3/31/09 (Obama Sells! Huffington vs. Frank!)

Traders,

Well Obama fires the CEO of GM the day before the dead-line of their feasibility plan (the second one) – but of course (as I suspected) whether GM did anything or not – we would give them a 3rd chance – which is of course what Obama did. Obama had to have a fall guy (the CEO) – regardless – because you can’t give them MORE money and a 3rd chance to get their act together without blaming someone. So GM has another 60 days and Chrysler has 30 days. It reminds me of the mother that keeps threatening to punish her kid, but keeps giving the kid another chance. What we DO know is that the this administration will NOT let GM fail – even if it has to turn it into a subsidize job center. What was the most silly (yet alarming) part of the whole GM Fiasco was when Obama did the GM sales pitch for them “Your warranty will be safe. In fact, it will be safer than it’s ever been, because starting today, the United States government will stand behind your warranty.” – there is some irony in there if you didn’t catch it – but you have to say it is a great sales pitch. Can you imagine the flack that Bush would get if he said that?

The market didn’t like the Auto news – one of the unsettling remarks that kept surfacing in the news was the government’s ability to fire and change staff at companies – which has gotten some companies a little concern because of the double speak from the Administration – on one hand they administration agrees with the companies that the Congress should not keep changing the rules on the bailouts, but on the other the administration has the right to change the board and fire people. Which certainly creates a mixed message.

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Another merger? Rumor or not?

Alcoa was looking like it had just bottom and was making a decent return, no doubt the high volatility (down-up-down) of the commodities market has made managing Alcoa’s future more than a little difficult. But are they are takeover target? Sure, it depends on your commodity forecast, business synergy, business model, and how does the balance sheet REALLY look. BHP Billiton (world’s larger mining company) is making a grab for Alcoa (one of the biggest aluminum producers). The market is weak and some believe the commodity market is poised for a rally (in the coming year).

Alcoa is seeing a good 5% plus pop in the pre-market. There is no bid on the table yet – but the rumors are spinning.

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Difficult year ahead?

That’s what CEO of Morgan Stanley (John Mack) thinks. In a conference call yesterday he was concerned and thought it was going to be a difficult year ahead because so many toxic debts have YET to be cleansed from the banks. This confirms Geithner’s comments on ABC about the need to flood the banks with more money as well as Barney Frank hoping to water down the mark-to-market accounting rules. Over 529 financial institutions have received tax payer assistance in one form or another so far.

Hugo Banziger (Chief Risk Officer for Deutsche Bank) echoed similar comments, “ The credit crisis is far from over!", and Abby Cohen said last week on CNBC that banks are NOT yet in the clear.

Mack was one of the few bankers that recently meet with Obama about going forward and Mack indicated that Morgan Stanley would be one of the firms to buy and bundle-up toxic assets and resell them to their clients. He concluded that while he did hear about all the talk coming out of the Administration (and Congress) about capping compensation and taxes – that he is all over it. As if to imply that he is not going to let it happen or do something about it.

Needless to say – after the big financial rally – some of the top level people in the banking sector are still concerned and more money IS needed, despite the optimistic 50% rally in the sector we have recently seen.

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Futures Pre-market

The futures are making a slight rebound from yesterday – it is also quarter-end – so expect some marking today. The spread is at play – so expect some selling of the futures at the opening as ARB traders buy the cash basket. Expect a slight up market at the opening.

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Support / Resistance

We touched some of those short-term support levels – but we did hold or close above them for the most part.

INDU 7500 ! (We blew down through it, but rallied at the close to finish 20 points above it. We could test it again today – but the futures are currently pointing to a higher opening. It will be about the close.)

NDX 1200 / 1250 (We slid down from the 1250 area to the 1220 – still above the 1200 line. The futures are looking at a 1230 opening. 1200 and/or 1250 are in the cards today.)

SPX 775 / 800 (The big 800 number is what all eyes are on – it looks like we COULD get to 800 at the opening. Keep eyes on the close.)

RUT 400!!! (Again we closed above 400 –which is a positive sign. Futures are looking up. Do we close above it at the close?)

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Gold 900+ (Still above the 900 level – we have been watching gold play between the 900 to 950 level – the longer it stays in this range the more hidden volatility ramps – so when we DO see a move it will be violent and fast. I think 850 or 1000 is in the cards when it breaks – expect a hyper move in the coming weeks – volatility is building.)

Silver 12+ (Silver is in a similar position – 15 or 11. When it does move it will fast and hard. For both Gold and Silver it will really be perception of fundamental strength in the U.S. economy or not that could be the catalyst.)

OIL 50? (We dipped below the 50 line – which also go either way)


Markets – it looks like we are at a pause in the commodities – coupled with some volatility in the currencies – something is a foot – either up or down.

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Conclusion

The best entertainment this morning was watching Barney Frank and Arianna Huffington going at it this morning on CNBC. Not that I am much of a fan of either one – Huffington was getting in some serious good blows at Frank by calling the new accounting rules “water downed” and she was very upset that a lax in standards is being applied. Frank in all his huffing-n-puffing was pissed at it being called “water downed” –

But Arianna was right – when you let the regulators determine whether to apply the accounting rules OR not based on the balance sheet – you have watered down the rules. It was a good exchange and I was surprised that I agreed with other Arianna’s opinions as well. She did conclude that the Truth knows no sides. I can’t deny she’s one tough cookie and made Barney look the fool (which some would argue is not too hard to do.)

More money is needed – we have heard it from Geithner and now several others are coming out and speaking about additional concerns at the lending institutions, couple that with the story in the WSJ about the doubling in defaults on the commercial paper side – it is certain that we are not out from under the credit crisis yet.


My other concern is that the VIX, volatility in currencies, and parabolic moves in some sectors is creating more uncertainty – which some (IMHO) have confused for a bottom in the market. A revisit to the recent lows as well as spiking highs are in the cards. We may not be in a bear market, but we certainly not in a bull market – it IS a volatile market as the rules change daily and thus so does perception.