12/01/08 (Get your Advent Calendars Out!)

Traders,

Well – it looks like it was a rather weak Black Friday - except for those few that slept in line at Best Buy and Wal-mart. The stabbing at Toys-R-Us and the death at Wal-Mart are very sad and my thoughts go out to their families – however to me that is the epitome of the United States of Consumption. People don’t have any money and they are going to use that last bit of credit trampling people to get a 40” Flat screen TV – truly sad.
Additionally – my thoughts go out to the families in India that suffered that brutal terrorist attack. The Hindu vs. Muslim clashes in India/Pakistan is reminiscent of the Catholic vs. Protestant struggle in Ireland. India is well on its way (some say already) to becoming a major player in several global sectors. It has already captured several technologies and service sectors, medical and pharmaceuticals are making strong headwind as well. The nation is also a bridge between East and West – and unlike China – many in India speak English and the government is business friendly. Terror attacks destabilize the region and creates a loss of confidence in the government’s ability to secure the people, including foreign businesses and travelers. The deadly attack was aimed not just at the local populace, but at a 5-star hotel (frequented by business and travelers). Just like in Ireland – bombings and attacks not only bring chaos to the people but destroy any stability in the economy. When Ireland subsided – the business their boomed – many tech and auto companies moved their as their government made doing business very attractive in Ireland. India’s bigger on many fronts than Ireland and they also bridge the gap between East and West – if (and when) the violence and attacks end – the country will boom and could seriously give China a run for its money on the global economic stage. Side note: Indian’s love their gold, very much like China and recent articles have shown their gold buying (hording) has reached epic levels.
My thought go out to a few friends that have family in India.

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OPEC delay

No one THOUGHT that OPEC would really reduce productions (regardless of what they said). True oil prices are coming off and sure demand in this country might be waning – but globally oil is still being consumed at capacity levels. They postponed product (agreed upon) in October – however what they “agree” to and what really happens are two different things. The problem with OPEC is that they are dealing with members that are economically hurting. Iran’s budget was based on $80 USD a barrel and their surplus has fallen by a huge amount in recent months, the same story is happening in several other nations that rely on Oil Exports as their primary cash flow. While OPEC may say cut – the trade in the black blood continues (both in the legal and black market). They actually need to sell MORE – not less – to make up for their nations short-fall.
For now OPEC’s farce is delayed for another couple of weeks before they “decide” to cut production. The world is still sucking down the black gold at a record pace and producers can’t afford to cut off supplies at these price levels.
Oil is getting hit this morning and is getting back down to that $50 a barrel marker.
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Lemmings continue to chase yield

The treasuries continue to rally – I had thought I had seen the recent yield bottom with bounce on the 24th – but then the bottom fell out of it and the 10 year is heading into the toilet as the lemmings don’t know where to put their money so it goes into treasuries. I guess you can’t blame them – but there are better places. I have already taken some flack on this – but hey it’s my Market Preview and my opinion – so take it for what you will. My issues are as follows.

1. If you believe the CPI (measure of inflation – which I think is significantly higher than what the BLS is reporting – or should I call them BS) – the yield on current treasuries are significantly below that. So whether you believe CPI is correct or higher (I think we all agree it is not lower) that means you are losing money on treasury holdings as far as buying power is concerned.

2. Credit Rating – well those same fools (Moody’s, S&P, and Fitch) who rated all that toxic paper, bond insurers, and corporate bonds, as AAA – rate our treasuries. No doubt after their EPIC Failure to even rate paper – they are getting the squeeze-play by Congress to be very careful not to DOWN GRADE US Debt. You really think this government in these fragile times (printing money faster than a pole-cat in a hen house) is going to LET Moody’s or any credit rating agency downgrade government paper? Hell NO – I can tell you that for sure. So you either BELIEVE the ratings or you don’t.

3. Deflation into Inflation – In my very humble opinion the smartest people in the class are calling this deflation because they are missing the picture and looking to close at the numbers and not asking the question WHY? I think we are seeing short-term Deflation because the money printed is just being sucked up by the leveraged losses (a big hole) and that is why we are not seeing it trickle into the credit markets (they are still frozen). It’s like pouring gallons of liquid Drano into your toilet – eventually (even if it unclogs) you’ll over-flow the toilet or the septic tank with too much chemical (dollars). I think when the clog loosens up we could see inflation accelerate very quickly.

4. The transfer of debt. The US is printing money to fund the bailout train. Where do they get that money – YOU and other treasury holders. You could say that if you are buying treasuries you are funding the government’s bailout program. Think about this – would you lend GM money? Because that is exactly what you are doing!

5. The TRUE credit rating of the US Treasury needs to incorporate the credit rating of the companies and debt they are purchasing (which it doesn’t)

This train of logic makes NO SENSE. Follow this –

1. Company A has failed and Moody’s rates toxic paper JUNK (failed – full default)
2. Company B invests in Company A and buys the toxic JUNK paper.
3. Moody’s maintains AAA credit rating on Company B (even after investing in Company A and buying their toxic waste)

Replace Company B with the Congress/Treasury/Fed and you get the picture. In the REAL world if Company B was actually a company rather than the government – you can bet you’re a$$ that they would be downgraded.

Remember Fannie and Freddie were some of the biggest lobbyist in Congress – I wonder if Moody’s, S&P, or Fitch lobby or donate money?

As “Deep Throat” told Woodward in that dank garage – “Follow the money!” - it is so very true.

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Futures Pre-Market

The futures are getting a good whack since the Black Friday numbers are suspected to be lower, terror attacks in India, and OPEC playing the blame game. The spreads are in and expect the ARB traders to short the cash at the opening to close out their long future leg.

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Supports/ Resistance

We got up close to those resistance areas – but not all the way. It would have been nice to see them realized.

INDU 8500 / 9000 (Just shy – well it looks like 8500 is back in the cards and remember 8500 is more of a short-term support or pivot point. I wouldn’t go balls long at that level, but rather long against gamma positions.)

NDX 1000-1100 / 1200 (Another pop to struggle move – which gave up gains on Friday’s half day)

SPX 800 (850) 900 (We ALMOST got there – but I guess a close of 4 points off the 900 level was the kicker to start selling out again.)

RUT 400 (450) 500 (We fell short of the mark – not the kind of strength we NEEDED to make it to 500. 450 is a pivot point – long against gamma only!)

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Conclusion

The job numbers, sales numbers, and a bunch of numbers we REALLY do NOT want to know about are coming out. Time to either bury you head in the sand if you are long and wrong with no hedges on – or step up and get your hedge on.

A friend of the family that was over for Turkey dinner misunderstood one of my sayings – we were talking and I said “You can ignore math, you just can’t avoid it!” – I meant that math doesn’t lie. She said “Sure it does, you can do whatever you want with statistics!” – She is ABSOLUTELY CORRECT – however I was not talking about statistics – I am talking about balance sheets, revenue, margins, inflation, deflation, etc. Sure you can always get what you want out of statistics – you can also choose to ignore the math on the balance sheet or in other areas – but the one TRUTH is that math doesn’t lie, politicians do!

Get your math and hedge on!