Tuesday, January 13, 2009

1/13/09 (I'm back, Libor? Dell going to Poland!)

Traders,

I’m back – sorry for the 2 day sabbatical – I had put off a long overdue responsibility – bringing back the 1975 Bombay Clipper (a small sailboat which I received last year and with a some TLC in a boat yard and restoring it back to life on the weekends) it was time (with the aid of my father) to bring it on its long journey up the coast to its new home. It still requires some work, but the hull is redone and the canvas is clean. I come from a sailing family – aunt, uncles, grandparents, father, and mother. My father and his wife spend half the year living on their catamaran in the keys or Bahamas and before his trip down to the Caribbean – he offered a window of opportunity to help return the “Lionfish” to Sarasota (a 3-4 day trip). It had been waiting for over a year – mostly for me to take the time (which I seldom ever leave work) and the help of another. The boat had not move in decades from fresh water. Between motoring and sailing it we made it back – no doubt it was an adventure. I even put it a ground (on a sand bar) on the way out of a gunk hole down near Boca Grande. As I jumped into the water to push her off – my dad leaned over the railing and said “You can ignore the chart, but you can’t avoid it!” - as he chuckled – the obvious play on my saying for those that read the Market Preview should not escape you “you can ignore math, but you can’t avoid it.”
Regardless – I am back after a couple of days and my sea legs are returning. I must say – whatever your passion is (traveling, hiking, sailing, swimming, skiing, etc.) don’t let it slip you by. I sometime forget that as I seldom ever take vacation (which my wife reminds me).

_______________________________________________
LIBOR reflects easing money, or does it?


The problem with trying to predict money flow via interest rates is a tricky animal. Why, because while rates maybe very low the REAL question is how much is being lent. Let me give you an example – recently the fix 30 year mortgage rates have fallen (even below 5% in some instances), the ASSUMPTION is that money if flowing, but is it. When I bothered to inquire a little bit more about these fixed mortgages rates the ASSUMED traditional policies are anything but traditional. Credit scores need to be perfect (just to get you in the door), but even more importantly – 10% and even 20% down is not enough – in some cases 40% down (even with perfect credit) is required. Additionally – their own conservative appraisal of the property (regardless of what price you bought it for) is what the loan is predicated on. Even then I have found out the bank STILL might not lend the money – not that it has anything to do with you, your credit score, or the amount that you will put down – it is simply a matter if the bank wants to let go of any cash at the moment. Most banks are still shying away from lending and many are calling in their credit lines. A couple of homes sold in my neighborhood – looking at the paper is rather shocking – 50% down (on both). I also have a friend with NO LOANS on some property, perfect credit, mortgage free – with a untapped credit line. First the bank wanted to CHARGE him for even having the credit line (whether he used it or not) – next they just pulled it. I assume the same bank is one that is advertising 5% fixed rate mortgages (small print – but we don’t actually loan any money).
So – while it would SEEM that low fixed interest rates means money is flowing – it actually is anything but. Could the same be concluded about LIBOR? LIBOR is the lending between banks and it has made a recently step slide (closing the gap between “spread” between U.S Treasuries and bank lending). The rate was 1.09% this morning. The question that is not asked in the Bloomberg or CNBC story is HOW MUCH is being lent at that rate. If only 10% of what is traditionally being lent between banks is at 1.09% - I would say a trickle of loans between banks at low rates does not mean the credit is unfrozen. The second question that is not asked – how much of that is REALLY government injections. No doubt that the FED, along with the ECB – has poured 100s of billions into the pipeline (of which most banks are hording any money they get – obviously they are not lending it out via fixed mortgages) – I guess one could say that the LIBOR is just a substitute for FED and ECB lending – since that IS the source of the funds – if you bother to trace it back. While it certainly may become from the banks – I would beg to differ the source of the funds.
Sure we have seen some mortgage applications rise and some money flowing – but we need to look BEYOND “applications” and “interest rates” – determine HOW much is flowing, the source, and conditions of those loans. It is interesting that FHB loans and other low income mortgage applications (not 30 year fixed) – are being provided by our friends (who are technically bankrupt) Freddie and Fannie. The money flows – because the overseers (Congress) will not let anyone fail. Freddie and Fannie are still in business (abet Nationalized Business), making loans or refinancing loans to the under qualified – but must we forget that “Home ownership is a right!”

___________________________________________________
DELL leaving Ireland


A story on NPR this morning was about DELL closing their large plant in Ireland and moving to Poland. 1,000s of Irish jobs will be lost and new ones in Poland will be created. Just like companies that leave the U.S. to move overseas, it happens the world over. NPR – (which I know some of you will call left wing – and granted they are not usually business friendly and more human interest and pro-Democrat – they still offer some good programming and it does spark the occasional interest in a story for me to investigate further and cover the state issues fairly well – regardless Republicans, Democrats, and Independents all enjoy Car Talk – I do.). Anyway – the conclusion of the story pretty much summed it up – the President of Dell Europe said, “Irish wages are $15 an hour, Polish is $5 an hour – we need to be competitive in the slowing economy.” – That’s it, and will always be it. The simple formula will always be Revenue – Costs = Margins (which determine profit). Of course the Irish are complaining that Poland offered a multi-million dollar inducement for Dell to move there, but didn’t Ireland do the same to get Dell to move from the U.S. to Ireland? NPR touched on the Human Interest side – sure it is a sad situation – just like the GM story and the loss of jobs. Business has no face – but only a healthy business can hire people. If DELL can’t turn a profit because of costs in this current economic times – the decision becomes Dell or No Dell. The answer is clear – if you look at the math, something that GM, UAW, and Congress continues to ignore, but they can’t avoid.

____________________________________________________
Futures Pre-market


The futures were off in the pre-market, but as I write they are recovering some. There is still a spread – and if it remains the ARB traders will buy futures into the opening and short the cash basket.

____________________________________________________
Support / Resistance

I am gone 2 days and we test supports and in some cases break through it.

INDU 8500 / 9000 (We closed below it yesterday – but I would say 8500 is still support – I have been away – but I it hasn’t confirmed that we have broken, just like when we were at 9000 for a couple of days and closed above it.)

NDX 1200 / 1250 (We are RIGHT AT 1200 – I think 1175 could be a intra-day move to low areas – but I think 1200 is a pretty good support point (give or take a few around the range area)

SPX 850 / 900 (While I have been saying 850 – please remember I am giving rough numbers – I think more accurately the support would be closer to 870. Anyway we are near it.)

RUT 450 / 500 (Just like with the SPX – the 450 is a rough number – more resolution would point to the 465 area as support.)

Please remember these Support / Resistance areas are general guidelines that I use – I probably round the numbers too much, but it’s close enough for government work (actually probably not – I think they round to the nearest 100 billion now days.)

________________________________________________________
Conclusion


I think the market is waiting for the BIG OBAMA DAY – they have said that it will be the most widely watched and celebrated presidential inauguration of all times. Europe and the rest of the world will be watching. One report said that Kenya will be making this a special day. I can’t deny the Obama Optimism is very contagious – my father mentioned his “hope” and “optimism” for Obama over the weekend. He knows that Obama will have a lot to prove and up until this point it has been well crafted speeches, stage presences, and optimism that has been sold to us. But whether you are a Democrat, Republican, Independent, Green, Libertarian, etc – he is soon to be OUR president and to not have optimism about the future regardless is a sure fire way to start off on the wrong track.
The power of optimism, hope, and faith is an amazing thing. People have to WANT to believe in a better future – for us to be spurred to create a better futures. My grandfather said that smiling and laughing is sometimes the best medicine – I think he is right. It is hard to be upset or depressed with a big smile on your face. Whether we support his policies or not – I can’t deny he has brought hope for the future and that is the first big step.
If I were to measure the Obama Optimism in terms of market direction – I think we could be on a launching pad regardless of economic conditions and investors are driven by fear and greed. We could see (even if only short-term) a good rally off the inauguration.

No comments: