11/28/08 (Black Friday or Red Friday?)

Traders,

No doubt we saw a decent rally off the pivot points Wednesday – while volume was light going into an extended weekend holiday it did afford the opportunity to address exciting positions and look for opportunities. The market got a boost when we saw Obama’s bating lineup – giving the market a little more clarity. Last week also brought us the whooper bailout of Citigroup and further showed another huge dumping of tax dollars into another bailout (what is it now the 4th or 5th bailout)?
We had a good Thanksgiving – side note: I de-boned my 20lb Turkey (backbone, ribs) – to get that massive air-cavity out in order to cook that damn bird faster. Anyway – I couldn’t believe how much faster it cooked (a 20lb bird in 2 hrs). We had all the trimmings and family and friends – a nice walk after dinner (with more wine) – and then onto desert. It’s good and at the same time a little sad that we have become such a busy-body society – (hurry up to wait) – that we need a special holiday just to be Thankful and spend some “down time” with friends and family. Unfortunately with most Thanksgivings – it’s about pressure to perform and stress over relatives – why – I am guessing because we make such a big deal out of it. Thanksgiving has become another CONSUMER holiday – increase in food sales, travel, wine, gifts, and now Thanksgiving marks a bigger economic day – BLACK FRIDAY!

_________________________________________________________________
Black Friday (short expiration)

I had a friend (not in the market) ask me “Why do they call it Black Friday?” – He thought it marked a bad event, like a stock market crash or something. It was a reasonable question – if you didn’t know, since BLACK is usually referred with negativity (and this year that might be right). In accounting, just like any other business or sport, they have their own lingo (slang) – in business we say “being in the Red” or “being in the Black”. Traditionally RED numbers in accounting represent LOSSES and BLACK numbers represent gain. If a company is making enough revenue to cover it’s expenses – it’s known as being in the “black” – if they can’t it’s called being in the “Red”.
For some (possibly most) retail businesses if they were to measure their net costs vs. revenue for the full year – their breakeven is sometime in November, meaning that everything after that date they are now in the black (profit) for the rest of the year. It’s just like that saying “You work Jan through April just to pay your taxes!” or something like that.
Since Thanksgiving falls on a Thursday and many people don’t work on Friday – (being that we live in The Consumer Nation) – the stores realize this is an excellent marketing “Sales” opportunity to get people to spend. People will line up for hours and sometimes days just to buy something that is on sale (and probably something they don’t need). The marketing behind it is genius – no doubt. Since Thanksgiving is a floating holiday (always on Thursday) – then Friday that follows (because of the light work day) can always be counted on as a big shopping day. Hence the name “Black Friday” - Black for companies getting into the black (or profit zone) and Friday – because that is the day of the big sale. I am sure there are other stories about “Black Friday” or how it got its name – but I’m going with the accounting story.
Interesting fact of sales vs. time. Since most of you are traders – I make this interesting. If you look at Christmas being expiration day and Black Friday being the start of the cycle – there is a interesting measurement – time to expiration! Since Black Friday is a FLOATING holiday (it can be as early as Nov 23 or as late as Nov 29) – that means that there is more or less time to X-mass measured from the Black Friday sales event. On years where Black Friday is the earliest it can be – that adds several days of SALES prior to X-mass – more sales means more revenue, means more profits. This year if falls on almost the latest date it can (the 28th) meaning that it will be the one of the shortest expiration cycles into X-mass. That means LESS shopping days. Now we all know that there really isn’t LESS shopping days – but we have to put this in the mind of the consumer and the business – they launch their BIG sales event the day after X-mass on Black Friday. That being said – I think in an already tight economy – having a short Black Friday expiration cycle means LESS revenue – and LESS profit.
Add that to the big economic slowdown – and it’s not going to be a great X-mass.

______________________________________________________________
LIBOR

We had seen the over-night Libor rate below the Fed Target rate and the 3-month (in my humble opinion the more important one) coming down but well above the Target – but now it’s changed. Libor overnight has been rising and now it’s over the Fed Target rate (first time in a month) – The TED and OIS spread rose as well – showing that banks are becoming LESS likely to loan each other money at favorable rates. I am sure the Citigroup bailout had impact on the creditability of the US banking market.
As the government does everything they can to bring down Libor, pump money into the system, and take anything and everything as collateral just to keep the credit system flowing – it only takes one Citigroup to send another serious jolt of “No Confidence” to get Libor to jump back up.

_______________________________________________________________
Futures Pre-market

The futures are off pre-market – but this is also a very light volume and short trading day. Don’t expect Arb traders to rush in and leg long to short the basket at the opening. Expect a slight down opening – but anything is game.

_______________________________________________________________
Support / Resistance

From the pivot points on Wednesday we got a good rally – now it’s a half day and do any that are in today want to hold into the weekend?

INDU 8500 / 9000 (8500 was the pivot point we rallied off of – now today will probably be high volatility - because of the light volume. Don’t expect this to be the measure of any future trend.)

NDX 1100 / 1200 (Almost at the resistance)

SPX 850 / 900 (Almost at the resistance)

RUT 450 / 500 (Nice move from below the pivot point)

These are not supports as much as they are previous pivot points of high volatility – they could easily be revisited and fall back through them. Look to them as GAMMA points.

________________________________________________________________
Conclusion

People still are sleeping in front of Best Buy to get $100 off a Flat Panel monitor. I saw an interview this morning with a guy that had been sleeping out in front of Best Buy since Wednesday. He wants to buy a Laptop and a 40” TV (now on sale $200 off). OK let’s do some math – Let’s say the Laptop and TV together are about $300 off. Pretty good savings right. But let’s measure the guys time – if they dude is getting $10 an hour – that’s $80 a day for a normal work day, however he is there on the cement in a tent for 2 days. I am sure he would rather be somewhere WARM and INVITING – not parking his butt in a tent in front of Best Buy. So we have to add in those hours – 48 hours ($480). In business we would call this operating in the RED. His hourly rate ($10 an hour) vs. the $300 savings is a $180 loss. I guess some people don’t value their time and are driven by marketing hype. He should of PAID someone $100 to wait-in line if he really wanted that $300 discount.

Have a great half-day.

11/26/08 (Turkey Day and Dividends Dry Up or do they?)

Traders,

My wife tells me that sometimes my heavy handed with (sarcasm) gets the best of me and for anyone that reads this (and doesn’t know me) – hopefully it is conveyed properly (trust me – it’s better in person). Maybe it was my time in the Navy or being a Floor Trader – or the combination of booth, in which both instances defense mechanism comes with the territory and since I am in the 175 lb range (prior to sucking down that Turkey tomorrow) – having a sharp tongue was my form of aggressive attack and a defensive mechanism. I was also taught on the trading floor – hurt them where it counts – their WALLET! That being sad – I do apologize to any if I come off the wrong way or offend anyone. It’s Thanksgiving and we should be thankful for our friends, family, and health.
I also want to apologize to my friend (a wise and very smart person) by using his quote yesterday, but not complete– I was trying to make point from the responses I got (from other people) and his first sentence summed up the responses I received the best. Here it is in its entirety: “As a tax payer, I don't care if the government is using our money to bail out these companies as long as I get good risk-adjusted returns on the bailout. These may be good investment opportunities. My disappointment is that Hank, with his GS credentials, is doing a terrible job making these deals. I want better deal makers at the helm.” My apologies, D.
My contention was simply that the government (Congress, FED, and Treasury) – are doing the bailout and they have to “Sell it” – they are NOT doing it because these are excellent investment opportunities – that is just the sales pitch to get Congress members on board to vote for it and convince the American people it is NOT as bad as it sounds and that their tax dollars are not at risk. But enough of me kicking that dead horse – you know my shtick by now.


_______________________________________________________________
Mortgages being to come down

I thought we might of seen a little pop in the market from U.S. mortgage rates coming off – FINALLY. The FED cut rates from 6% to 1% and we didn’t see FIX mortgage rates move down, in fact they went up. Anyone that tells you that the Target Rate the Fed sets and Mortgage Rates are connected – is a fool. I tracked it back through Greenspan’s era and there is barely (if any) correlation at all. It seems to be used more of an excuse by lenders than anything else.
While many blame Greenspan for the housing bubble, and while I am not trying to defend his monetary policy, it is obvious that the people that blame Greenspan either didn’t do the math or failed math 101 in school. Fix mortgage rates remained between 6-8% when Greenspan took the Target rate after the Dot.com crash down to 1% and then back up. The housing bubble is simply the expansion of lower lending standards and the increase in creative financing (interest only, no-money down, option arms, etc.) – it really didn’t have anything to do with the interest rates – because mortgage rates (on a 30 year fix) remained fairly fixed. All you have to do is look in the last year as Bernanke took interest rates down (just like Greenspan) to 1% and mortgage rates stayed at 6% and had also increased during the 7 cuts in rates. So hate, blame, or dislike Greenspan for his monetary policy – don’t blame him for the housing bubble. It doesn’t set the banking and lending policy (nor does he control Freddie or Fannie) – Blame Congress (the GOP and the Democrats) for failing to regulate the banking system, Freddie, Fannie, etc. And also encouraging lowered lending standards. (sorry about the rant – but I get called on this one all the time).
Back on track – the TARP was initially going to purchased failed debt that SHOULD relieve banks to continue lending and HOPEFULLY bring down borrow rates. However, Hank changed his mind and invested directly into the bank. The problem with that logic is that banks are holding failed paper and by receiving money they are encouraged to hold that paper – on the hope that in could increase in value. Think about it like this – if you had a losing stock trade and someone offered to buy it out from you OR they offered to give you more money (margin) to hold on to it – which would you do? Of course the latter, because you HOPE to make some or all of your money back.
Anyway – the central bank pledged to purchase up to $500 billion in debt as well as up to $100 billion in direct debt of Freddie and Fannie. This DIRECT purchasing of failed paper is getting lending firms a little room to start lending and it would seem on the face of it that credit is starting to flow again. All good news – except (not to be the bearer of bad tidings) there are two issues. 1st will banks learn their lesson and NOT lend on these creative financing terms, but rather ONLY lend to those that are credit worthy? 2nd what does this additional debt due to the economy, taxes, budget deficit, treasuries, and most importantly stress on the USD?
It’s all fine when you have your hand on the printing press and can print your way out of problems (on the surface it SEEMS to work) and credit starts to flow – but I keep asking myself what happens to treasuries and the USD? I smell smoke and where there is smoke there is fire. Short-term this should give a boost to the economy.

__________________________________________________________
Dividend Reinvestment?

It looks like Vita Nelson of the Money Store and her plan for dividend reinvestment is going to see some very lean times. Stocks are cutting or eliminating dividends in the fastest rate in 50 years as companies need to reserve cash. Bloomberg story: http://www.bloomberg.com/apps/news?pid=20601087&sid=aKVN9wFDKavU&refer=home

However – there are some interesting products out there that DO pay a dividend (in some cases monthly). A financial advisor friend of mine pointed out some ETF holding companies – some are a mix of foreign treasury holdings, while others are corporate debt. Now I know in this day and age you might have trepidation investing in corporate bonds or foreign treasuries – but here is the beauty of ETFs – first they are liquid (not like buying the bond directly or the treasury) – that means any time you can sell them out. Second many of these pay monthly dividend – so calculating monthly and annual yield rates are fairly easy. Third – some (only a few) have options – which allows for 1:1 contract hedging and increased yield performance.

Anyway – take a look. I don’t market, endorse, or solicit any business (I am not allowed to) – but if you are interested – about some symbols and want to have a frank conversation about them – send me and email. I prefer the open forum of discussion of ideas and I am happy to include my friend – who is doing the heavy lifting (research).


__________________________________________________________
Futures Pre-market

They are giving up some of the gains and looking lower. Spreads are in – but we might not see the ARB traders stepping up to the plate because of it being a light volume day and having to short into the opening on a day like today is not fun and more risky. Expect some downside pressure at the opening.

_________________________________________________________
Support / Resistance

We had a good run up on euphoric hope but the government numbers and MORE money being poured into the system is bring reality back quickly. We are in some pivot point ranges as well – were moves are expected and gamma is your friend.

INDU 8000 (8500) 9000 (We could get a move either way from here - but it IS looking down. If the mortgage news (being good) can make any impact we may see a little bounce.)

NDX 1000-1100 (1150) 1200 (Again – seeing some volatile action in the pre-market on futures – up, down, down, up, unchanged…who knows – expect action.)

SPX 800 (850) 900 (Again pivot point)

RUT 400 (450) 500 (Again pivot point)

It’s a light trading day going into a long weekend – expect some hyper moves because of the light volume. Additionally it is questionable if anyone wants to hang onto positions for the next 4 days (Friday being a ½ day).

________________________________________________________
Conclusion

It’s Thanksgiving time – enjoy this with friends and family. Forget about the stock market and the economy for the day and be thankful. Remember – it’s not what you HAVE or OWN (that is just materialistic junk) – it’s WHO you are , your friends, and family that really count. To quote the title of a famous (and very funny) play (which I happened to perform in my previous Thespian days) “You Can’t Take It With You!”


So you’ll have to deal without my sarcasm for a day – but maybe it’s better that you did.

Enjoy the Turkey and stay safe.

11/25/08 (Military Logistics, Fed pledges 7.7 tril!)

Traders,

The market got a massive rally after a week of pounding – it was as if the investing community was sick of bad news and just drew a line in the sand. Certainly a bailout of one of the world’s largest banks was not the (or should I say should not) be the reason for rejoicing – but it seemed that Citi’s bailout got investors to come out of their treasury hidey holes for another brief euphoric rally. Again – I would point out that a bailout (of yet another failed business) does NOT mean the worst is behind us – regardless of what the talking heads say.
I did get some feedback about the Citi bailout – mostly criticizing my criticizing of the plan. It’s almost as if some people are slowly being convinced that bailing out everything and everyone is the only way. A couple emails I received (from well informed and very smart individuals) read as if they just are giving up – what else is there to do – “As a tax payer, I don't care if the government is using our money to bail out these companies as long as I get good risk-adjusted returns on the bailout. These may be good investment opportunities.” – WHAT, I responded? It would seem that Congress has taken a page from Bush’s Playbook – Lesson 1: Repeat, Repeat, Repeat – (If people hear it over and over again – it MUST be true.) Congress, Hank, Ben, and the rest have been TRYING to convince us that these “bailouts” are GREAT investment opportunities. If you believe that – the brainwashing is working.
Let’s look at it SIMPLY as a investment opportunity (which has been sold to us as a GOOD investment). You be the judge.

First – you have already lost 20 billion – but now you are going to reinvest more.

Second – you are making another investment of 20 billion for an 8% return. On the surface that sounds pretty good – however there is a catch. Not only can you lose ALL of the 20 billion (which is typical with any investment in the markets) – but you are going to be on the hook for 15x that amount as well ($300 billion in additional guarantees). Now – if I was negotiating this deal – I would say – no PROBLEM – but I need 8% on the full $320 billion – not just the 20 billion. No investor in the WORLD would take on 15x risk times capital with no return on risk. Let’s look at it this way – you are really on the hook for $320 billion, but you are getting 8% on $20 billion. So the real return on risk is .5% (only half percent). Remember – this paper is not credit worthy – and it has already been pointed out that 1/3 (100 billion) should have a rating of FAILED.

Third – you are getting warrants for 2x the current stock price. Now warrants are usually a reward to purchase more shares – over a period of time. Most of the times these are at par value of the original investment – sometimes it has a slight premium (if the company tends to be more successful or expectations are for some positive event to happen.) But for a 2x value on the warrants – is pretty much garbage as it pertains to the $20 billion investment vs. $300 billion of risk for a .5% return vs. risk.

Let’s revisit –

Invest $20 billion for $320 billion of risk. Your return on $20 billion is 8% (or .5% on net risk). You are also getting the ability to purchase another 250 million shares at 2x the current stock price (if it ever gets there).

Now let’s look at Buffets investment in Goldman –

Invest $5 billion for 10% return, no additional risk. Warrants to buy $5 billion more in stock at par value to the original investment.

Hopefully you can see the difference. Which investment would you make?
These are NOT great investment opportunities no matter how they spin it – and IF there is any money made from these investments it is because of LUCK not because the strategy was sound. Unfortunate – most investors do not know the difference between luck and sound investment strategies.

________________________________________________
Commodity Risk

So much has been placed on the price of oil and its impact on shipping cost, however supply / demand and the cost of producing/mining is still at hand. Remember – in this nation 2/3rd of the GDP is fueled by consumer spending – which trickles back to the source. If consumers don’t have capital or credit to spend – then it doesn’t trickle back to the mines or farms for the commodity. What does that mean? It means less is produced on the false sense that demand is failing. But is demand really failing? I say false sense because many of these commodities are NOT decreasing in demand – rather their prices are coming off on the assumption that they will. The major commodity that I am talking about is agriculture – FOOD. The world’s population is still growing and true farmers might see some short-fall in the short-term. Many farms have grain storage – the problem with storage is the production-consumption gap. It’s is the same with the SPR (Strategic Petroleum Reserve). The farmer produces less (because cost out strip revenue), the storage makes up for the slack in supply, and then the gap between production-consumption widens. The commodity hits a massive short fall even though demand could remain constant or slight contract – the supply line has run dry.
The military has an impressive logistic operation – which is very interesting – WWII was a massive experiment in managing, supplies, demand, storage, and transportation. Those same logistics SHOULD be applied to current commodity trends – the reason that it is not as simply to measure is that there are several different cogs in the wheel (from the farmer, shipper, seller, and consumer). They make assumptions and decisions based on cost and revenue – the military on the other hand controls the entire flow - from start to finish. I am not advocating military intervention – but I am saying using the military logistic models should give a better picture of commodity prices based on supply and demand channels. WWII was won not on might (no doubt the German’s had the better weapons for the most part) – it was won on managing the logistics and supply chains to keep the man in the field – feed, fueled, rested, and loaded. Getting Sherman’s, M1, Mustangs, ammo, food, etc – to the front on a continual basis was indeed one of the greatest logistical problems in history. A lesson we could learn from and help price commodities based on those logistical models.
Brazil is already seeing growers reduce crops – as revenue dries up. However – does that mean people are going to consume less “NEEDED” commodities? We could very well see a spike in commodity prices in the near future (3 months, 6 months, 1 year) – I believe it WILL come – the time frame and the sharpness of the spike will be based on the credit problems, bailout, and currency rates.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHwqWQnFqZLE&refer=home

_________________________________________________
Fed Pledges $7.7 Trillion

Here is a quote (from Bloomberg) for a little wake-up call if your coffee hasn’t kicked in: “The pledges, amounting to half the value of everything produced in the nation last year..” WOW – that is a massive number by any standards. My concern is not the bailout or if it will work but what do you think is going to happen to the dollar. I mean how much can you print and HOPE to have paid back via the sale of Treasuries.
http://www.bloomberg.com/apps/news?pid=20601109&sid=an3k2rZMNgDw&refer=home

Here is the “hope” model of Congress/Fed/Treasury to sum it up for you.

1. We are going to print a butt ton of money (we have the printing presses so that is easy).
2. We will (hope) to sell enough treasuries to finance the printing of all the money (if we don’t we create inflation – the measure of that inflation will be based on how many treasuries we sell or don’t sell).
3. To keep our payments down – we are going to lower interest rates to as close to zero as possible. We can’t afford to pay higher rates.
4. We expect (hope) that because the USD is the world’s reserve currency – foreign nations will still HAVE to buy it – even at very low rates – so we SHOULD be ok to print a bunch of it.
5. At the end of the day – the TAX payer will be on the hook for it over the next 20+ years.
6. We could raise taxes on some/all of the citizens – or like in WWII issue a NEW tax to pay down the bailout.


There is a lot of assumptions and hope involved in this strategy – mainly the HOPE and ASSUMPTION that the USD will remain strong and the world’s reserve currency. I would argue that confidence in that is seriously eroding fast – true it is still above 50% as a reserve currency – but it is falling fast. Also the implosion of the banking and insurance is not bringing any confidence into the market.

This boils down to one big concern – USD risk. The economist reported that S&P and Moody’s might be lowering the USD treasuries credit rating from AAA. Of course you can bet there is HUGE pressure by the government on those companies not to do so and additionally S&P, Moody’s, and Fitch’s creditability is already in question with their ratings of CDO, SIV, and other structured paper that has failed.

It’s time to hedge dollar back assets - IMHO Jim Rogers and Peter Schiff are right -

Peter Schiff on Fast Money (He called the housing and credit collapse) – you have to suffer through about 45 sec of useless Fast Money garbage before they bring him on as a guest – but it’s worth hearing to what he has to say:
http://www.cnbc.com/id/15840232?video=935047784&play=1

________________________________________________
Futures Pre-Market

The futures are getting a follow-up pop in the pre-market with a new $800 billion of FED money in NEW PROGRAMS – YEAH! Spreads are in play – expect ARB traders to short futures and buy the cash into the opening.
______________________________________________________________
Support / Resistance

The rally continues – supports are still in play .

INDU 8000 / 9000 (We will probably hit a euphoric wall around 9000 when people realize the worst is not really behind us. )

NDX 1100 / 1200 (Again – may see resistance around 1200)

SPX 800 (850) 900 (850 is the pivot point)

RUT 400 / 450 – 500 (450 would be an interesting level to get through and would show broader strength)

This is a bi-polar market – expect anything.

__________________________________________
Conclusion

Well the numbers are not looking good and recession is certainly on its way. If I had showed you some of the current headlines last year (Lehman fails, AIG bailout, Citi bailout, etc.) would never have believed it. I wonder what future headlines would look like – a forum I read had a thread with a couple of examples – but this one really got a LOL out of me, ”SOMALI PIRATES APPLY TO BECOME BANK, AIM TO ACCESS TARP"

Don’t buy too much into the rally without hedging your long deltas. There is still more to resolve before we can even SEE a light at the end of the tunnel.

11/24/08 (National Citi, MER Deal or No Deal?)

Traders,

We got a massive rally on Friday that drove the market back up and through some relatively important support levels. This morning it seems that the futures might at to that tail wind. No doubt we were oversold (from a panic basis) all you had to do was look at the massive drop in Treasury yield (in some cases negative) and you could see the lemmings running off the cliff either looking for safety or chasing yield. And that trade (treasuries) is loaded with its OWN ASSumptions (like validity and safety – because it is the US Dollar) – even Economist is covering stories that S&P or Moody’s may knock down the coveted AAA status of US Treasuries. You know what they say about ASSumptions.

_____________________________________________________
Congress owns a new BANK

Citigroup falls to nationalization, just like AIG, Freddie and Fannie. Not only are they getting $300 billion in loan guarantees, but they are getting ANOTHER $20 billion (adding to the $25 billion they already received from the TARP) from the government. This time for the $20 billion and the $300 billion in guarantees, the government is getting preferred shares that pay an 8% dividend and warrants to buy 254 million shares of stock at $10.61 each (wait I thought the stock was trading less than $5 a share). It’s a full-frontal dork deal – warrants for 2x the current stock price and 8% on $20 billion and with the implicit risk of carrying another $300 billion in risk – are they kidding me. Citi got a GREAT deal and the tax payer got the shaft, Buffet would NEVER EVER have done that deal. But who said Congress knew how to negotiate tax payer’s money (for a better understanding on how government spends YOUR money – look no further - http://marketpreview.blogspot.com/2008/01/how-money-is-spent.html (that tax payer got HOSED!)
Several economist have already pointed out that about $100 billion of the $300 billion has failed and will need to call on that guarantee, while the rest is all BUT failed. When all is said an down expectations for Tax Payer money into Citi is between $150 billion to $350 billion – and the sad thing is that does NOT guarantee that they will survive – even after all the money being poured in – they may still have to breakup and sell off the company.
Sure the stock is seeing a bounce in the pre-market – but ask yourself why? They just became another semi-nationalized company. Remember this is a transfer of risk – Citi’s risk should be reflected in the Treasury market. Think about this – Company A has D credit and Company B has AAA credit . Company B takes over Company A, shouldn’t Company B’s credit drop for assuming Company A’s risk? I will let you sort out who is Company A and B in this deal.
Well at least the CEO (Pandit) did well – he sold them his Hedge Fund (for $1 billion) and became CEO – right before his fund collapsed.

____________________________________________________
Merrill Lynch Deal or No Deal

On September 15th, Bank of America announced that it would buy Merrill Lynch for $50 billion (Terms: BAC would exchange .8595 shares for each share of MER) the price WAS at 1.8 times stated book value. But all this was back when BAC was trading at $32.50 a share (that would make the deal for MER at $27.93 per share). However – since the deal was announced BAC is now trading $12 a share – making MER at $10.31 a share. But Merrill is now trading at $8.30 share (a significant discount to both deal terms $2 a share and the capital terms of $50 billion). The spread alone $2, based on the deal terms, is bringing the question to the table – “Deal or No Deal”.
I am sure everyone on both sides of the fence is wondering what is going on – things in the economy are changing fast and what looked like a deal in September may not be a deal in December. Keep your eye on this story – things could change fast.

___________________________________________________
Futures Pre-market

The futures are getting a good pop in the pre-market and driving the cash up with it. The spread is still in play – so expect the ARB traders to short futures going into the opening and buying the cash – that should give the opening a good pop to the upside.

__________________________________________________
Supports/Resistance

Can you say Supports Part Deux? What looked on Thursday as a full bust down through supports look to be a head fake as we revisit them on Friday!

INDU 8000 !!!! (Ok we are back above $8k but for how long – it’s the support to keep an eye on.)

NDX 1000-1100 (Support range)

SPX 800 !!! (Support)

RUT 400 !!! (Support)

I didn’t bother with resistance – because it seems that everything above support IS resistance….

__________________________________________________
Conclusion

Obama is going to unveil more of his economic team and plans today. If Senator Schumer of New York is “in the know” then we should be expecting a WHOPPER $700 billion stimulus package – and that will mean the lines at Red Lobster will be long – also Wall-mart better stock up on some Playstation 3s and Flat screens. One thing you can bet on – Consumers KNOW how to spend and not to save. You think they’ll pay down their mortgage and other debt – or is the new Swing-Bling going on the car, Flat Screen on the wall, and a family outing at Lobster going to break the 3 digit barrier! Of course we can just tax those above the $250k bracket and corporations more.
A friend said to me on the phone over this weekend – “Companies in the black will pay higher taxes to pay the bonuses for those working at failed companies and people making over $250k are going to pay for those under $250k flat screen TVs and consumer junk!” – I said – I agree – but I isn’t this a bailout. He said “NO – the failed banks and automakers business model and debt is STILL on the books – so NO - the higher corporate taxes are just keeping the toxic paper and failed business models alive. The tax increase over $250k is NOT paying for the failed mortgages – it is just being redistributed to those fools that got themselves into debt! Why would you give a failed business more money? Why would you give a consumer that doesn’t know how to save – more money?” - He has a point. Hank is no longer buying the toxic paper, the Automaker bailout is not revisiting the business plan or hiring new management, and the Stimulus check is just a shopping spree.
May credit and consumerism live on.

It isn’t Socialism we should be concerned about it is Consumerism.

11/21/08 (Socialism? Lemmings rush to Treasuries!)

Traders,

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.

_____________________________________________________________
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.

______________________________________________________________
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.

______________________________________________________________
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.

_______________________________________________________________
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.

_________________________________________________________________
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.

11/20/08 (Saudi Recue? GMAC a Bank? Supports?!?)

Traders,


OUCH!!!! Danger Will Robinson, Danger! The brakes barely came on as we slid down to those supports, in fact in a couple we are just below them It was a rough and questionable close - did supports hold or break - because a couple are right above and a few dropped below I would say it's a difficult call and even a instant replay would resolve it. I guess we have to wait for today and so far the futures in the pre-market are looking down - however INDU is at fair value.

______________________________________________
Saudi to the Rescue?


Prince Alwaleed had purchased a massive stake in Citigroup in the past when they suffered problems. It was a much needed help back then and now he is back again looking to increase his stake to 5%, but is it too late and too little?

Before when he stood up to the plate Citi was having its own problems, it was easier to assess the problems and decide to make and investment or not. Did the business plan work, could the management execute, what was their debt to revenue ratio, burn-rate, etc. However, this time around the data that needs to be crunched is massive - one reason is that you have to look BEYOND the walls of Citi to determine if there is US and Global risk, currency risk, interest rate / inflation risk, OTC risk, etc.

Prince is already in for a fairly big nut at Citigroup, his largest holding (Riyadh-based Kingdom Holding Co.) - which is taking it on the chin already. Also his holdings company as a whole is getting whacked pretty hard (Down 63% or $13 billion).

At this point I question his motives investing into Citi.

1. Is he pulling the B of A move, when they bought Countrywide because they had previously already dumped 100s of millions into the trouble company - to me that move was all about saving "FACE" - because it was a seriously rated "tossing good money after bad".

2. Is he a "deer in the headlights"? He is down over $13 billion - all his investments are souring and now he is emotionally "married" to Citi (his biggest holdings) and so he is tossing more money at it because he doesn't know what else to do!

Remember just because you have billions doesn't mean you are always going to make the RIGHT or GOOD decision. Buffet has had some whopper failures - the difference with Buffet is he knows WHEN to lick his wounds and walk away. Buffet KNOWS how to take losses without the double-up to catch-up. Just look at his US AIR investment.

However, knuckle's like Kerkorian could NOT stay away from the Big Three - first the massive losses at GM, then the failed buyout of Chrysler, and then another billion dollar loser at Ford. He just didn't learn his lesson.

Is Prince Alwaleed on that same road or do you REALLY think he is an expert at valuing SIV, CDO, OTC paper, understands derivative and liquidity risk, and can really wrap his head around the risk of a massive diverse company like Citi?

Buffet keeps it simple - if he can't understand the 10k or the business plan - he doesn't invest.

___________________________________________________
GMAC applies for bank status - yeah right!


OK - I have to pat myself on the back for this one. I called it a week ago when Amex applied for Bank status to get access to the Discount Window and said I am sure that GMAC's eyebrows went up as to a good idea when they see one.

However -this makes me want to PUKE. It's like we are giving these FAILED lending companies a FREE PASS by turning them into the exact thing we DO NOT want them to become - a BANK - for the simple reason that they can get access to the TARP and DISCOUNT window to borrow MORE money from the government and taxpayer.

Who's next, I would say Countrywide but they got in the back-door via Bank of America. Just pick a lender or credit issuers - they'll start to line up - especially if GMAC gets status.

You SERIOUSLY have to be f'n kidding me - I really can't believe Congress has not put a stop to this NONSENSE! Oh wait - I forget - Barney Frank is running that committee.

__________________________________________________
Future Pre-market

They are not looking good and we are at or just below supports in the cash. They are looking lower and I would suspect we could see a flush if we aren't careful. I think ARB traders will be more on the sideline instead of getting in front of the futures train - the risk of shorting at the opening on light buy volume may not be worth it. Expect a lower opening as of now.

_________________________________________________
Support / Resistance

YIKES - I didn't like the close on the low and AT those supports!

INDU 8000!!!! (Today is about supports failing or holding - we are RIGHT AT THE 8k area - we need to close above it our we could see a hyper move to the downside.)

NDX 1000 - 1100 (We broke below the intra-day support of 1100. 1000 is IN THE CARDS. But there is really no reason for it to stop there.)

SPX 800!!! (Just above it - do we hold and rally?)

RUT 400 !!! (Again - it's about the close)


It looks like we may visit, break down, etc at the opening - the question is do we pause and rally or continue down. There is no news other than a wealthy Saudi Prince tossing more money after bad - to create a "HOPE" euphoric rally. So I don't know what kind of surprise we could get to jolt this market up.

_____________________________________________________
Conclusion

I really don't see any reason to rally out of this - unless we get Obama or someone to bring back the "HOPE". It's about selling the faith at this point. The fundamentals look like crap and the holiday season is not looking to be a great time for retail. I was at Sears last night - I was the ONLY person in the entire store - sure it was a Wednesday night - but come on !
Goldman lowered their 4Q GDP to -3.0% - that's NEGATIVE - some economist on Bloomberg have pushed the envelope even lower to -5%. Goldman's expectation for Q1 09 is another -1 to -2% off also they predict 8-9% unemployment by the end of 09. If that doesn't forecast recession - I don't know what does.
I sure hope you got your hedge on. It's now about protecting principal, taking minimal losses, and trading this market. Don't be long and wrong or HOPE for the future. If anyone is telling you that they are in it for the long haul - well it's simply because they don't have another answer - which should be HEDGE YOURSELF!!!!
I seriously "HOPE" I am wrong!

11/19/08 (Fed lost control? Pirates! )

Traders,

Most of yesterday's trading was mixed - the action was confusing as we flirt with the support levels and then had a good rally into the close. Many listen into the Hill question Paulson (I like how they question him as if they didn't realize they just gave him $700 billion to spend on how he sees fit - all rather silly - didn't these same fools just vote to give him that money?)
Also there is the big push for giving more money to the Big Three as many people are jaw-slacked that our NEW leadership wants to spend MORE money bailing out COMPANIES. Isn't the Democrats the party of the people? I guess money and votes CAN buy you a bailout. Anyway - it's going to be probably the last fight between parties until the new administration and congress meets - then it will be easier to push through a agenda. The big question is do they drop Paulson for a Sec. Treasury that will spend the money as they wish him too? From the hearings - it sounded like they are creating a list (of more naughty than nice). I hope that some of you at least saw Ron Paul ASK questions that no one wants to ask or answer!

_________________________________________________
FED cash injections push the envelope


As I have pointed out before there are two rates the FED sets, the TARGET (which everyone focuses on) this is the one the FED sets as a TARGET for banks to lend to each other, the second rate is the DISCOUNT (which most people don't focus on) this is the rate the FED sets to borrow from the FED directly. Traditionally - it is the Target rate that sees all the action - as those who borrow from the FED (via the DISCOUNT) are few and far between. However, that has inverted as there is no money to borrow from each other (via the Target) they have all gone to the FED to borrow directly.

However - we are starting to see another problem surface. The FED has injected SO much money into the system - (via different avenues - including the Discount window) that the FED has FAILED to meet its target rate. Some analyst have said the Target rate, because of all the FED injections, has become irrelevant. On Bloomberg this morning on interest rate trader stated "The Federal Reserve has injected 100s of billions into the system, which is just backed up in the reserve pool and not moving. The Target rate has decoupled and the Fed has lost control of their monetary policy." I sounds to me like a plumber that has poured gallons of liquid Drano into a toilet and now the Septic Tank is full of Drano.

http://www.bloomberg.com/apps/news?pid=20601087&sid=abYTR9BqGlBo&refer=home

Here are the current overnight lending rates vs. target (I think you'll be surprise how far it has come off).

DATE_____RATE_____TARGET
11/18_____.38_______1.00
11/17_____.37_______1.00
11/14_____.34_______1.00



So what is happening? People are so focused on the TARP that they forget that the FED has dumped 100s of billions into the system and the system is still clogged. Yesterday I mentioned that several people I know had their credit lines get zapped, credit card limits come down, and access to any form of credit is shrinking fast. However, looking at the reserve pool it has ballooned from $2 billion to over $300 billion - so why is the money not flowing. Add to that the government still on the war path to bailing out companies and banks - more money is going into the system - but nothing is coming out.

It would seem that we are in a deflation situation - which I would agree it SEEMS like that - but in my VERY humble opinion - I think we are just looking at the surface, that inflation is what is really inflating the deflation bubble that when it pops the inversion will be a shocker.

As you may know, I am a big Jim Rogers fan - he always seems to make things sound simple - here is a recent video of him - I think he has got a better handle on this than most (mainly because he is OUTSIDE looking in) - let me know what you think:

http://www.youtube.com/watch?v=opMw9X0TlfM

So many people are caught up in the politics and the minutia - that they don't see the big picture. Jim Rogers (IMHO) sees the 1,000 foot view!__________________________________________________
Time to be a Pirate?

It seems the only ones that are profiting in this crap market and economy are those pirates that I mentioned yesterday. Three more ships have fallen victim - looks like 3 more ships were taken.

http://www.bloomberg.com/apps/news?pid=20601087&sid=awRBL.YU0d4M&refer=home ___________________________________________________
Futures Premarket

The futures are getting hit a little, but are not that far below fair value. The spreads are fairly narrow – if the Arb traders step in to buy the futures to short the cash – expect a flat opening.

___________________________________________________
Support / Resistance

Bounce off the supports – it looks like we got a little relief – we are really flirting down here for sure.

INDU 8000-8250 / 8750-9000 (That 8250 level at the open/close seems to be the “NUT” support – with some intraday flirting down to the 8k level. If we hold we could get a good euphoric rip to the upside. Don’t be surprised if that happens.)

NDX 1100-1150 / 1200-1250 (This index is a little more volatile in the support area – it’s a questionable hold – can we pop or do we break?)

SPX 800-850 / 900 (The 850 level is like the 8250 level in the INDU. A serious open/close area with some visits intraday below that area. Traditionally this would be a place to get long – but in these times do it with caution and gamma!)

RUT 400-450 / 500 (The 450 level is also a key open/close area – we need to close above it to show strength. However the opening is looking a little weak – it’s about the close.)

_______________________________________________________
Conclusion

The Big Three fight is getting interesting – you fall in either one of two camps – bail them out or let them file for Ch. 11. Now remember, CH. 11 is reorganization – if GM files for bankruptcy it’s not like it collapses – it will be business as usual for customers. They’ll still build, service, and sell cars. They’ll still have jobs. There will still be dealerships. They will still be in business. However, if you listen to Pelosi – she makes it sound as if we don’t bailout GM and the other two that all that will be left in Detroit will be a big mud hole. That couldn’t be further from the truth. Sure the shareholders and debt holders will get shafted – but consumers and employees will not see any big difference.
Doesn’t Pelosi know what Ch. 11 is? All you have to do is look at Macy’s, K-Mart, Delta Airlines, or the many other big companies that filed Ch. 11. Macy’s still sold clothes, K-mart still had their blue-light specials, and no one’s flights were canceled on Delta. It’s called REORGANIZATION for a reason and if she still wants to help – the government has helped companies that have filed Ch. 11. The problem is that IF we bailout GM, as she purposes, we don’t SOLVE The current problem – it’s the business plan! The other issue is that Nancy is listening to the CEO’s of these troubled companies – who are trying to save their collective asses – because they KNOW in CH. 11 they will kick a swift kick in the pants to the street.
Let’s hope they don’t bailout GM on the back of tax payers. As an representative from Toyota USA said – If they bailout GM, we (competitive automakers) will be bailing them out via higher corporate tax rates. He’s right – why would Toyota want to bailout their competitor with a failed business plan?

11/18/08 (Yanging my chain, Spetsnaz, Onomics?)

Traders,


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!

__________________________________________
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
_____________________________________________
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?

_______________________________________________
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.

_______________________________________________
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!

__________________________________________________
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!

11/17/08 (Citi cuts 50k, GM, UAW, Dems - working together)

Traders,


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

_________________________________________
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.



_______________________________________________
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.


_______________________________________________
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.


____________________________________________________
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.

______________________________________________________
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.

__________________________________________________
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!

11/14/08 (Bretton Woods II? Sick Bag Needed!)

Traders,

Talk about testing the bottom....it was like we fell and loaded up that spring off the support and shot up like a rock. No doubt it was a key day to see if those support levels held. I noticed that the volume was fairly light in the morning - then it was like a shot and we bounced hard.
This morning the "worst is behind us" talk is starting up again. It's like any time the market gets a 300+ point rally the "worst of the behind us" talk starts coming up, crazy I know. Again - euphoric optimism works wonders - just like chicken soup. But chicken soup doesn't cure the cancer in the system, neither does euphoric optimism. Regardless of the excitement about the G20 meeting - it's a meeting. Sure they could come up with conclusions and ideas - (let's hope). However - no matter what happens in the meeting - you can guarantee they will say it is a success. - Whoooo Hoooooo!

______________________________________________________
Bretton woods II - let's hope not.

Pretty much you fall into two camps (Keynesian / Hayek). Bretton woods lead us here and in my book Keynesian has pretty much failed - you just have to look around (like today Freddie Mac reporting another record loss of $25 billion). It's amazing the love people have for Keynesian - probably because he was running the show at Bretton woods and was pretty much a believe that the government could solve the employment problem - His conclusion for the great depression was to lower interest rates and create massive employment through massive government projects and oh yeah - I almost forgot tax the crap out of people to pay for this project. Obviously you can tell from my writing what my opinion of Keynesian Economics are. To me it seemed simply their suggestion was a circle solution, employee the people, tax them at 70-80%, to pay them back with their own money. Then lower interest rates as low as we can so that we can print money and while our debt will probably skyrocket (it did to over 50% of GDP) at least our payments will be cheap. How that is an answer to anything is beyond me - but they all meet at Bretton woods and because Maynard probably had a way with words and a fancy degree (backed with the thought we could give everyone jobs) they bought it hook-line-sinker. The problem (in my very humble opinion) is that they were focusing on the WRONG problem - sort of like putting the cart in front of the horse. JOBS - they wanted to give everyone jobs then they back-engineered on how they were going to pay for all those jobs. My biggest issue was that came out of Bretton woods was the government crossed the line between regulation to intervention - and that is a dangerous line to cross. We saw what happen recently with that at Fannie and Freddie - and the bailouts. How do we know if the economy is successful and companies can stand on their own balance sheets if the government is just going to be the funding and supporting companies and jobs? We don't, rather we shift our value analyst to the government - instead of the company.
If the government is going to fund companies and manage them to a certain extent - then shouldn't we be judging the governments books and credit - rather than the company? That is the problem when you move from a regulator to a player in the game. It's a line that once crossed - becomes a difficult game to step back into the role of regulator and not interloper.
The G20 is meeting - Obama and the Democrats programs are looking very much like another round of Keynesian (which has failed) - and more government intervention and getting involved in the game. It is admirable that Obama doesn't want ANYONE or ANY COMPANY to fail - but people and companies have to fail - shifting the debt from the person/company to the government does not absolve the debt, instead it puts that debt on ALL our shoulders - but worse creates wider pressure on the economy and worse the confidence in a fiat currency (or as I like to call FAITH currency). Since the government doesn't have to BACK the currency with anything like gold, silver, or even property - they don't have to FINANCE the printing of money and the purchase of debt. Sure they supposedly have to sell treasuries to keep the balance - but so far they can't keep up and lowering interest rates makes treasuries to our creditors (foreign nations) less attractive. What happens when we can't sell treasuries (or enough)? We create inflation - you don't have to look far to see two recent (yet extremes) Iceland and Zimbabwe. We have the advantage of being a world reserve currency (unlike those two countries) - but at some point we put all our HOPE on it maintaining its standard as a reserve currency. However we got called on that bluff when we were on the gold standard and France said "I don't care if you currency is backed by gold, we want to be paid in gold!" and other nations followed suit. We had to sell so much gold that we couldn't maintain the standard and it wasn't long before we had to decouple from gold. Will our bluff again be called? How much to we print and bailout before other nations say "No thanks" to our treasuries. I can tell you buying them at current interest rates (which could go lower) is not that attractive. Additionally - even the Economist could not make heads or tails out of the strength it maintains other than FAITH.
Obama needs to sell the FAITH and we need to pray!

_____________________________________________________________
Freddie Mac - when a bailout is not enough....

How did we get here? I would argue it is a culmination of greed and desire by the consumers (their addiction to spend coupled with the desire for instant success and riches) - added together with our government's willingness to make home ownership available to ALL (even if they can't afford it). While it is admirable - they have gone a little overboard in that regard. Given someone an inch.....
Freddie and Fannie have been the catalyst, the focal point, in which Congress not only overseas their roll - but has instigated the need for making credit (mortgages) available even to those that cannot afford it. Freddie and Fannie have two severe problems that have not been addressed - leveraging their books (to ridiculous levels) and the willingness (even today) to take down MORE sub-prime toxic debt.
However, Congress did NOT see these two companies (that they oversee) as a problem. Just recently (in the first quarter) Barney Frank (along with Chris Dodd, Nancy Pelosi, and Hillary Clinton) lead the program to have Freddie and Fannie BAILOUT the mortgages and foreclosures by purchasing MORE toxic paper. They were warned that toxic paper is toxic paper and just because you move it over from a traditional bank lender to a Congress oversight firm (Freddie and Fannie) that it wouldn't go away and it can only get worse. Guess what it did - and this government had to bailout the bailout. Freddie and Fannie went belly up and the government (who was already overseeing these firms - which seems crazy) had to bail them out (with YOUR money).
Fannie announced earlier in the week as to their massive third-quarter loss (after being bailed out) - guess what Freddie posts a RECORD LOSS of $25 billion and is asking the treasury for ANOTHER $13.8 billion. Are they f'n kidding me?
What is even more sick is that they CONTINUE to buy down more toxic paper. One analyst stated you could easily get losses north of $100 billion from these two (government controlled) firms. When do the people say enough is enough? Fannie said they may need more than $100 billion in funding to stay afloat.
We have NATIONALIZED the mortgage industry with these two giants (both continue to operate and buy and issue more paper). Don't let anyone tell you socialism doesn't exist or that Keynesian economics coupled with faith back currency works. All you have to do is look at these two behemoths failing even after being bailed out and now FULLY run by our government to see how adapted the government is at running business.
I need a sick bag.

_______________________________________________________________
LIBOR on the rise

I was hoping to see the 3-month continue to fall and narrow the gap on the Target rate - but as we hear more news of government intervention, Congress wanting to bailout the Big Three, and Freddie and Fannie collectively in one quarter reporting 50 billion in losses - well many foreign banks are starting to tighten up again. Why lend to banks in a country where nationalizing AIG and the mortgage giants is seeing more write downs and printing money faster than a polecat in a hen house is their answer to solving the problem. Not to mention the in-fighting between Congress, Fed, and Treasury as to HOW the money is spent and HOW much is being lent.
LIBOR climbed a second day as Recession spreads and the world's reserve currency (the US Dollar) could come under some serious inflation heat. Could this be the low in the USD? Who knows - right now it has bounced on FAITH - not fundamentals. Keep an eye on the 3 month.

______________________________________________________________
Futures Pre-market

We got a great rally off the supports and now the futures are giving back a little. Spreads are in - so expect ARB traders to buy the futures and short the cash at the opening putting pressure on stocks.
_____________________________________________________________
Support / Resistance

That was a serious "brow wiper" yesterday! We broke through the supports in the early session and like a spring being loaded we exploded to the upside into the close. I got phone calls and emails as to WHY - don't ask me that - I have NO IDEA other than following the paper. Light volume married with some short-covering - does it really matter? All that matters is closing out positions, rolling up hedges, and managing your gamma.

INDU 8000-8250 / 9000 (We flirted with 8k and now are just off the 9k resistance area. How do people want to go home today? Watch the close!)

NDX 1150 / 1300 (Again - another hyper intra-day volatility - watch the close!)

SPX 850 / 950 (Bounce?)

RUT 450 (500) 550 (In the middle - another pivot point)

Please don't call and ask me why the market went up or down 500 points. Could this be a double bottom? Sure - but don't tell me the worst is behind us. I really hate hearing that over and over.

_______________________________________________________________
Conclusion

We might see a rally or the market may stay in this low support range for a while. People may even believe the bailout and the flooding of capital into the system is working. What we need to watch VERY closely is the dollar, inflation, bonds, treasuries, and LIBOR. If we are just pouring money down a drain - and debt builds and the government is NOT able to finance the increased debt via treasuries - well as they say "Huston, we have a problem!" That problem will not surface quickly - just like the housing or dot.com bubble but it will build and if not managed correctly when that bubble breaks it will make the housing/credit problem look rather like a small opening act at a lollapalooza festival.
When we get these big pops (don't look for reasons why) just hedge and roll up those positions. Let the talking heads try to figure it out.

Now go out and enjoy the weekend. I will!

11/13/08 (GAMMA! Big Three! Double Bottom?)

Traders,


We slid off again yesterday to those supports. We are back down to those October lows - do we hold at this support or breakdown. The problem remains the fog we have to peer through to figure out how HARD or SOFT this bottom is. These companies couldn't stand on their balance sheets - can they now - that question continues to be the rub, even with capital injections by the government.
The investors and the rest of the world are not biting on the rhetoric that the Congress, Fed, or Treasury has a solid grip on what is going on. Congress is complaining that the Fed is not showing its balance sheet. Paulson took a 360 on buying down the toxic paper (the initial intention of bailout package) to injecting capital into the banks. Pelosi is meeting with the Big Three and UAW about giving them money, but it isn't her decision. It's like Congress, the Fed, and Treasury are all running in different direction and while each of them may have merits and validity to their reasoning - the perception is they can't even manage their own house and that means a loss of confidence - which we are seeing in the market.
Even the "talking heads" seem to have lost faith that they have a handle on it and the saying we have heard all year long, "The worst is behind us!" - usually followed by a Bernanke or Paulson speech of the news and greatest bailout is now not holding any water. Paulson speech yesterday was meet with - "Yeah, OK, we have heard it all before."
The market moves on fundamentals and perception, perception is usually optimistic. Now the fundamentals are coming to bare and that is creating downside pressure on the market. The question again remains - is this October bottom we are visiting going to hold or not?

_____________________________________________
Wal-Mart still marching forward

No doubt the retail sector is getting a solid smack down and consumer spending slows - but we still need to consume the necessities (food, toiletries, etc.) and Wal-Mart is bracing for the slowdown but at the same time trying to address the continual demand.
Earnings came in at 80 cents a share, but the forecast is a little lower than expected at 1.03-1.07 - from a combined slowdown and currency impact. The profit (after stripping away costs) came in at 77 cents a penny better than expected. They SEEM to be managing the slowdown fairly well.
While Wal-Mart is guiding lower - they are still optimistic about holiday sales, why? Because people are still going to buy and some consumers that traditionally shop at higher-end stores for the holiday may take a second look at Wal-Mart to find more "bang" for the buck. They have done a good job at guiding forward - the analyst's only concern about forecasted earnings is the dollar impact that could create an impact to the their full-year profit.
Stock is seeing some pressure in the pre-market and is trading lower.

________________________________________________
LIBOR slows

As we have been saying the 3-month LIBOR has to get in-line or very close to the Target Rate to see money flow between banks, rather than from the government. It did get down to 2.12% (still 100bps plus above the Target) - but the good news was that it was contracting and the spread was narrowing.
Well - it slowed and actually (first time in 24 days) it rose - just a little - 2 bps. The small pop is less relevant - but rather it was the fact that it slowed.
The overnight rate is still below the Fed Target rate - which is a good sign - but borrowers are really going to the Discount window for that 3 month borrow and they are able to post junk collateral.

________________________________________________
Big Three Count Down

The management of the Big Three are denying rumors that they only have months if not weeks before bankruptcy if they can't get the money. The problem with these auto giants is twofold - First their legacy program was doomed to fail from the start. Just like Social Security - those that work today to pay for those that are retired ONLY works if you can keep that relationship 1:1. As soon as you have MORE retirees than those that are working the Ponzi scheme fails. That is Social Security’s problem and also the typical US type pension fund that GM and the other auto giants run. The cost for their legacy program is over 10 billion per year. That's right - 10 billion in healthcare and retiree payments. There is just no way to continue to make that nut, in fact GM and the others have to borrow to keep paying and the interest alone is mind numbing. That HAS to change if they want to stay in business. By contrast many companies pension programs are matching or other front-load investment plans for retirement. That means when you leave the company you have a nest egg (IRA or 401k) and the company doesn't continue to cover your nut when you retire. That reduces the burden on the company and the retiree then has a large nest egg to invest as they see fit. While GM has recently dealt with the UAW addressing this issue - it still has a big nut.
Second - while GM as recent as 2006 had revenues that made other automakers jealous they didn't plan for the future with different product lines and focused on big trucks and cars. That wasn't completely management's fault - after hearing an interesting interview and assessment as to WHY the Big Three were so SLOW to create smaller cars and trucks - the answer became clear. The COST in retooling factories and building new TYPES of vehicles was a costly endeavor and their current burn rate and legacy was a handcuff as to spending the capital to take the risk that is what the future buyers wanted. It became clear that their debt load and legacy programs kept them from being nimble and even if they wanted to build Prius type cars - the cost of ramping up and retooling would of put the company further in the hole as they already had problems even paying their interest payments. Debt just froze the company in time and handcuffed them from change.
Now they don't have a choice. They need to do two things - tell the UAW too bad, the company has to make money to stay in the black and we can't continue to support the old ways (legacy programs) and second retool the factories to build lower cost and more fuel efficient vehicles. Bankruptcy can help get them there fasters.
Now don't get all FREAKED OUT if they do file bankruptcy - GM employees will STILL go to work, Car dealers will still sell cars, and GM will continue to make cars. What will happen is that the stock will go to ZERO and the debt holders will be paid pennies on the dollar. GM could emerge better from it. Remember KMART filing bankruptcy - KMARTS were still open and selling stuff - it was just the shareholders and debt holders that got wiped out. People didn't lose jobs.
IMHO - if we (government) does bailout GM and the other two - they need to do it in a bankruptcy type style, fire the management, restructure the legacy program, work with the UAW, and be the FIRST in line with interest and principal payments. If they just give them money and let them run status quo it is just pushing out the problem, rather than solving it.
Don't buy GM or the big three stocks hoping a bailout is the answer - there is deeper issues that need to be resolved for them to change and survive.
_____________________________________________________
Futures Pre-market

The futures are seeing some volatility - down - up - down - up - as news of Wal-Mart and credit lines hit the tape. The Arb spreads are too narrow and volatile this morning (30 mins prior to the opening) to get any action one way or another. Expect a mixed opening.

____________________________________________________
Support / Resistance

We are at those October lows - the support. We are at that pivot point where traditionally it is a good time to buy - but in this economy that is a risky bet. Longs you need to hedge FULLY!

INDU 8100 / 9000 (We are very close to those previous lows - we could touch them the question is do we hold or rally.)

NDX 1150 / 1300 (Again very close to those previous lows!)

SPX 850 / 900 (Again at those lows!)

RUT 450 / 500 (Can you say supports)

Today and tomorrow are key - we either bounce off these lows and we break them. If we break them it could get nasty fast and we fall fast and hard. It is looking like a double bottom - the key is do we have enough buy volume to hold at these supports. If the buyers step away we could have a vacuum to the down side! That could create panic and another pop in volatility.

_________________________________________________
Conclusion

Confidence in our Congress, Treasury, and Fed is at a low - they are not working together. The Democrats know they have won and are trying to push an agenda (rightly or wrongly) - that means they are making demands and not working with the other APPOINTED agencies. Bush is just waiting to get out of the White House and has NO PULL. That means we need to get the Congress working together with the Fed and Treasury - not against them. They need to LEAD and bring back confidence. Sure they have won - but this is not the time to start pushing forth the agenda but rather working to find a solution as we rely on them to get us through the next 90 days before Obama can appoint his staff. That means VOLATILITY.
Let's hope the supports hold - if they don't it can get VERY UGLY and VERY FAST. If you are NOT hedged right now - I hate to say it - but you are a fool. These are not the time to bottom pick and HOPE. These are the times to protect principal and RIGHT NOW - something you should of been doing.

For those traders wanting to get long - do it with GAMMA and hedge those HARD deltas. Gamma will protect principal and also put some positive curvature on your sheets. It's is the holy grail in volatile times - OWN IT!