3/30/09 (Obama Fires CEO, Geithner Dog & Pony Show!)

Traders,

We peaked out on Thursday and Friday after a great run up – and a great time to lock in gains and hedge those deltas. Friday saw some weakness across the board enter the market – but it stopped short of breaking the up-trend support lines. The implided volatility (VIX, VXN, etc.) has been running low compared to statistical volatility (hi/low/close) – which is more reflecting the trading activity and the skew shrinking than actual underlying volatility. Looking at the VIX to gauge anything other than what it is – well is subjective at best. I have seen recent days where the VIX, Skew, and Statistical volatility are spewing contradictive data – if one was to use them to gauge any market sentiment. The one thing it has shown is that the market is volatile and even the VIX is having a hard time reflecting that.

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You’re FIRED!

Obama fires the CEO of GM (Rick Wagoner) – of course Obama didn’t really fire him, rather “word” came from the White House that he is going to step down and then Obama had more to say on TV over the weekend. However, is it really that big of a change or just public image?

Obama and the administration knew before hand and said nothing about the AIG bonuses – until AFTER the public went nuts. Obama wants to give GM another massive bailout package worth 10s of billions (giving money to the auto makers is almost as unpopular as giving money to the banks) – so Obama THIS TIME to get in front of public opinion needs to have a “fall guy” – who better than the CEO. Now Obama can say – we are seeing change – out with the old guard and in with the new. Hopefully the public will be able to swallow that lame excuse for giving more 10s of billions to GM.

Unfortunately for anyone with the slightest inkling of business will see through the charade – the problem isn’t Wagoner and it will not be the new CEO either (when they decide to blame him for the next round of funding) – the problem is SIMPLE if they bothered to do the math. The problem is the business model – it doesn’t work. Now I am NOT talking about selling or making cars – I am talking about the finance side of the business. Revenue – Cost = losses. Their costs (especially the legacy programs are billions of dollars) – GM has been borrowing money for a decade JUST to pay interest and legacy programs. That model was due to fail simply because the legacy program was growing faster than their revenue. They could not and will not be able to sell as many cars to keep up with the growth of their legacy. The whole problem is quite simply EPIC FAILURE. The problem, which Obama will NOT address is the Union and Legacy Program. (I am not saying the Union is the bad guys and that they don’t have a justifiable reason for existence) – I am saying the Union feels ENTITLED to money and does NOT care about the business model of GM. There is 1 worker for every 4-5 retired workers (legacy) who get a rather large portion of their salary including healthcare costs. At some point (as people living longer) the growing retirement pool gets too big to sustain – it is just simple math. Japan saw and learned from that – which is one reason they do not want to be handcuffed with Unions in their programs. European automakers have taken a different approach to their retirees as well.

But here is how Obama will be fooled (or is being fooled) – everyone is going to point to the bad economy and the slowdown in car sales as the problem. They can point to Japan and Europe that is also suffering. Obama – of course will buy that as the excuse of GM’s failure. Obama will also not make any move against the UAW (who help get him elected). They will restructure GM – but they will NOT solve the business model problem and I am afraid that the only Obama answer (because failure and cracking down on the Legacy is NOT an option) is for a more socialistic agenda with a heavier Union hand. Going down that road (ignoring the business model and the point of being in business in the first place) and looking at the problem from strictly a job (entitlement) issue – government aid (for the long-term) will be a fore gone conclusion.

GM is done as a business that is profitable – in my book it will be a subsidized jobs program (whether the government sees that or not – that is what it WILL become)

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Road Show

Obama and Geithner are on the road show trying to convince the American People that more bailouts, social programs, and higher taxes are the answer. The promise tax cut for the middle class has already been wiped out as Congress needs to find ways to over $3 trillion for the budget deficit. While Obama was playing Donald Trump “You’re Fired”, Geithner was on ABC telling the people they will need to spend “substantial” amounts to keep the financial institutions from failing. They have already spent 80% of the $700 billion TARP and Geithner and the Administration need to keep the door open to spend more. Thus they have to get the American people on board. Geithner has about $135 billion left in his war-chest and avoided answering the question if he will seek more (which he will if he plans on pushing forth the Obama plan).

His argument is that in previous crisis around the world and in this country the government acted too little, too late (I guess he hasn’t heard about the New Deal which there was nothing little about it or – and I hate to say this – but the NAZI’s did a great job bringing their country out of a great depression with TOO MUCH, TOO SOON - not that we are going to war – but Fascism and Socialism are both powerful tools to wield.) Additionally – Chavez has brought Venezuela forward with his nationalized programs. Geithner was selling us more government spending, intervention, control, and taxes – I’m not buying it.

Obama has already mustered his troops on a door-to-door campaign and letter writing campaign to get the people to put pressure on Congress that the Obama plan is the right plan. He seems to be back on the campaign trail again from Jay Leno to public speeches – if he is able to get the people behind him – they may put enough pressure on Congress to move in that direction. The problem is the people are sheeple – do what I say and don’t question what I ask.

Expect MORE and not less bailouts – in the tune of GM, AIG, Freddie, Fannie, etc. Geithner is justifying more intervention and Obama is mustering the troops to write their Congressional representatives that SPENDING $3 trillion plus, raising taxes (or cutting the tax break for the middle class), socialism and nationalistic reforms are a way to save this country. I ask – save it from what – a recession or the market going down? Or is it saving us from that horrible notion of Liberty?

Sorry for the rant – but the road show is getting old.

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Futures Pre-market

The futures are getting a good hit in the pre-market, with JPM and B of A predicting a more difficult time, more banks needing more money, and GM looking at bankruptcy – well the world markets didn’t have a fun Monday and the futures are seeing some pressure.

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Support / Resistance

INDU 7500 (7750) 8000 (We got close to 8000 and pulled back to the 7750 area – the question is do we close at 7750 – or is 7500 in the cards.)

NDX 1200 (1250) 1275 (We are just at that 1250 line – but it looks like it will not hold.)

SPX 800! (We are above 800 but will test it this morning – will we close above it?)

RUT 400 / 450 (400 is key support – watch the close.)

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Gold 900+ (We are still above 900 but have come off from the 950 level.)

Silver 13+ (We could snap 13, but I think there is thick support down to 12.)

Oil 50+ (Last week we almost hit 55, now we are pulling off and are just above 50 – do we break?)

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Conclusion

We all rushed in to the market after it got hit and sent it up in one of the largest 3 week rallies of all time. There was NO fundamental data or change to the economic environment to warrant such a thing – however our faith, hope, and optimism was pumping hard. However – the reality is that we are IN a financial crisis, GDP is contracting, job losses increasing, and more government aid to banks and companies. They were on TV (trying) to convince us they need to spend 100s of billions MORE. I have heard many in Europe and Asia speak of the Big Mistake - one went as far as to say “Didn’t American’s learn anything about Europe’s history?” – The U.S. has been urging their European counterparts to also spend more money – but they have backed away from that as they don’t want to put their nations into massive debt. China went as far as to ask about another currency. However, in this nation we don’t LISTEN and give little attention to what Europe, Russia, or China says – as if we KNOW better.

These actions were are taking are bets (speculative) – they are massive bets with YOUR money. The question we need to think about is SHOULD we be spending money we DON”T have – based on HOPE?

Obama has a massive force to get the “message out” – maybe my little newsletter will get you to think before you just nod your head in agreement. Don’t agree with me or Obama until you have seriously thought about yourself and bother to do a little of your own research.