lack of a better word - BAD.
Good news - Yang is out - better news this could also mean a jump start in MSFT merger, Time Warner/AOL talks, or a renewed love affair with Google. Who knows - but with Yang gone - the fight with Icahn is too - expect the board to pick a new CEO that'll be a transitional CEO in a possible future merger. Certainly the new CEO will be saying "Yes sir, Yes sir, Three Bags full!" and when asked to jump will answer "How high?".
Stock is up in the pre-market
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Pirates getting bold in troubled times
A month ago pirates off the coast of Africa captured a Russian ship loaded with weapons - bad idea - they didn't see "RocknRola" otherwise they'd know you can't kill those damn Spetsnaz dudes! This time it's a massive Arabian oil tanker headed for the US. This is the first time a super tanker has been taken - also the pirates are moving further out to sea (420 nautical miles out). While it didn't seem to affect oil premiums that much - what is starting to send a ripple through all shipped merchandize is insurance premiums - which will trickle down into prices.
Pirates have attacked 88 ships in these waters, 36 high jacked, and 11 remain captive.
One analyst pointed out that local governments do not have the man power or navy resources to deal with the pirates - additionally the US is spread too thin (IRAQ, Afghanistan, Europe, Korea, etc.) to patrol the vast waters of the Indian Ocean. One businessmen - who runs a "gun for hire" used in Iraq to guard civilians - is looking to create a mercenary navy to take on the pirates. If government's don't have the resources - maybe they'll pay someone to do it for them?
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Futures Pre-market
The futures were down below fair-value - but the Yahoo news seems to be giving some of the tech stocks a little pre-market bounce. The spreads are narrowing if they continue to do so - expect a mix opening.
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Support / Resistance
Nice slide again yesterday - have we broken - I would argue not yet - but we are giving that support level a serious pounding. If buyers step away - OUCH.
INDU 8000-8250 / 8750-9000 (The 8000 area is the "please don't go below" support. We are giving this down side a good test - the question is do we hold. Watch the close.)
NDX 1100-1150 / 1200-1250 (If 8250 is the upper band of support in the INDU, then 1150 is the upper band of support in the NDX. A good bounce off the 1150 area into the 1200s is a good move. We may get something with the YAHOO news.)
SPX 800-850 / 900-950 (Again visiting the upper band of support - do we close above the band?)
RUT 450 / 500 (We are right there testing this area - a good double bottom in play - let's hope that is the case for the longs)
In a traditional market I would say we are testing a second classic double bottom - or as some like to call the "Big W" or "Fly W" or whatever the hot coined word of the day for this classic setup. However this is NOT a traditional market - sure we are testing a support area and true we are seeing if the buyers will step in at these levels - that IS the big question. The problem we face is FUNDAMENTALS - if we fundamentals are broken then support/resistance tech analysis doesn’t mean squat!
Double bottom? Don't bet the farm - this is an area to get long - sure - but if you don't own gamma 1:1 against your hard deltas or flat with a truckload of gamma above - ouch!
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Conclusion
It looks we are seeing the Onomics of the next administration take place in Congress. The bailout of the Big Three has got the full force of the Democrats and Obama - they are trying to ram-rod that down - however a few are saying NO WAY. They are about to give Paulson a good dressing down on how he is spending the bailout money as investments into banks rather than buying toxic paper, but an interesting point - CNBC economic reporter talked with Barney Frank yesterday and asked him did you want or expect funding of TARP to invest in the financial sector - sure of course was his reply. Not only did Barney want it, he expected it. It will be interesting if he pulls off the "I am surprised and upset that the money was used as it was" when he has Paulson in his sights.
Remember this is the game of Politics. Here is the game I expect to see played out. First Barney worked with Paulson on the Tarp, Barney KNEW and WANTED (according to his interview with CNBC reporter) the money to be used to invest in the banks directly. But NOW the Democrats want money to be invested directly into the Big Three, something that Paulson (who controls the money) is opposed too. So NOW the game is to say - "Hey - you told us TARP was going to be used to buy toxic paper to free up the lending at the banks, but now you are investing in the banks. If you are taking that approach - shouldn't we also do the same with GM?" - Additionally they are going to give him the biggest smack down you can think of (whether he deserves it or not) - see they need to shove him out the door and need a good excuse to do so - that opens the door for Obama to bring in HIS man - that will march to the party line of giving money to companies in need of a bailout. Remember, McCain gave up Michigan because Obama and crew promised the UAW and Auto nation a big slice of coin and jobs. The UAW and Big Three delivered on their promise (money and votes) now they need their backs scratched - show me the money!
As they say, Pay back is a bitch!
Expect (rightly or wrongly) Paulson to be shoved in front of a bus and Barney to act like he had NO IDEA this was going on. Yeah right - Barney you made the mistake of telling CNBC that you WERE for it and EXPECTED it. Of course most American's don't watch CNBC.
Barney has one advantage - the Sheeple don't read and believe everything they hear!
I have a sneaking suspicion that MORE nationalism is at our door step!
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