Down over 10% in two days - these are no doubt difficult times as we sit in limbo waiting for the new President to take the helm. The rumblings in Congress contain everything from a full bailout of the Automakers to a massive $500 billion to $1 trillion bailout package. Many of these ideas are about saving a system that has derailed - that may not be worth saving in its current form.
I did receive several emails as to my Churchill quotes warning about Socialism and I would suspect that you would know that I am not one for Socialism or any ism (including all out Capitalism). I appreciate the needs for maintaining infrastructure in this country and there are some items probably better run by the government vs. the private sector. The problem is there is a fine line between regulation and intervention - my contention is that once we open the door to intervention by the government, it becomes very hard to stop. Many of my wisest friends that are Democrats have big hearts and do not want anyone to fail - it is a moral deliria for sure and it becomes hard to remain neutral if the desire to help everyone is a driving force - which will always be at the expense of others.
Furthermore the issue becomes what happened to this nation of capitalism and free markets? I would contend that the government failed to regulate and crossed the line from regulator to interloper - which is clearly seen in the case of Freddie and Fannie. How can a government regulate the banking industry, if it is IN the banking industry. It further (as I mentioned in the earlier paragraph) infused Freddie and Fannie with their own moral philosophy of helping those less fortunate. It encouraged "home ownership should be the RIGHT of all Americans" - and this idea was introduced by the REGULATORS (our government) which to meet that end continued to lower the standards of the lending qualification and when that was not enough new convoluted lending policies became household words - from Option-Arm and no money down to Interest Only. It breed greed by the lenders and made homes available (but not affordable) to all Americans (even ones with part-time jobs). It is just as easy to blame the lenders as it is easy to blame the consumers - but it was made available and encouraged by those that were trusted to regulate it.
While certainly Congress and Freddie/Fannie are not the sole blame of this economic collapse - no doubt they lead the charge down the path and encouraged the lending facility. So my issue and concern remains - if Congress can muck-up Freddie/Fannie and fail to regulate not only their OWN companies but an entire industry (which is Socialistic in nature - that lead to eventual nationalization) - what makes them think they can manage the insurance industry (AIG) or the auto industry (the big three)? They are more concerned about JOBS - rather than focusing their attention to the failed business model of the company. Thus tossing more GOOD money (our money) after bad. That is exactly what they did with Freddie and Fannie earlier this year as they let them leverage their balance sheet (they were warned) and in only a few short months Congress was bailing out their own bailout - of Freddie and Fannie.
It is not that I am against Socialism, it works in other countries. But this country was not founded on Socialism and in order to introduce Socialism you need to rewrite the Constitution. Band-aiding social policies and editing the Constitution to fix the system that we broke by failing to regulate it properly is a change we can NOT afford.
Socialism may seem the correct knee jerk response - because we feel bad when people lose their job or an industry suffers. But life is not fair and trying to introduce FAIRNESS into a political or economic system breeds meritocracy and an ever lowering standard. It would be nice to end poverty and have a large middle class - but you can't have a middle class without poverty. The Soviet Union tried it - it failed. The problem isn't socialism or communism - the problem is do you TRUST the leadership with government planning in a "they know what is best and we should give them control" - we were lucky with FDR. But even the best intentions of the Germany National Socialist party (which was viewed by the world with envy in its infancy) had leadership that lead it quickly from socialism to fascism and worse. I am definitely NOT saying we are venturing down that gloomy road - but there comes a time when the role of the government as regulator merges into interloper and government planning leads to bad results.
I'll leave you with an IMPORTANT Churchill quote:
“The farther backward you can look, the farther forward you are likely to see.”
If you haven't read Hayek - may I suggest reading it - http://www.amazon.com/Road-Serfdom-F-Hayek/dp/0226320596/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1204740232&sr=1-1
Here is a short cartoon version: http://mises.org/books/TRTS/
Sorry to be such long winded - but I felt I had to respond to my sharing of the Churchill quotes.
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Citi on the ropes?
The stock has gotten smacked down hard and today the board meet to weigh options as the stock is falling fast ($4.70 as of yesterday). Pandit's town hall meeting that announced a layoff of 50,000 jobs and some other cost cutting - along with the Saudi Prince massive investment - didn't seem to gain any traction or confidence (maybe they read my Market Preview yesterday).
The problem with Citi - unlike other banks - is their many separate divisions - insurance, credit cards, lending, brokerage, etc. It has become a behemoth and I seriously think that Pandit (for all his best efforts) is having a hard time wrapping his arms around the problem. The tighter he squeezes his grip the more money slips through his fingers.
The stock is seeing a little pop in the pre-market this morning and while it may LOOK cheap - via the price - it is hard to tell what their next course of action is.
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Lemmings rush to Treasuries
In a crazy trading day sent 10-year note yields into the toilet - some of the lowest levels since 1962. The majority of trading was reported to be larger pensions and funds looking ANYWHERE to put money. But are treasuries that safe? At the current yield - I would say they are very questionable at best. If we are to believe the CPI then they are well below an even return to a negative return on buying power. That to me is just panic and a flight to "supposed" safety. Intra-day rates in some paper traded NEGATIVE - which is insanely crazy. If you got on that losing trade - you are actually PAYING the government to borrow money from you.
The keep it simple view - is when you are buying treasuries - you are lending the government money to pay you back a fat stimulus check, TARP, and bailout the auto industry. It might be better to just buy the corporate bonds on the companies the government is bailing out or just give your neighbor who is about to foreclose your money.
The second issue - what about BUYING power? If they are paying rates well below CPI (which I already think are low) it is just a full on losing trade.
The third issue - is the dollar that safe? If you believe we are in a deflation situation - which I agree it would SEEM so - the reality is that money is being poured into the system. The government is relying on YOU on foreign nations to buy its debt to fund the printing of a fiat currency. I would argue that is a losing game - it might not happen tomorrow or even in 6 months but it will happen - just like the bubble in the housing market.
I was looking at the $TNX and while it has been volatile the last 3 months - the shocking last 3 days makes me want to puke. To see hard earn money go back to the government like that for lower yield is just a fool’s errand.
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Futures Pre-market
Nice bounce in the pre-market - of course it probably doesn't mean anything after a 2 day 10% decline. Oh well - the ARBs should close that spread going into the opening - expect a pop at the opening.
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Support / Resistance
We are in panic and fear - all you had to do was look at the treasury action the last two days as the lemmings followed each other off the equity cliff into the treasury bog.
INDU 7500 (Who knows at this point - these are the days to get naked long calling a bottom, but it is also not the time to panic. Hedge your positions and relax!)
NDX 1050 (A guess!?!)
SPX 750 (???)
RUT 400 (???)
We broke any and all supports and the market is moving in hyper moves as this rudderless ship (no president - one lame duck the other waiting to take the helm) - with a Congress in fight - is not helping anybody.
HEDGE - and wait this out. If you are hedged - you have NOTHING to fear.
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Conclusion
Not much to say - I think my opening remarks says it all.
It's expiration - so watch the close and those OTM options which could come into play. HARD DELTAS will make or break you.
I am sure to get some responses to this preview.
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