Yesterday’s action was mixed down, up, unchanged, flat. There seems to be discontent among the ranks in D.C. – the difficultly over the stimulus package and the two different sides (one believing that you spend your way out of a recession / the other not and excessive spending should be curtailed). Obama has been making some headway and he has reached across the aisle to get everyone’s thoughts and opinions – however, while collecting other’s thoughts he a not veered from his agenda. Expect more struggling in D.C. and with that comes more uncertainty if up is down or down is up in the market.
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GMAC – the B.S. stinks
OK, what we KNOW. GMAC was about to file bankruptcy, they were out of money, loan defaults were up, and the writing was on the wall. Then they convert to a bank and get access to both TARP funding and the FED discount window. The company is flush with cash and additionally was able to swap debt out. What does that all mean?
How about Quarterly Profits for the first time in 6 quarters! If anyone ACTUALLY believes that a company about to face bankruptcy, converted to bank to get a $6 billion bailout, and swapped out there debt could report a “REAL” profit – well I have some swampland to sell you. I almost want to puke when I heard the interview on Bloomberg this morning as the GMAC representative said it as if they were really in the “BLACK” and making money. A little change here, a little change there, erase, write-in – BOOM-BANG-BING – we have a profit! How easy was that. By-the-way, he didn’t thank the government or more importantly the Tax payer for that hefty loan – which all of a sudden isn’t really a liability, but an investment. Just like in Vegas, only the sheeple can’t tell the difference between a 3 to 1 bet and a 3 for 1 bet – or for that matter liability vs. investment.
Of course when we peel back the numbers – it is more ugly than the spin. Residential Capital (GMAC’s home finance business – like an auto finance company should even BE in the home finance business) – reported its 9th straight quarterly loss – with the deficit increasing to $981 million PER YEAR from $921 million PER YEAR last year. Of course GMAC was looking to shed this business unit, but hey – if the government is going to give me billions to stay in business – why not carry this losses and the crappy business? However, it may not be enough – unless the government gives them MORE money. Of course they have access to the FED discount window and special lending – remember GMAC is NOW a Bank – are we all really that crazy?
Their 6.75% bonds are certainly better than treasuries and if the government is going to keep them from failing (a put hedge), then it would be a better bet than buying treasuries, at least you are paid 6.75%.
That got me thinking – are corp. bonds from companies that are being propped up and back-stopped by the government just defacto treasuries? If so – they are sure paying a way better rate than the treasuries.
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Zillow reports 2008 results.
For those of you that don’t know Zillow – it’s a nifty website with a map and housing values. It had become the key tool for all those newbie-pseudo-real-estate investors to find property and set values. Key note: My home on Zillow is off by 45% - same thing with most of my neighborhood. That being said – Zillow reported the U.S. housing market lost $3.3 trillion last year and that 1 in 6 home owners with mortgages owed more than their home was worth. The median home price declined 11.6% to $192k and home owners lost $1.4 trillion in the 4th quarter alone.
However, I am skeptical on those numbers. First Zillow does NOT include a foreclosure sale in its estimates (as it being an anomaly) – being that they are now the norm, I think they SHOULD include them. Being a guy in the market – the price is the price – it doesn’t matter the condition of the sale, what matters is price. For Zillow NOT to count them is just a semantics game. If you took the time to look in my hood on Zillow and look at last sales (with *, because those sales were NOT included in the estimate) you would see that spread is between 25-50% - the only homes that HAVE sold in my hood in the last year ARE distress sales. However, Zillow doesn’t want to include those. So am I to imply that all those people buying homes in my hood are getting massively great deals? Can I really turn around and sell my house at Zillow’s price? Obviously – (in my neighborhood any way) – Zillow doesn’t compute.
The data that Zillow released is now doubt bleak, but add in the Vice President’s quote – “It’s like a runaway train gaining momentum, It’s difficult to say when we’ll see a bottom to the housing market.” – well it doesn’t look good.
Visit Zillow for fun www.zillow.com – but don’t put too much faith in the numbers. In my hood the margin for error is 25-50%. What is it in your neighborhood?
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Futures Pre-Market
The futures are fairly flat right now – waiting for something to come out of Washington on the next round of bailout money. Arb traders are sidelined – as the spreads are narrow.
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Support / Resistance
Waiting …. It seems.
INDU 8000 / 8500 (I know we closed below 8000 yesterday – but I still say we could be in a wider support range – since the other indices have not followed suite.)
NDX 1100-1150 / 1200-1250 (NDX closed up near the lower resistance band and while the VXN was up 3.4% yesterday the statistical volatility has been coming in – are options implying hidden statistical volatility? It would seem)
SPX 800 (850) 900 (We are below the pivot point – but not down to supports yet. Giving the INDU a little hope)
RUT 400 (450) 500 (Remaining strong at the pivot point)
I have added gold as a request by several people on what I thought – along with Silver and Oil -
YG 850-900 / 950 (Gold is in the upper resistance area – the dollar has held its ground against currencies fairly well – but I think inflation is in the cards. I think a pull back to 850 is a real possibility – but the trend is higher overall.)
SI 11 / 13 ( We are trending higher – I am a spot buy at anything below 10 – no questions asked.)
CL 35 / 45 (We could get a nice blip down to 35 – but this band is a staging area – I think we could see 50 sooner rather than later. Anything in the 35-40 range is support in my book.)
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Conclusion
I think we are generally in a holding pattern, the excitement of Obama winning is starting to fade and we are getting back to business. He came out of the corner with a couple of big swings (Executive order and halting the trials) – however we seem to be in a rope-a-dope with no head way on the Stimulus package – which has turned into a more wait-n-see.
The market is seemingly waiting for something – but the news is just pounding on the economy and market. The RUT is holding ground well, so is the Dollar – but Gold broke through the 900 barrier. The talk is dis-inflation and deflation – but that could quickly turn into inflation when we least expect it. Right now it is about credit flow – which is not flowing and massive contraction.
It seems to be a pause in the storm for NOW – but don’t hold your breath.
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