Another rallying and note – topping day. The revised job numbers and the GDP (-6.3%) clearly showed continual contraction. There is some good news and let’s look at it from a reasonable expectation. There IS a bottom in the jobless and foreclosures – simply because they are finite. At some point companies cannot trim any more staff and there are only X amount of homes. So we may see a bottom to the jobless and home foreclosures this year and maybe sooner than we think. But just because it does bottom doesn’t mean we should rush in. The contraction needs to stop and we need to start seeing positive spending (not deficit), jobs, currency strength, and debt reduction before we have any measure of a recovery. So while it is true we may (and should) find a bottom soon – doesn’t necessarily mean a recovery – until signs point that way.
Now for the bad news, if we thought that we are getting close to a bottom in the foreclosures, jobless numbers, etc – it was the story in the WSJ yesterday about commercial real-estate that looks like it may be the next big wave. According to the story defaults have doubled in a quarter and is expected to go higher. Rents have come off 25-40%. This morning they talked about it extensively on CNBC – it does look like the next punch of the credit crunch can happen and prying eyes are trying to find those lenders holding the hot potatoes – which means for some banks (and lending institutions) write downs may not be over. But on the other hand – just like with residential real-estate – it is a finite commodity and there is an X value.http://online.wsj.com/article/SB123802456807742287.html?mod=googlenews_wsj
_______________________________________________________
Consumer spending rose – but what does that mean?
Consumer spending numbers are tricky because you can measure dollars or you can measure moveable products. It is important to understand what we are really measuring – in the case of consumer spending they are measuring price, not products being moved. February consumer spending rose .2%, after a 1% rise in January. But that doesn’t mean more products were sold – a detail look reflects an increase in price of products purchases – which is actually eroding buying power. That’s called inflation.
On the other side – incomes fell .2% more than forecasted .1%. Between incomes decreasing and prices of goods rising – it’s certainly a squeeze play. However, foreign eyes (mainly China) was very interested in the Consumer spending numbers prior to going into the G20 meeting next week as they are concerned about inflation in the U.S (and new policies that creating inflation). As the largest debt holder in this country – it is China who extends this nation credit. They are starting to get vocal and like those collection agencies hounding those that have not paid their debt – China is saying “Stop printing money!” and has gone so far as to ask for an international currency. While that is a long shot – and would take years (like the Euro) to deploy – China is no doubt very concern.
While Obama has said the Dollar is Strong in his press conference – that is actually relative. Is it strong to the Chinese Dollar? Is it strong to commodity prices? Is it strong to Gold or Silver? Recently the dollar has been falling against all currencies – so what might of looked strong against the Euro (and Euro only) it certainly hasn’t been looking strong against all currencies or commodities.
Is this a few first crack we are seeing in the inflation dike? Can the levees hold back the dollar.
The hot topic at the G20 meeting will be inflation and devaluation and this Consumer Spending number will be a sour point with the Chinese – reflecting that inflation is coming.
________________________________________________________
Obama and Bankers meet
Goldman and JPMorgan want to return government money – after the Fed and Treasury told them to take it (even when CEO of JPM said they didn’t want it) – but the government wanted all the big players to play ball – as a “duty” to the country. They said ok – but then Congress changed the rules, and then changed them again, and are not threatening to change it again. Goldman and JPM said enough – we didn’t NEED the money, we don’t WANT the money, and we certainly are not going to concede to all these changes Congress wants because NOW we have taken the money. So they want to give it back. The tax payer should be happy, so should Congress, and the government – because that means they are GIVING it back and maybe we could pay off some of our national debt, or reduce the deficit, or it could go to those that may actually need it.
But that is not the case – Congress is mad – and doesn’t WANT them to give it back – because Congress wants to impose their rules and they can only do that if they lend the money (which gives them leverage). Obama also doesn’t want them to give back the money – because he is afraid that it might show WHO the strong banks are and WHO are the weak banks. However – we all KNOW who the strong one are and who the weak ones are:
Goldman, JP Morgan, and Morgan Stanley are in the camp where they can actually give money back.
Citi, Bank of America, and some others are in the camp where they might even need MORE money.
Would giving back the money by a few create a run on the others? Probably not unless Obama and Congress make a big deal out of it.
So Obama is going to meet with these CEOs and try to convince them – but what the CEOs really want is for Obama to STAND UP to Congress and say – create the rules BEFORE giving the money and don’t change them AFTER. I don’t think Obama will stand up to Congress or actually voice his concerns – that means expect this meeting to be more a political stunt to show that they are working WITH each other and I am sure the Press Office of the White House will have some hand holding and hug story that everything is fine.
_________________________________________________________
MGM is it a Mirage?
MGM fell almost 10% as the casino company controlled by Kerkorian (the 3 times failed American auto investor) is now struggling to make payment deadlines today. Many are concerned that it could quickly fall into bankruptcy as a large portion of equity was pledged against loans – some for new projects on the strip – but others believe he may have used the funds in his failed acquisitions in GM, Ford, and Chrysler.
Stock is getting hit in the pre-market.
_________________________________________________________
INTEL sells to buy?
INTEL stock is down in the pre-market as the company plans to sell as much as $1 billion in stock to fund potential acquisitions. However, one analyst made an interesting observation – (which would stand to reason) – money is becoming very cheap to borrow, why not borrow the money instead of selling large amounts of stock (which reduces the equity holdings) if there is a potential of acquisitions, which means growth? Would you want to OWN lots of stock if you thought it had potential and borrow money cheap for those acquisitions?He is right – that means one of the following:
1. Money is actually really tight and INTEL is not able to borrow what it needs – which means they possibly have a credit problem.
2. INTEL sees a slow down and needs money today to keep going.
3. INTEL doesn’t see a positive futures in the near-term with or without acquisitions and wants to be flush with cash
4. Inflation is coming and they want to leverage their cash as stocks may not increase in value fast enough to beat inflation
Without doing more homework it will be hard to tell – but there is more than what they are saying- you just don’t dump $1 billion in stock to raise money for “potential” acquisitions. That is just marketing speak for something else or a Red Herring.
__________________________________________________________
Futures Pre-market
The futures are coming off pretty good after this week’s massive rally – the spreads are in – so expect the Arb traders to buy futures and sell the basket. Expect a down market at the opening.
__________________________________________________________
Supports / Resistance
We are testing the resistances and are very close to those big numbers if not through them.
INDU 7500 (7750) 8000 (Only 75 points away from 8000 – do we touch it – it doesn’t look like it. That may have been it.)
NDX 1200 / 1285 (1285 was the previous two tops in Jan and Feb – we are right there – it looks like it is pulling off)
SPX 800 / 850 (We could go a little higher before testing resistance – unlike the INDU and NDX)
RUT 400 / 450 (Actually 450 is not the broader resistance levels – it too has some more room – but it does look like we may see some pull off from 450)
============================
Gold 900+ (Gold has been moving between 900 – 950. I think we might get some movement to 1000 or 800 after any fallout from the G20 meeting.)
Silver 13+ (Same goes for Silver)
Oil 50+ (It has flirted with 55 level and now is pulling off to 52.50 this morning. Does 50 hold?)
_______________________________________________________________
Conclusion
Optimistic rally – talking heads are trying to dig through the garbage of good news or spin bad news into good. Faith as I said is a very powerful emotion and tool that the government needs to use and I think Obama has used it to his advantage. However faith can also be tested – we can only follow a belief so far before the reality and gravity of a situation becomes too much to bear.
We had the biggest rally in the last 3 weeks since 1987 (and that wasn’t a good year) – additionally one of the largest market rally years was in the middle of the depression. I also saw an interesting article about candy sales rallying and drug trade picking up. Why? Because when things get bad people turn to vices. My grandfather said to me that gambling and alcohol always expand in bad times (depression and hope). My wife and I were talking – you know how people SPEND lots of money to make them feel good (they go shopping) maybe right after they lost their job or had a bad day.
Well – let’s think about this in a broader sense. The market just rallied almost 25% in 3 weeks (one of the biggest market rallies of all time in one month). Financials rallied over 50% in many cases. Yet – nothing has fundamentally changed – they haven’t even voted on many of the plans or the Budget Deficit – in fact the government is just starting with some of its plans and the bulk of the money and plans have not even been initiated – we don’t even know how well they will work or if they will work.
So WHY the rally? Optimism and perception. It is HOPE that it will work.
A healthy bull market? Well that should be a steady growth in the market (1 to 3% a month). With fundamental data to back it up. Companies are expanding not contracting. Jobs are being created, not lost. The GDP expands not contracts. The percentage of the GDP that should be growing is from consumer spending not from government printing money.
I don’t want to be a bear, but I certainly can’t be a bull – structurally speaking we are seeing a bear market rally.
I wish I could bring better news – but it is a time to be patient – we will get through this.
No comments:
Post a Comment