2/12/09 (Banks get blamed - then are asked for help?)

Traders,

Yesterday seemed to be about absorbing the news that the Economic Plan is still in the works and currently weak on substance. The markets or for that matter the international markets didn’t take to kind to that. But we now have had a day to rest an ponder our fate and course of action. The new administration is no doubt being pushed and pulled – picking the team – and defining the boundaries, which I certainly don’t envy in this environment.

Additionally – I think amongst all the “hope” that the reality is – regardless of how much we pour into the system it is really about deleveraging. And if a person doesn’t have a job, the bank (even with all the government bailout money), is certainly not going to lend. The leverage MUST unwind and even with all our best intentions it WILL unwind. Trying to keep the credit spending party going is just delaying the inevitable.

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CEO’s take pounding …

Congress is certainly can’t be blamed for pulling punches – they attacked the oil industry (with rather lame questions), then the SEC (but didn’t get any answers), and now the CEO’s of the banking industry. The problem with these Congressional testimonies (while they are much needed) is that they either do NOT know the right questions to ask or they are just stump speeching.

Additionally – it is these same Congress members that are the REGULATORS – where were THEY? What happen to the Senate Banking Committee or the Senate Finance Committee? They SAW, KNEW, and in some cases (Freddie and Fannie) ENCOURAGED more leveraging. Who gets to grill our Congress? We can only “Hope” for “Change” and that our Congress will take REAL action and also take some of the accountability and responsibility. Of course this is not to give a free pass to any company, CEO, or even consumer that participated in the massive ramp up of leveraging.

So if you bothered to watch the stupidity and the irony should NOT escape you.

1. Our government HIRES CEO’s and Exec from the Banks to help them (Paulson under Bush and now Greithner under Obama) – please note these are two Ex-Goldman guys.

2. Additionally our government GOES to other Execs for more advice (Recently Obama’s administration sat down with these Execs to talk about the bailout.)

3. Congress WORKS with these Execs to help draft the TARP and then gives Paulson (Ex-CEO of Goldman) the $700 billion check to spend.

4. Our oversight –Head of the Senate Finance Committee (Barney Frank) help draft the TARP and worked with these Execs.

5. Meanwhile, Frank on his own crusade, after Freddie and Fannie go belly up – he continues to (under nationalism) ramp there leverage up and take on more debt.

6. Now we sit to watch Mr. Frank and gang criticize and give these same Exec’s?

If it wasn’t so sad, it would be comical.

Now don’t read into this that I am for the CEO’s or am defending them in ANY WAY.
I didn’t vote for McCain or Obama because neither of them had the balls to call the TARP what it was (a Free Check to Banks – co-signed with the stamp of approval by people like Barney Frank – who already help send this nation FURTHER into debt by pushing forth the leveraging up of Freddie and Fannie!). Not to mention the 100s of millions of Pork in that bill.

The audacity of Frank and gang pisses me off. YOU help draft it, YOU walked arm-n-arm with these guys for advice, our Administration hired them (can’t blame Bush anymore, because Obama hired Paulson’s employee), you KNEW what they were spending it on, you even had an oversight committee on it, and NOW you are going to start pointing fingers.

As I said about the first stimulus package last year – waste of money. As I said about the TARP – giving a blank check to anyone is stupid. And now they are going to spend the balance and continue to work with these same people after they grilled them.

The government doesn’t know how to run business, they certainly don’t know how to manage money, and while some of these CEO’s richly deserve a good tongue lashing (the board and shareholders to stop paying them and FIRE them).

With all that being said – it looks like some of these Execs are pretty much done with the two-timing back-stabbing Congress – either they want to return the money or don’t want anymore.
Congress should additionally not bother to call them back for help (which they have and will) – because some of these guys are just fed up.

JPMorgan, Morgan Stanley, and Goldman Sachs Exec said just that – we are going to pay the loans as soon as possible and get away from you crazy weirdoes! I think the straw was Capuano (D-Mass) saying that he could not believe that no one has prosecuted you!” – The generalizations were flying. Did Capuano not realize that his new Sec. of the Treasury was one of these men, or that Congress help draft the Tarp with Ex-CEO of Goldman, Paulson, or that Obama’s administration was just meeting with some of these SAME CEO’s just last week to discuss the economic stimulus package, or that yesterday that the new Sec. of the Treasury is expecting THESE companies to not only help work with the government to solve the problem, but also FUND it?

If they wanted to take out their frustrations because of A-holes like John Thain, then take it out on John Thain. Why they felt they needed to blast EVERYONE and then expect to work with them is beyond me.

Frank did say that if they didn’t like the restrictions on the government aid they can give it back and it seems like some of them are. However, what Frank didn’t mention and what the Banks are having issue with is that those restrictions continue to change. You can’t draft legislation, vote for it, start issuing out the money and then CHANGE THE RULES. If the government has problem with a John Thain type person - fire him, ask him questions, get on his case - this parade was entertaining no doubt – but what did it really accomplish (other than a public verbal hand slapping).

I’ll say it again – the government should NOT use TAX payer money via the TARP to GIVE to the banks – what REALLY did they expect?

The sad thing is after giving them a lashing, they are now going to give them MORE money. Don’t these fools learn?

Sorry for the rant.
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Retail sales climbed?

The Commerce Department issued a shocker, after 6 months of retail sales declining – Sales at U.S. retailers increased 1%. Some can be contributed to the gas prices coming off – freeing up spending. Since 70% of the economy is based on (credit) spending – these is slightly good news. Additionally we could see some false increases if and when stimulus checks are issued (just like last year – we could see a pop, only to see it pull off again). Giving people money may get them to spend in the short-term, but reoccurring revenue is about having a job!

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Financing the government Debt.

The Fed is in initial talks with four firms (note the same ones they just bitch-slapped in the Congressional Hearings) to come on and help underwrite government bond auctions as the U.S. prepares to finance almost $2 trillion of debt this year – (Good luck with that). Who is going to buy $2 trillion of U.S. debt for almost ZERO interest? Better question – Who has $2 trillion they want to lend the U.S.?

The Fed is concerned and should be – the number of dealers have been dropping off since the 1990s. Down to the lowest levels ever. In order for the dealers to finance the paper – they have to borrow. But with spreads close to zero (and in some cases inverted) that business model just doesn’t make sense. The smart money has been leaving that market and now the Fed (our government) really needs them – more than ever.

I can just imagine that phone call. The Fed calls up one of the financial institutions – “We need your help!” – “Go talk to Barney – he just gave us a beat down and now you are asking for help?” – Click….

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3Fp3EwQX32o&refer=home

Huston – we have a problem….

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Futures Pre-market

It seems that even giving the beat-down on the CEO’s hasn’t helped. Futures are down below fair value. Expect the ARB traders to buy futures to short the basket at the opening (if the spread remains) – putting pressure on the market.

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Support / Resistance


INDU 8000 ???? (We headed to 8000 – which may very well become resistance. Can we get our head above it or is 7500 really in the cards?)

NDX 1200 ??? (1200 is support – do we move there and hold ?)SPX 800 (850) 900 (The SPX is holding up better than the narrower NDX – watch the pivot point)

RUT 400 (450) 500 (Again – that 450 magnet seems strong – but I think hidden volatility could be ramping.)

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Gold 900+ (Of that was a loss of faith as Gold ripped higher. Almost to 950 now)

Silver 10-14+ (Moving up – now to the mid 13s)

Oil 35-40 / 50+ (We saw a big pull off - but I still think the 35-40 range is consolidation – does it touch 33 or 34 – sure why not – it recently did before. I would trade the range – but look at it as a wide support band.)

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Conclusion

By now you can tell that I really don’t have any faith in our Congress to do anything SMART. I was against the TARP and all the pork (but Obama and McCain caved). I don’t believe in bailing out the firms – they can borrow money and we also have something called bankruptcy courts (or did we forget). Additionally – if the CEO is a fat pig – fire him and don’t pay him. The board and the shareholders HAVE THAT RIGHT! If the board and shareholders are REALLY that stupid – should the company be allowed to succeed?

We (companies, people, and government) have to unwind the leverage and TAKE the losses. We just can’t keep tossing money at the problem. The FED is starting to see the first part of the problem – how do they FINANCE $2 trillion in one year? It is crazy to even think they can – because A. Who would want to buy it? And B. Who has the money to buy it? We are about to see inflation happen – REAL inflation. You just can’t keep printing money.

Our Congress has fully run Amok! They have sunk Freddie and Fannie – yet they now need $200 billion MORE after they collapsed them – to keep going. Of course Congress will get the money and pour more into that big black hole. Your MONEY!

WRITE your Senators and Congressman – tell them to STOP SPENDING YOUR MONEY – Your kids’ money, Your grandkid’s money!!!!

If Obama and the Democrats are so KEEN on FDR and the NEW DEAL – then that is what we should expect! Higher unemployment (it went from 10% to almost 20%) and Higher Taxes from 20% to over 70%). Someone is going to pay - the problem is that it is YOU and ME!

Please STOP this Crazy Train!