2/24/09 (Herding Cats, AIG Sucks! Design on a Dime!)

Traders,


Support was seriously busted yesterday as it seem the market could only do one thing – go down. The saving grace was the RUT closed just below 400 – which may yet be a sign of a short-term supporting area in the broader market. Surprisingly the VIX didn’t head higher – no doubt a 6+% move is big – but I expected a lot more.

So why does the market continue to head lower? My guess is that Uncertainty brings pessimism. People WANT to believe in HOPE, but we can’t even begin to HOPE without FAITH. And Faith needs a plan. The government’s plan has been fairly obscure – one of the problems is that every politician has to put in their 2 cents and half the time the contradict each other. Just yesterday Sen. Dodd talked about “short-term nationalism” – if that isn’t an oxymoron I don’t know what is. However, what he said was sure not vetted by the President. Additionally – President Obama was a ROCK STAR candidate – he ran an excellent campaign and brought many people together. The problem is he came to the office with lots of HYPE (from the campaign trail) and people expected on DAY ONE that he had a plan and he would hit the ground running, additionally he talked about bi-partisanship. The problem – is that he is running – but no one really knows what direction. He is having problems getting his cabinet seats filled – while Pelosi, Dodd, and Frank are running their mouths and not working WITH the President or the Republicans for that matter. Obama is spending as much time herding cats as he is making speeches and trying to fills seats. He needs to tell some of those Democrats to “Shut their mouth!”, fill his seats, and spell out a detail plan that we can understand (regardless if we agree or not). A good leader, leads – even if you don’t agree with them – you respect their leadership. Obama is facing a power struggle in his own party – which he needs to get under control.

One would hope that tonight’s speech would bring clarity – but historically speeches to Congress are general or self-congratulatory. I doubt will see any details to any plans – other than to hear they have a plan. It will be more of a 30-min infomercial – lots of style and little substance. Obama does know how to give a good speech and I think we may get some more “hope” out of it.
On the other hand – Bernanke is addressing Congress – and I am not sure where that will go either. So far his speeches have been defensive and we really need him to go on the offensive.

All that being said and the negative news the continues to flow – this nation has dealt with trying times before. We will be a little poorer, maybe we will not be able to afford a new 50” plasma or new car, instead of eating at Ruth Chris’s we eat at Outback. But at the end of the day – it’s just a consumer life style that we are really complaining about. There ARE jobs out there – most of us do NOT want to do. I saw HELP wanted signs at Wendy’s, Wal-mart, and even a looking for janitorial sign driving down the road. But we arrogant fools are looking for that sweet office $100k middle management position that gives us more time to surf the net – than actually toss a hammer.

So when things get tight – remember – what matters most – health, family, friends, and living a spiritual rewarding life (regardless of your religious beliefs). Having a new car or bigger house doesn’t make you a better person – it just gives you more headaches to worry about.

Damn – now I am sounding like Obama….

Just trying to offer some HOPE and a dose of reality.

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AIG another $60 billion

AIG is looking down the barrel of the biggest quarterly loss in U.S. history (in fact I think world history) – at $60 billion. The government has already tossed $150 billion at this company – it is nationalized for the most part – and our government “who knows best” management style is doing wonders. Of course they are going to toss ANOTHER $60 billion at this company – why? Because they can’t admit to failure and we can’t let anyone fail. Putting more bankruptcy judges out of work!

So what now? How about a do-over at their restructuring package – the first $150 billion didn’t really do it. But if we give them another $60 billion that might help them restructure better – yeah right.

Citi with the government’s $50 billion plus in preferred stock is looking at seeing 50% of preferred converted to common (making the government a 40% owner of Citigroup). AIG which has an ungodly $150 billion in of government money (sorry I mean YOUR money) is about to see a big conversion into common as well.

Little Rant: All the hatred for those CEO’s and their bonus packages makes me wonder, should we be mad at the CEO for asking for stupid money and bonuses or the morons that GAVE them the money?

Is it Thain’s fault for asking for $7 million or the Board and shareholders fault for agreeing to pay him that much?

Is it GM’s fault for asking for $30 billion or the Government’s fault for giving it to them?
Is it AIG’s fault for asking for $150 billion and now another $60 billion or the Government’s fault for giving it to them?

It seems that the government has not really been doing their home work – because they keep giving money and the companies keep asking for it. And then we blame the CEO? Something is not right!

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Home Depot – reports profit

It would be interesting to see the breakdown at Home Depot – it would stand to reason they have shifted from one side of the store to the other side. If you have been to Home Depot you would know that one side of the store is more raw building material, while the other side is more home stuff (light bulbs, garden hose, etc.) I was at Home Depot over the weekend (built a workbench in the garage) – I noticed that the raw material side of the store (where you would see contractors) was pretty empty – however there were lots of people in the store, but where. Over in the small home product section. I poked around and saw more homeowners doing low cost projects from changing light bulbs (to those twisty fluorescents to save money), small paint purchases (you can change a room with little money and a fresh coat of paint), etc. I asked a Home Depot employee about some items – he said those new money saving light bulbs are flying off the shelf and other small money saving items. Be that as it may – the kitchen renovation center and heavy construction area was bare.

Could Home Depot be focusing on the Design on Dime mentality – it sure seemed like a lot of customers heading in that direction.

Now doubt Home Depot will suffer as building and remodeling diminishes – but people still need to paint and do odd-fix-it projects as well as maybe spend a little to fix something up.

They beat estimates and reported a profit – I still think Home Depot has some risk in the building side and it’s questionable if the smaller items can make up for the larger building projects. It would be interesting to see the margins on the different items.

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Futures Pre-market

We DID see futures on a good rally in the pre-market, but it has been coming off. AIG news is sinking the ship fast – even though the stock price is below one dollar – the notion of the government dropping few billion more is not positive. The spreads have come in pretty hard from the earlier session. Expect a flat opening – unless something changes in 30 mins.

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Support /Resistance

YUCK! The bottom has fallen out – or has it?

INDU 7000 ? (At this point who really knows – we are now in 1996 levels – I remember being on the trading floor and making bets if the Dow could break 10,000 – every 1,000 points up CNBC would ring a stupid bell. I don’t hear them ringing bells on the way down. Stupid!)

NDX 1100 – 1150 (We are down below the 1150 line and looking like 1100 is in the cards. It would be nice to see a solid move up above 1150 and hold into the close.)

SPX 750 ? (We really need to see some strength and support – getting above and closing at 750 would be a good sign.)

RUT 400 !!! (The RUT has not hit the previous lows – unlike the SPX or INDU – it is a good sign that the broader market is holding – but we need to see a solid close above 400!)

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Gold 1000 ? (We are up around and flirting with 1000 – could we go higher or are we going to see a pull back to the 950 or 900 level. Good questions. It is amazing the dollar has held well – but I am not certain why – Gold seems to be ignoring the dollar – is it right?)

Silver 14+ (Gold’s little brother has more room to get back to the previous 20+ level we saw earlier.)

Oil 35-40 / 50+ (Oil still in that 35-40 range – which I think is a big basing area.)

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Conclusion

Bernanke and Obama speak today – I doubt we will get more details, but rather a rehash about tough times and they have a plan. The market WANTS (actually NEEDS) more details – not just we are tossing money at the problem. That uncertainty is keeping money on the sideline and investors are moving toward bonds (thinking they might be safer) because there is NO knowledge on what is next. The government SHOULD have a good handle on these companies they are bailing out – but they don’t. For the government to be surprised with Freddie and Fannie (after they have taken them over) that they need 100s of billion more, AIG needing another $60 billion, Citi needing more – means the government really doesn’t have a clue as to the extent of the problem. If you are going into business with someone (which the government is with your money) you BETTER have a f’n CLUE as to what the books, revenue, costs, liabilities, debt, margins, etc. look like. Cause when you are talking billions, 10s of billions, 100s of billions – you do NOT want to wake up in the morning to find out you really don’t have ANY IDEA of the problem. It is beyond silly and stupid. The problem is that once you are on the hook for a few billion – you are going to continue to toss more money at it.

Ask yourself – when does the government give up on AIG? $150 billion, another $60 billion, what happens next time when they need another $20, $30, or $50 billion? Do you give it to them? When do you figure out that you are in a losing trade or business? Then what do you tell the people – who’s money you spent (when they didn’t even volunteer to invest in the first place)? We just blew $200 billion of your money – sorry – I know we didn’t even ask you if it was OK – but we did it anyway because “we know best”!

It’s not like you or me are a shareholder making a conscious choice to invest in Freddie, Fannie, AIG, Citi, B of A, GM, Ford, Lehman, etc.

Let me ask you one question. Would you take your hard earn money and invest it in AIG? Probably not – (since they are bankrupt and now need $60 billion more). So why would the government do it? Do they really know best?