Traders,OUCH! That Stimulus Bill signing went over well. The market saw a serious suck out and we are getting to some very serious support levels. The futures are showing a little pop – but we need some follow through to stay above water.
I received a few emails yesterday – one person actually didn’t believe there IS any pork in this bill – because Obama said so. Another person made even a funnier comment calling the bill “Pork by Design”. He was right – it was and is Pork by design. While all eyes have been on the Stimulus bill (pork fat and all) – what we continue to forget is HOW are we going to fund it?
I mentioned previously that the FED met with the Execs of the major banks and lending institutions (note: the same ones that Congress grilled the day before) to ask for their help because the number of dealers (in the treasury auction markets) are so low (I think only 15 or 16 left) – that there is NO WAY this country can issue $2 trillion in treasuries this year without help. The primary market would cave in and if there really is no secondary – it would mean the FED would have to be the buyer (selling our own treasuries to our self – yeah it’s a circle – the Japanese are really good at that.) That is the issue that we cannot ignore or over look. I am getting a little concern about the USD ramping up to these levels – against the basket. Additionally – you would think that Gold and Silver would of come off if the USD is ramping strong (but it is not). I think the Gold and Silver market is accurate and there is something a foot in the USD market. My expectations? The USD comes off again – possibly sooner rather than later.
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GM – we need MORE money?
They are looking for another $5 billion and could be even asking for more come the end of March. The CEO of GM was on CNBC this morning and I have to say – he was pretty frank about the situation. They lowered their outlook (really low), clarified that $10, $20, $30, maybe a total of $40 billion is needed (predicated on the market turn around – by 2009, 2010, 2011.) Expectations were for a bigger and longer slow-down than initially thought. Additionally – point blank – is bankruptcy an option? They did a detailed study – it would cost the government about $100 billion if GM declares bankruptcy (based on GM figures) – of course that is their TRUMP card they are playing. You could say a mild threat – don’t help us with $20 or $30 billion today and a bankruptcy will cost you $100 billion. Game of chicken? Truth or not? Who knows – the UAW on the other hand has really not made any concessions and according to CNBC the hourly wage difference (even minus the legacy) between US foreign autoworkers and the UAW is still between $4 - $7 dollars an hour.
It is interesting how this will play out – the UAW has the ear of this administration and Congress (you can’t forget the millions they spent on Congressional and Presidential elections – they sure will not let them forget). Additionally – isn’t the auto makers a staple in this country? The government will not let them fail – government run bankruptcy, more money, nationalization, all those are seriously in the cards. Regardless the outcome GM will be around – it might be in the form of the Pelosi GTX (http://www.youtube.com/watch?v=rAqPMJFaEdY ) – but it will be around.
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GM – we need MORE money?
They are looking for another $5 billion and could be even asking for more come the end of March. The CEO of GM was on CNBC this morning and I have to say – he was pretty frank about the situation. They lowered their outlook (really low), clarified that $10, $20, $30, maybe a total of $40 billion is needed (predicated on the market turn around – by 2009, 2010, 2011.) Expectations were for a bigger and longer slow-down than initially thought. Additionally – point blank – is bankruptcy an option? They did a detailed study – it would cost the government about $100 billion if GM declares bankruptcy (based on GM figures) – of course that is their TRUMP card they are playing. You could say a mild threat – don’t help us with $20 or $30 billion today and a bankruptcy will cost you $100 billion. Game of chicken? Truth or not? Who knows – the UAW on the other hand has really not made any concessions and according to CNBC the hourly wage difference (even minus the legacy) between US foreign autoworkers and the UAW is still between $4 - $7 dollars an hour.
It is interesting how this will play out – the UAW has the ear of this administration and Congress (you can’t forget the millions they spent on Congressional and Presidential elections – they sure will not let them forget). Additionally – isn’t the auto makers a staple in this country? The government will not let them fail – government run bankruptcy, more money, nationalization, all those are seriously in the cards. Regardless the outcome GM will be around – it might be in the form of the Pelosi GTX (http://www.youtube.com/watch?v=rAqPMJFaEdY ) – but it will be around.
As an investor – there are too many risk factors – a nationalization, bankruptcy, or some form of government control have a high probability – that means you could lose 100% of your investment. Additionally – any debt structuring could also mean a loss of potential as a shareholder.
Smart money is sitting on the sideline and watching this unfold.
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MBIA stock rallies?
The failed bond insurer, MBIA – is now splitting into two companies – one for muni bonds and the other for that toxic mortgage-related debt and the rest. You would think the decision is easy – invest in the muni bond insurer and let the other company fail. However, with how things are looking in California, Florida, and many other states – bond failing means that insurance could also be risky. Of course the Federal government could always step in and print money to bail them out (which is probably going to play out). The muni bond is a traditionally safe writer – but I am just not sure. I guess an investment in MBIA is really an investment in the USD and the U.S. Government as a back stop. I also have a sneaking suspicion that ONE of the two companies is going to get the GOOD stuff and the other the BAD stuff – it shouldn’t be too hard to figure that out. As a investment – I would stay clear. As a trade – I think there will probably be some arbitrage opportunities between the two (but since it is only trading at $4 the option possibilities are pretty limited.)
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Futures Pre-market
We are getting a good future rally in the pre-market after that throttling we took yesterday. Expect the Arb traders to short the futures and buy the basket – which could create some upside bias at the opening.
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Support / Resistance
YIKES – we are at or close to some very important supports. A rally is needed or a parachute!
INDU 7500 / 8000 (That 7500 is a big psychological number – it was the previous low we rallied off of in November and have managed since then to stay 500 points above (8000) it for a few months. The drop yesterday was NOT good. We need a rally – because if 7500 does NOT hold – there is NO support underneath.)
NDX 1150 – 1200 (We are in a empty zone – we came below the 1200 mark – but above the 1150 mark. Not looking as bad as the INDU – but this also means MORE volatility.)
SPX 750 – 800+ (We really want to see 800 as support and would love to close above it. Just like the INDU the 750 area is not a friendly place to visit because there is NOTHING below that to show any support.)
RUT 400 / 450 (We haven’t seen the draw down to those previous lows below 400 like we did in the INDU or close in the SPX. However – getting back to 450 is a nice area. If we can see the RUT remain stronger the drop in the INDU and SPX might just be volatility and we could rally back. However if you see the RUT break the 400 line – I don’t think we can see the INDU or SPX get out of the hole.)
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Gold 900-950+ (It is amazing that the dollar is NOT coming down and GOLD is rallying – but like I said – I think GOLD is telling the REAL story and there is something fishy with our FIAT currency and I am NOT biting. I think the Dollar could invert and start CORRECTLY tracking gold. – that’s my take anyway.)
SILVER 10 – 14+ (I didn’t buy enough at 10 and now I can’t get any more – the physical bullion is getting harder to come by as well. This has more room to the upside.)
OIL 35-40 / 50+ (I still think that the 35-40 range is the narrowing volatility support area and we will ramp from there. When the dollar SLIDES (as I think it will and could) you will see OIL rally. Oil and the Dollar are not always connected – but in this case I think that may have a stronger hand at play.)
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Conclusion
I saw the “House of Cards” on CNBC last night – I suggest everyone watch it. It is interesting and in a very superficial way explains the mess we are in – from the homeowners buying what they could not afford, the designer of the CDO, Wall Street selling them, AAA ratings handed out like candy, people buying what they don't understand, the government failing to regulate, and a hedge fund that bet it would all come down that made a billion!
They don’t point the finger at any one person or group. It was both the buyer and the seller – and everyone in the chain that is to be blamed. Everything failed. The best line was the woman that bought a $700k house she couldn’t afford – she takes responsibility she says – here is the quote, “I am stupid, but they are guilty!” – I agree with her statement, but she also needs to realize that stupidity is not an excuse to skirt accountability or liability. I think she realizes that – but there is a need to blame the predator too (rightly or wrongly). Watch the show – it has been repeated several times. The Hedge Fund guy was the only person on the show with a brain to do the math himself – everyone else was starry eyed over AAA credit ratings!
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