2/23/09 (Hot Pockets, USSA, Gold 1000?)

Traders,

Expiration Friday was certainly a mixed trading session. The market is trying to wrap its head around the future of the economy and government intervention as we inched towards nationalization. We did slip in the INDU to new lows (not seen for over 6 years) and we could continue lower. At this point there are very few (if any) techinicals to keep us from sliding. The intraday rallies seem more about short-covering and any sideline money either remains on the sideline or is in search of some sort of bond (regardless if safe and/or yield producing or not).

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Growth Sector – Frozen Food?

I heard an interesting segment on NPR this morning on my drive in. One of the ladies being interviewed from Boston had a decent job, was married, and their life style matched their income (on a consumption level). They would go out to eat after work, drinks, take-out food, etc. However, she recently lost her job and now has been purchasing more “pre-packaged” frozen dinners (Certainly not healthy – nor as cheap). She readily admits that she COULD buy fresh food and prepared dinners herself (AND SAVE MONEY). However – she maintains that she remains busy searching for a job (or that she really doesn’t want to play housewife). It could even be said that there is a psychological effect of instant gratification in being able to eat (FAST FOOD) – we do live in a instant “hot pocket” society.

The next lady they interviewed (also without a job) did the opposite. She cooked whole chickens, made soups, made many home made pre-pared (leftovers) and admitted while it takes longer she has cut her food bill by 40% and is living healthier.

The last segment of the story was most interesting, it was a speech by the CEO of Wal-Mart – he said their FASTED (and possibly only) growing segment in the store is Frozen Food.

In these times people are downsizing, like going to McDonald’s instead of Red Lobster. Or buying pre-packaged frozen food instead of ordering out. It sadly means the nation is becoming less healthy and with a obesity epidemic already in fool bloom – a bonanza in frozen food sales is not the future this country needs to get healthy.

The irony is Obama is about to spend billions on a new national health plan, at the same time people are getting less healthy – making the road that much higher. Maybe Obama should spend some time looking at proactive and preventive medicine, at least I hope he is.

As for investing? Wal-mart already seems to be a long-term recession survivor, but what about those companies that make frozen foods? Maybe it’s time to do investigative digging!

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Nationalization at the doorstep…

As much as the Obama administration says it doesn’t WANT to nationalize U.S. Banks – they are taking a serious step in that direction by converting their preferred shares to common in Citigroup. With more TARP and other government loans – converting into common shares is one step closer to nationalization. Each move is closer to becoming a majority shareholder. Rumor has it that the stake could reach 40% in Citigroup or should I say, U.S. Citigroup. Senator Chris Dodd (Chairman of the Senate Banking Committee) already hinted at such nationalization in late January, when in a interview on CNBC.

However, is nationalization the only answer and the best answer? Everyone seems to think so – IF you don’t want a bank to fail. It is interesting that it is the ONLY answer if you are looking for a none failure answer. But not letting people or companies fail – with more government bailouts creates a psychological dilemma relying on the government (it’s tax payer) to be in the never ending bailout cycle. When failure is NOT an option, and nationalization is – the next step is socialism, more government planning, and the government taking away YOUR equity for the common good. Morally, and also because we care, we don’t want ANY ONE to fail. However, we have bankruptcy courts and FDIC and many other provisions to help failed people and businesses – they are there for us to use.

The U.S. government holds $52 billion in preferred shares in Citigroup (five times the banks market value) – if they converted all of it they would own 80% of the company.

Obama continues to tell us that he doesn’t want government controlled banks, but we could see any day (very quickly) the dominos fall and Citi, followed by B of A or other become nationalized banks. (Just like Freddie and Fannie). The problem is that we give control of the bank’s capital to politicians and Washington. They did a great job with Freddie and Fannie – how would a nationalized Citigroup fair?

It’s a damn if you don’t, damn if you do situation. The question you need to ask yourself – should we be bailing out the banks (many of which caused this problem to start with) – or let them fail and as citizens move to the smaller regional banks? Some would argue we live in plutocracy, I would say that is true if measured by campaign contributions and those that have received support and or money from the government. It is quite frustrating when it is NOT the will of the people, but the will of the few. Remember how popular that TARP was and the tons of mail that voters sent to their representatives. It passed, but only with 400 pages of pork added. Same is true with the stimulus.

Watch the banks closely….

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Futures Pre-market

The futures are getting a good boost in the pre-market, some say it looks like short-covering. At this point the news about Citi is getting mix reaction on Wall Street. Expect a slight pop at the opening.

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Support / Resistance

We broke some serious support levels and even with the pop this morning it is not a positive sign for the near term.

INDU 7250 ??? / 8000 (I think we could get a strong rally – on nothing but combination of short covering and hope. If we do manage to make it back to 8000 in the near-term, it would be an excellent place to re-hedge your position.)

NDX 1150 / 1200 (The NDX never got back down to the 1000ish area we saw in November (unlike the INDU) - we are currently in a narrow volatility band.)

SPX 750 / 800 (It would be nice to get this above 800, unlike the INDU we did stay above those November lows, but not by much.)

RUT 400 / 450 (We got close to 400 – but stayed above it. That is a key level for the broader market.)

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Gold 1000? (Do we go higher or pull off to the 900 to 950 level? We could see some pull back from some profit taking – the real question is the worldwide run to gold – which hasn’t seem to slow down as the dollar continues to slide as a reserve currency.)

Silver 14+ (Silver is making bigger percentage moves that gold, but also has a lot farther to rally to get back to its previous levels in the 20+ area.)

Oil 35-40 / 50+ (We are slightly above that 35-40 support band – while the consumption in the U.S. has slowed – global growth is still positive against a finite extraction rate. Toss in a dollar that (I am predicting) can and will slide – we could see a pop in oil sooner rather than later.)

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Conclusion

The recession and problems look to be a lot worse. I am betting the government will nationalized a few banks, it is now only a matter of time. Additionally – the TARP and Stimulus will not be the last – the government HASN”T seen any immediate reaction to dollar strength – which gives them the false sense of security that it is ok to print more money (without risking the dollar). However, I am nervous that this false sense of security is just that false. They will get to a very difficult position when they need to print MORE money (cause we will) and when the dollar starts to lose traction we could see the crack get bigger. It is a fine line we walk – very fine. Keep an eye on gold, silver and the foreign currency basket – that is the only measure of faith we have to go by.