Another jolt up – but on really nothing. ADP numbers yesterday came in a puke levels and the government is still tossing money into the system. The data coming out is not looking good at all. Also – GM and its brethren are waiting as the government decides their fate.
I had a conversation the other day with someone who was asking what my concerns were. My concern is there is a fine line between government managing and government manipulation. The government continues to POUR money into the system, but it would seem that we are experiencing deflation. My contention is that we are really not seeing deflation, but rather the money being poured into the system is just paying off the leveraged losses. What we are creating is a massive inflation bubble that may come as early as 2009. This morning, ironically, Rick Santelli (CNBC correspondent), James Bianco (Bianco Research), and David Walker (former U.X. Comptroller General) – sum up my concerns very clearly. This short video is worth watching! http://www.cnbc.com/id/15840232?video=950237372
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Job Numbers and more cuts
The cuts continue, Jefferies 10% of its work force, AT&T 12,000 jobs, Credit Suisse 5,300 jobs, the list is growing. It’s certainly a double edge sword with job cuts – on one hand the business cuts serious overhead to ride out the storm and it could the deciding factor or running between the red and black, on the other hand it means the GDP shrinks as more layoffs spell less consumption of products and services – it also means less tax revenue.
The ADP numbers came in a fair low levels – as we await the government numbers. If the ADP is any sign the government numbers will look very ugly.
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ECB cuts rates!
The European Central Bank cut interest rates by 75bps (the biggest in 10 years) as the economic slowdown hits there shores. The ECB bench mark is now 2.5%. The Bank of England had just cut earlier 100bps to 2%. The world – which relies on fiat currencies – are seeing leveraged positions suck out real money and the world’s central banks are trying to get in front of the credit suck out. The problem is do they follow in U.S. footsteps by lending money (which probably will not get paid back) to bailout different sectors of the market.
Fiat currencies are a very wild animal – it’s like trying to catch a greased pig. The problem as I continue to point out – is what exactly the value of a fiat currency? I would argue that a fiat currency’s value is predicated on commodity prices. We need commodities and raw materials to build, eat, and produce products. The trade value of those commodities, in which the producers can turn the fiat currency they receive into durable goods – is the value. And that too is very fuzzy. Add in a multitude of fiat currencies around the world, with different government policies and it turns into a massive knot of confusion.
We are seeing, in real-time, the world try to find value to their fiat currency which has been lent out on MASSIVE leverage. Wealth had been created out of thin air and created via massive leverage. It’s a real serious test and as I mention in the beginning - I seriously think the next big bubble is going to be HYPER inflation in the next year or two. That is going to seriously hurt.
When the Central Banks take their rates to 0 – where do they go from there? The FED is almost there and Bernanke, in his recent speech, hinted that is the road he is taking. We can look easily to Japan to see how that faired – it didn’t!
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Futures Pre-market
The futures are getting hit – Merck says earnings may miss estimates – which is sending a drag on the futures in the pre-market. The spread is in – but Arb traders may stay sidelined, not willing to take an opening leg on the risk to short the cash basket at the opening. Watch the spread – if it narrows we may see some pressure on stocks at the opening from the Arb traders.
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Support / Resistance
We are at those pivot point levels right not (just above or below) – we will probably move away from here. The question is does Merck and Job cuts (because of the GDP) send the market down, or do investors read the Job cuts as pushing companies from the red into the black – they call it a pivot point because we are going to move up or down. Lots of news being injected today.
INDU 8000 (8500) 9000 (Right above the pivot – futures are looking lower, but we could head back up. Expect some volatility today.)
NDX 1000-1100 / 1200 (In between 1100 – 1200, it is ready to move up or down)
SPX 800 (850) 900 (We made a bigger move away from the pivot heading towards resistance – futures are dragging on them in the morning.)
RUT 400 (450) 500 (The RUT – the broadest of the indices is right at the mark – up or down – you call it – but do it with GAMMA!)
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Conclusion
The Automakers and UAW is on the final pleading and begging in front of Congress to get some coin. Unfortunately we may end up with a State owned auto companies and the UAW could become the next government social agency, where our taxes pay their dues. I read also that food stamps were on the serious rise (up 17% - 31.5 million people). Again – please watch the video: http://www.cnbc.com/id/15840232?video=950237372 – it sums up my concern very well. We may SEEM to be solving today’s problems with government INTERVENTION – by tossing money at problems and bailing out this person or that company – but at the end of the day – where does that leave this nation?
Please hedge yourself!
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