We got a nice rip to the upside yesterday, I did get some emails asking me “how did I know?” – I DIDN’T KNOW – I was just making an observation that Ross, Black Rock, and others were talking about opportunity at these levels and there seemed to be a bottoming consensus making the rounds. However, let me remind you that a big rally (as good as it was) doesn’t mean that we have seen a bottom either. So these are the times to lock in gains or limit losses. They are gifts.
I also received email about Rick Santelli and Jon Stewart as to why doesn’t Jon get what Rick was saying? I certainly don’t KNOW if Jon doesn’t get it – but the video making fun of Rick implies that Rick was against the government ONLY giving people the money and not Wall Street, which isn’t true. Rick’s argument is that we do not have money to give the people OR the companies. He has been ranting for several months now – but when he made the Chicago Tea Party reference and not giving people the money – he hit a cord and now is known for that (and that alone). I agree with Rick – we do NOT have any money to be giving, AIG, Freddie, Fannie, or the People – we just can’t finance it. That leads me to the next issue….
Congress voted to KEEP their automatic pay raises – just as the nation is topping in at 8% unemployment. A Congress member did issue legislation to try to defeat the automatic pay raise, but of course it was voted down - lead by Harry Reid.
Additionally the omnibus bill is in heated debate – loaded with pork and Reid again wants to INCREASE spending at the government agencies – which the GOP didn’t want. Obama agreed to sign the bill – reluctantly (according to NPR) because it is loaded with pork and earmarks – the very thing that Obama said he would fight against. Obama did say this would be the last time.
Again, as Rick would say – where are we getting the money for all this spending?
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Banking sector rally
Brilliant, or at least the market thought that. That’s great news for the banks, I don’t know how the investors will feel about buying those assets (if they can even sell them) or the TAX payer who is seeing MORE money being poured into Wall Street. Where is Jon Stewart now – complaining about the government giving banks even MORE money as an incentive?
We did put in some serious lows and Goldman, Morgan Stanley and JP Morgan seem to be handling the market volatility better than most. Citi on the other hand still has many issues that I am concerned about – mainly their complex diversity in so many sectors. Seeing a profit after all the money injections and back stops is not really a profit in my book. Are they recovering, probably – but that doesn’t mean the problems are over or that they will not need more money (the government is expecting they will). Of course they could always get a few billion more as an INCENTIVE to SELL those distressed securities to investors. The financial and banking sector is a mine field and the fog of war hasn’t lifted.
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Inflation will return….
If you have been reading the Market Preview – you know that while I admit that we SEEM to be experiencing deflation or disinflation, it is the future INFLATION that I am very concerned about (with all the money being printed by the government and no ability to finance it). Well – at least I don’t feel alone anymore. Pimco said in a report today that they expect to see inflation as soon as 2010, because of the U.S. government and Federal Reserve’s efforts to curtail the recession has put serious pressure on the dollar – a warning for Treasury investors.
Even Buffet made mention of it in his CNBC interview, stating that efforts to stimulate a recovery may lead to inflation rates exceeding those in the 1970s, if you remember they got up into the serious double digits. Jim Rogers has been sounding that alarm for some time now – but he thinks it will be worst than even Pimco’s forecast.
Looking at the spread between the 10 year notes and TIPS (Treasury Inflation Protection Securities) widened to 88bps from 9bps in December.
Marc Faber also joined the ranks as to the concern that inflation will ramp QUICKLY, “The massive money printing we have and the massive deficits we have now will make it difficult when there are some price pressures for the Federal Reserve to actually increase interest rates.”
I have to say it… Jon Stewart are you listening? It’s not about giving money to the people or to companies – it is about GIVING MONEY! We just can’t afford it. (Note: I really like the Daily Show – but Stewart seriously missed the boat.)
Inflation IS coming, if Buffet is right it will get into the double digits and Rogers thinks we could break 20%. Expectations are for as soon as 2010. The dollar bubble is inflating and it is better to hedge than to hope.
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Futures Pre-market
We are getting a good run on the futures in the pre-market, above Fair Value. If the spread remains the ARB traders will short the futures and start buying the cash – creating an upside pop to the market at the opening.
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Support / Resistance
We made a great rally – but are hitting some resistance areas…can we continue?
INDU 6500 / 7000 (7000 is in the cards – I mentioned yesterday 7000 or even 7500 in the short-term. We may see some resistance at 7000 so it might be good to flatten out deltas at that point and let gamma give you deltas on a rally beyond the 7k mark.)
NDX 1100 – 1150 (1150 might be out of the question today, the real question is do we close ABOVE that 1100 level?)
SPX 700!!! (Again – a nice mover up – a big one. Do we close above it?)
RUT 350 – 400 (We got above 350 now let’s continue higher. Closing above 350 is key.)
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Gold 900+ (Gold is hitting the first big support area at 900, the next support would be 850. As much as I want gold to rally, I would really like it to sell off to 800 so I can buy some more – after the inflation news from Pimco that might not happen.)
Silver 12+ (Same here – would love to see it pull back to 10, but I don’t think that will happen.)
OIL 35-40 / 50+ (We are at 45 now and pulled back after a run to 50, but if inflation is in the cards – expect that to help boost oil prices.)
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Conclusion
Last year I was pounding the table to readers to hedge your equities, if you did you saved yourself from some serious losses. This year you have heard me pound the table on inflation. That is the next big wave to hit us, we just can’t print money and expect nothing to happen. Healthcare is a very important debate we NEED to have in this country – regardless of what side of the healthcare debate you are on – the government just can’t afford it right now (without putting the entire economy and inflation at risk). Let’s get the government balance sheet, debt, and deficit in order. Fight inflation. Fight recession. Then after we STOP spending, start balancing, get some money in the war chest – THEN and ONLY THEN do we sit down and discuss the merits of a national socialized healthcare system. Pimco, Buffet, Rogers, Faber (and little me) are sounding the warning alarms to inflation – it is coming. Who cares if we have deflation or dis-inflation now – it is the future we need to keep our eye on.
Time to read Friedman's quote:
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