4/30/09 (Chrysler Bankrupt, Obama sells the faith!)

Traders,

We had a good run up yesterday – but did show some weakness going into the close. The market seemed to rally in the rejection of fundamental data – the GDP at -6.1% was very bad – but optimism continues to trump fundamentals. It was Obama’s first 100 days celebration and with his popularity and strong personal image he has created confidence in the face of economic turmoil.

By the way – I am sick of hearing the term “Green Shoots” – it reminds me of Peter Seller’s character in the movie Being There. Are we really listening to a mentally challenged gardener and reading too much into it.

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Exxon – profits plunge

If we are to look at oil prices plunge from 150 to 50, and we all knew about the massive expansion of the oil business during the run (with record profits) – it would only stand to reason that their profits (margins) would suffer as the commodity falls.

Their net income dropped 58% to 92 cents a share (down from $2.02 a year earlier) – expectations were for 95 cents a share. Going forward – with higher worldwide capacity – it seems with consumer spending down and the global recession we may not see a rebound in oil prices like we saw recently. With expectations of oil prices in the 40-60 range going forward – with volatility – earnings in the near-term look fairly flat.

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Government Data

Jobless Claims – decrease at a slower pace (by 14,000 jobs) to 631,000 from 645,000. While still at record levels – it does show signs of slowing.

Consumer spending however unexpectedly declined by .2% - which clearly shows that consumers have less to spend and still have little access to credit.

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Chrysler – Bankruptcy / Merger

It’s a convoluted deal and so complex that I have yet hear ANYONE clearly explain exactly what is going to happen. There are the debt holders – with some holdouts, a unusual bankruptcy structure, and a merger with a foreign company. There are so many hands in the pot that I don’t think anyone really has an idea of what the end results will be. While Chrysler is not a public company – it could create some volatility in the auto sector as people try to make heads or tails out of it and apply that perception to GM and others.

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Rates and Fed Policy remains unchanged

The Federal Reserve voted to maintain their policy of purchasing bonds to keep the 0-.25 bps rate in place. With the massive $3 trillion budget, the Treasury will need to finance a massive sum. The only option is for the Federal Reserve to print money and purchase Treasuries.

Their statement indicates that while contraction has slowed (and not recovered) the economy remains weak – as job losses and tight credit inhibit consumer spending.

The additionally said they will keep purchasing as much as $1.25 trillion of mortgage-back securities, $200 billion of federal agency debt, and $300 billion of treasuries. It seems the Fed is keeping some powder dry (or you could say some paper and ink) because as Bill Gross (of Pimco) says, “By no means are we out of the woods!”

The Fed made it clear that the “recession” has slowed, but certainly has not found a bottom yet. We are not in recovery mode and probably will not start a recovery until 2010 at the earliest. However the signs of the sharp decline slowing means that we may find a bottom soon.

The big concern that remains is the commercial paper which saw defaults double in the first quarter. Economist are still concern that while it has not made as big as impact as the retail paper – it is still a big unknown at this point.

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Futures Pre-market

The futures got a good boost in the pre-market as confidence returns to the market, despite of the GDP number. The spread is end but has started to come off from their highs. Expect a pop at the opening if spreads remain.

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Support / Resistance

POW - a strong move higher! Can we get follow through?

INDU 8000 / 8250 (8000 was a pivot point as we swung above and below for the last week. Obama shoveled more confidence into the market – in the face of the negative GDP and help sent the market higher. Do we test 8000 – futures spell at higher opening. Watch the close!)

NDX 1350 / 1400 (The futures are pointing to a higher opening – we go a good rally yesterday – but saw some weakness at the close in some stocks that had made huge spurts to the upside. 1400 is in the cards at the opening.)

SPX 850 / 900 (Is 900 possible – you wouldn’t of thought so a couple of weeks ago and while we may not see it at the opening – there are a couple of analyst that have raised expectations to 900, but are they a day late and dollar short. Futures show an opening of 880.)

RUT 475 / 500 (500 – that is where we started at in 2009 and we could see that this morning. It is a big number to get through – is it resistance. Watch the close.)

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Gold 850 – 900 (We are right up against 900 and have been playing ping-pong between the 850-900 range.)

Silver 12+

Oil 50 (It is crazy that we are seeing this as a big pivot point – up down up down)

USD (We are starting to see weakness in the dollar as global currencies rally – was it the Fed buying more treasuries or the big negative GDP?)
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Conclusion

Obama’s press conference (reviewing the first 100 days) was awesome. He did an amazing job, he is well spoken, and addressed all the issues. His shoveled confidence and hope into the economy and regardless of how bad it is – he makes everyone (whether you are Right, Left, or Middle) feel that we WILL get through this. He looked straight into the camera and while he did clearly indicate that we are NOT in a recovery, but rather the economy’s fall is slowing down, we WILL recover. He did it with such conviction that regardless of the poor economic data (GDP worst than expected, Chrysler filing bankruptcy, increase in jobless claims, housing prices continue to fall, banks need more money) – people didn’t seem to care.

While I am not a fan of his politics (from the economic side of things) – I can’t deny that he is truly a great speaker and leader. Proof being that he can raise confidence even in the worst of times. I am a huge fan of Churchill and one of Churchill’s greatest qualities was to inspire a nation as it faced insurmountable odds. While I certainly am not saying that Obama is any Churchill, he does have that quality to inspire a nation regardless of the continuing horrible economic data and problems we face. He is correct – we will get through this – the question is when and what is the future fate of his decisions.

All that being said – and as I sat there listening to him (probably not as glazed over as most) – I still can’t get over the $3 TRILLION dollars. That is what rings hollow in his words (to me any ways). $3 trillion dollars, $3 trillion dollars, $3 trillion dollars. He is spending $3 trillion dollars. I just can’t get that out of my mind – our Fed reserve has over $1 trillion dollars of debt and printing money to buy our treasuries (not 100s of millions, but 100s of billions).

It seems so very clear to me, and I can’t figure out why other people don’t get it. Printing $3 trillion having the Fed finance it by printing more money, tax revenue that is massively down, there is really NO WAY we can pay for it – not for generations. As much as I like the man, Obama – I just can’t get over the whopping printing of money. However, no one seems to care or maybe they are blinded by his optimism and hope. Or maybe call it Blind Faith.

Regardless – he has brought confidence and optimism in the face of some of the worse economic conditions this country has ever seen. That means the market can continue to go higher in the face of poor fundamental data. But at some point we need to see results and find a bottom, not just “green shoots” or a slow down in a sharp decline.

4/29/09 (Obama Popularity, GDP Ouch!, No Double Dipping!)

Traders,

Yesterday seemed quite – we await to see the seriousness of the swine flu (as WHO raise their alert), Stress test is still in the wind – but rumors are a couple of banks need more capital, earning season ends with a few positive surprises (but many lowering forecasts), and we celebrates and review the first 100 days of the Obama administration.


I did get quite of few emails about my grading of Obama and let me clarify simply – I think his most valuable accomplishment is bringing optimism to the table, which is something we most certainly need and was reflected in the consumer confidence number (which initially sent the market spiking up mid-day). My criticism (abet constructive) is that I would hope that he could convert some of that popularity into action. I appreciate that he has taken on probably one of the most difficult times to ever become a president and he sure has not wavered in his conviction and optimism, all of which are important. However, with full control of the House and almost full control of the Senate (which now he has) – he has not able to get his party to come together. Maybe it is because he was a junior senator and some of the senior congressional members in his party wish to have a bigger say and not be steered by someone his junior. There has been push back on his policies, specially economically. He (and Geithner) want to (almost have to) go back to reload the TARP, but he knows that will be a hard sell to Congress. Additionally he is getting push back on his Cap-n-Trade policy – especially from those energy producing states and we can guess which way Specter will vote on those lines. Health Care on principal is going forward, but many Democrats have their own thoughts on which way it should go and how it should be implemented.

He is our president and it is our job to make sure that he HEARS the people’s voice and our job is to write and contact our Congress members and Senators to make sure they represent the people and put the their best foot forward and our responsible with our tax payer money.

I think the next 100 days will be measured more by accomplishments, rather than just popularity and rhetoric. Even Bush was popular (not nearly as much, but was none the less) in his first 100 days as well. At the end, a president will be judged by action and not mere words. I wish the president the best, I know he is well intentioned and very smart – regardless if I agree with all his policies or not. My biggest concern is that he does not knee jerk to the present without carefully measuring how it will impact our future.

These markets, probably more than any other time in recent history, are reacting to political policies rather than fundamental reality. And that means the government can help make or break the market – more than any earnings report.

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GDP – OUCH!!!

The economy contracted 6.1% decline – more than expected. But that should be expected – job losses, little to no access to credit, means that consumer spending will continue to contract (which makes up 70% of the GDP). Until we see credit flow and/or jobs pick up we will continue to see a contraction in the GDP.

We must remember this is a CONSUMER country – not a PRODUCING nation. That model is a little precarious because it means that consumers need jobs and access to credit to continue to spend. The nation is unable to rely on trade or production to make up the difference. As a nation that produces very little we are also exposed to currency, transportation, tax, price risk – since goods need to be purchased, shipped, and possibly taxed from abroad.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5JDhODWL6J4&refer=home
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Stress Test initial results

According to Bloomberg, 6 of the 19 largest U.S. banks will require additional capital (according to preliminary results). However Obama and Geithner have a serious problem, the TARP is low and it needs a serious reload. That means going back to Congress to get more money, which is very unpopular and will mean that political deals “earmarks & pork” will have to be added to get the votes. It’s sad that it would seem that blackmail and extortion is a political method to garner votes – but just like the last round of TARP the bill had 100s of pages of pork. How does a member of Congress vote for something unpopular? Get some money for the state, union, or special interest group that will keep them in office.

So what does that mean? It will mean that the Banks will have to raise money by converting preferred shares into common and look “hope” they can leverage back up in the private sector. But that has its own problem, what private investor wants to get into bed with a bank that is seriously deep in bed with the government? The risk of investing along side with the government is several fold, government is first out, government can move back to the head of the line, bond holders could get wiped out, nationalization, bankruptcy, and/or more Congressional mandates that could affect the company. Private money is looking at GM, AIG, Freddie, Fannie as well as the Congressional pressure on existing banks and they don’t like what they see.
The challenge are these:

1. Can Obama and Geithner double dip the Tarp and get Congress on board?
2. If not, can the banks raise ENOUGH private capital?

What may happen is that we don’t initially reload the Tarp, banks fail at raising enough in the private sector, we face banking problems AGAIN, Congress caves and reloads the Tarp in the 3rd quarter and we start over again.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiz06xRmmeOQ&refer=home
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Futures Pre-market

We initially saw the futures on the rise slightly – then the GDP report came out which initially sent a spike to the downside and then some volatility. Futures are still up, but off their previous gains. If these spreads remain we may see a small gain at the opening.
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Support / Resistance

INDU 8000? (We dipped below and closed right above 8000. Futures look positive at the opening – but watch the close and see if we test again.)

NDX 1325 / 1350 / 1375 (We are testing that 1375 range and look to do so at the opening if the futures remain at this level.)

SPX 835 / 850 / 875 (We were right in the middle and look to open higher – but below that 875 line)

RUT 450 / 480 (The RUT was the only positive index yesterday – out of the 4 – and looks like it might test the 480 area.)

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Gold 850 – 900 (Back into the range after we saw it break slightly above)

Silver 12+

Oil 50 (which seems to be a pivot point)

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Conclusion

The market seems to have stalled and is trying to figure things out. Obama has brought much needed confidence to the market, but the bank stress test shows that almost half are still seeing serious problems, jobless claims continue to move higher, home prices continue to fall (but more slowly), and companies are lowering forecasts. Certainly the contraction of the GDP was not good news this morning. So we wait – we WILL get through this but it seems that the ECONOMY has not put in a bottom yet – and the market is determining if it still needs to put in a bottom as the economy has not.

This pause is frustrating as the Bulls are not confident to get long and the Bears are seeing optimism and hope trump fundamentals. The market moves on perception and Obama had done a great job of bringing HOPE to the economy. I have a feeling we can only ride the HOPE train so long before we need to see results.

The market will be seriously hanging on a thread as to how Congress, Banks, and more government data pans out the next quarter. I am hearing lots of “Summer Doldrums” talk – thinking the market will not move up or down any significant amount over the next quarter as everyone digests where we have been and where we are going.

4/28/09 (Bank Rumors, Obama Report Card!)

Traders,

The market looked weak, then strong, then sold off. The fly-by with jet fighters in New York did create an intraday (abet short) panic (brilliant communication). The Swine Flu has also spread and the World Health Organization (WHO) has raised their alert level (because it doesn’t look like the virus can be contained), one report says that there may be more that have the Swine Flu, but it is under-reported because of the it may not be tested for an just thought as being a cold or common flu – there is a 24-48 hour testing lag. Which would seem to make sense, as the CDC reports only ONE person in Ohio to have it. The question (beyond the health risk) is how does it affect the economic situation?

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Citi and B of A – need more….

The rumors had been out (leak or not) that Citi and B of A were not coming up with “A”s on the Stress Test and the information circulating meant that they were in need of more capital. One of the concerns that have been making the rounds is the default increase on commercial paper (with a heighten sense after General Growth filed bankruptcy).

Collectively Citi and B of A have received almost $100 billion from the government bailout and CEO Lewis (B of A) is under fire for keeping information about the Merrill takeover from shareholders. He reported that Paulson (former Sec. Treasury) as well as Bernanke pressured him in to keeping silent about Merrill’s expanded losses back by the threat of not receiving government money. Of course none of this was written down so it is turning into a “He Said – He Said” issue. Shareholder’s are scheduled to vote tomorrow (possibly replacing him). CEO Pandit (Citi) isn’t much better, he hugely profited by selling his hedge fund to Citi, before becoming the CEO – and a short while after becoming the CEO his fund collapsed. His job as well is in jeopardy.

But the “Big Two” are not the only ones – it would seem that some of the regional’s also need some capital – including Sun Trust and Fifth Third.

Citi and B of A are getting hit in the pre-market – and are pulling the financial sector down. The administration has done its best to keep the results secret – until the release – but that has not stopped the rumor mill.

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Earning season comes to an end…

We are in the closing stages of the earning season, the story seems to be lowering forecast – with few surprises.

Pfizer - beats estimates (54 cents a share) – they look to have a little problem in the pipe line but nothing to curtail growth for the long haul. The whole pharmaceutical sector is getting a boost (even if they don’t make anti-virus) from the swine flu scare.

U.S. Steel – miss and report a loss that was more than twice estimates. Moody’s downgrades over $1 billion of the company’s debt to junk status.

Baidu – beat estimates as China’s largest internet search engine is gaining market share.

Office Depot – best estimates and has been taking the fight toe-to-toe with Staples (that has been having problems).

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Futures Pre-market

The futures are off in the pre-market from the swine flu alert raised coupled with Citi and B of A stress test result rumors. Expect some downside pressure at the opening if the spread remains.

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Support / Resistance

Testing the numbers?

INDU 8000 (Surprise – we will be testing 8000 again this morning – based on futures in the pre-market. Where do we close?)

NDX 1325 / 1350 / 1375 (The NDX has stretched further than the other indices through resistances – it is seeing a slight pull back this morning – testing 1350 is a possibility at the opening.)

SPX 835 / 875 (We are seeing weakness in the futures – the 835 level seems to be key – do we stay above it?)

RUT 450 / 480 (We are seeing some downside pressure, but well above the 450 level for now.)

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Gold 900+ (We are seeing a pull back, but the futures are still above 900)

Silver 12+ (We saw a pull back after it looked like it was going to break 13)

OIL 50? (We are below 50 again this morning )

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Conclusion

The Stress Test and the Swine Flu are the big market factors. Of course the Obama first 100 days special (with a stream of people grading Obama’s first 100 days) – a T.V. special, please. Obama is a smart guy, great orator, and with some of the best intentions. Now doubt he has brought “Hope” and optimism. All very important, my biggest criticism (while I don’t agree with some of his policies) is that he has failed to convert his popularity to action.

His visit to Europe, while popular, came back with nothing. He was unable to convert his popularity into policy by getting Europe or other nations onboard with his economic policies that he has (via other channels) pushing forth with monetary easing. I would of thought he could of arrived in Europe and close the deal.

On the domestic front he has created (just like Bush) more partisanship, which is disappointing. He may not like the Republicans – but he continues to push them away. While it was important to release the “Justice Department” information on the previous administrations torture information – his timing sucked. He is trying to pass a Budget, fill a cabinet, pass stimulus, and probably reload the TARP – why stick a fork in the eye of the Republican party and sling mud at them? I am not saying they don’t deserve it, but how about wait and pass your agenda before you start beating them up?

His National Health Care seems to take top spot on the agenda and he is already getting some push back from some Democrats – because there are many opinions on how to move forward.

My grades would be as follows:

Presentation and Speech: A+
Economic Policy: C-
Bi-partisanship: D
Foreign Policy: Incomplete
Health Care: C
Budget: D-
Congressional Control: D

Celebrity Grade: A+

Over All Grade: C

He sure doesn’t have an easy job with this economy, foreign policy issues, health care, etc. Whether I agree with him or not – he is a very slow starter – proof being that after the first 100 days he still has not filled his cabinet positions. I think he needs to capitalize on his popularity now (both domestically and internationally) - because people can only listen to rhetoric for so long before that start wanting to see action.

Also the Obama celebrity campaign (from DVDs, commemorative plates, Obama coins, talk shows, etc.) needs to end, HE WON! Now it is time to step up and Lead! Now we have a T.V. special? It is turning into a variety show – the sad thing is it will be praise and not constructive criticism, which is probably needed. I am not talking about anti-Obama views – but rather what he SHOULD be doing.

We only have one president, we need (both parties) to work together and get through this. Unfortunately the Bush Hate runs deep (rightly or wrongly) and it doesn’t seem like they are all able to play in the sandbox.

4/27/09 (Pig Flu?, GM tic-toc! Goldman Rolls!)

Traders,

A slight rally to close the week – we did get above (AGAIN) the 8000 line in the INDU, just like it seems every other day – above – below – above – below. Futures are showing that we will move below the 8000 line (AGAIN) today – go figure. For whatever the reason it is the pivot strike, the push-me pull-you mark, the fight between bulls and bears. So far one only gains to falter the next day.

The weekend seemed that it would be quite – minus the reviewing of the Stress Test, which the largest criticism was aimed at the 8.9% unemployment assumption. Many feel that number is too low – since we are close to that number anyway, it doesn’t really reflect a STRESS by rather the current environment. Suggestions had been for 10% to 12% to reflect STRESS. There was some other criticism as well – most seemed content with the concept, just not the variables. Correct in so far is that the purpose of a Stress Test is to show STRESS. The rumor mill already has two banks (of the 19) that will immediately need more capital. How much and which ones – where not circulated. The skeptic eye will be viewing the results, now that we have the methodology (criticism or not). But after all that hot wind of arguments about the Stress Test which seemed to be the lead story going into the weekend, it was the PIG of a story that took center stage.

The next pandemic fear has ripped across the headlines (not actually the globe). A swine virus has kill 30 – 100 people (depending on the report) in Mexico, with 1,000s (or was it 10,000s of thousands) now infected. A couple of cases in the U.S. and abroad as well. Reports are filtering in – but nothing is certain at this point. What it has done is put some pressure on the market, mainly in the airline, travel, and hotel business – as it could mean both business and vacation travel is cancelled in the face of a possible outbreak. Several drug companies on the other hand are getting a big boost as all eyes are on vaccine or any medicine that may curtail the spread.

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GM has a month

The clock is ticking and of course they have had two deadlines in the past that have come and gone, so is the 3rd time it? GM will be closing several more factories, bringing to the total in the U.S. down to about 25, from about 45 last year. It is doing everything it can to stave off the June 1st bankruptcy date. However, it looks like a little too late – cost cutting and the downward auto market combined with their massive debt is just too big to get in front of. These efforts should have been done last year, but it wasn’t because they believed they were “to big to fail” and the government would ride to the rescue – the government did, twice. But at some point they must draw the line, will that line be June 1st?

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Goldman, an opportunity fund – but at whose expense?

An article in Bloomberg this morning suggests that Goldman (after become a bank to tap the Fed) is back and trading as if the last 12 months had not happened. According to the value-at-risk model – the daily estimates of trading loss risk for a single day has risen to $240 million (per day) – 22% increase and twice that of what Morgan Stanley holds at risk (daily value-at-risk).

Goldman saw opportunity, and some may say they shrugged of the responsibility of converting into a traditional bank and had access to both the Tarp and Fed Discount window. Was it leveraged opportunity or just status quo? Regardless it generated them twice the return of Morgan Stanley and some of that profit was generated by the increase of risk taking.

The story has some interesting observations – but it two things will be reviewed – should they pay back the TARP and are they increasing their risk appropriately for a registered bank?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a.DWey.dMKrw&refer=home

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Futures Pre-market

The futures are getting hit – primarily from the swine flu which has sent global markets to the downside. The spread is in so expect some pressure on market at the opening.

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Conclusion

Above on Friday to head below today?

INDU 8000! (It looks like at the opening we may head down below the 8000 mark. Do we close below or above?)

NDX 1325 / 1350 / 1375 (We got a neck stretcher in the NDX on Friday compared to the other indices. 1350 is in the cards today – but watch the close.)

SPX 835 / 875 (We may not test the 835 level today but 850 is in the cards.)

RUT 450 / 480 (465 is the opening look and 450 could be tested today.)

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Gold 900?! (We are above 900 after a couple of weeks of ping-pong between the 850-900 range.)
Silver 12+ (almost above 13)

Oil 50? (We just fell off below 50 – maybe because people are going to travel less because of the Pig flu?)

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Conclusion

We are getting a little derailed from the economic problems with the Swine Flu that is making headlines. Let’s hope that it doesn’t do anything, but make a few headlines.

We are well into the earnings cycles and we did have a few surprise beats (but the bar was set very low), it is important to keep in mind that the forward guidance (for the most part) is set even lower. That means it too will be an easier hurdle to jump. We are also waiting on a couple of big events; first, what happens to GM on June 1st? (another bailout by the government or a bankruptcy), and second, what is the results of the Stress Test?

Let's hope we don't get derailed...

4/24/09 (Built Ford Tough, Earnings, Ping-Pong!)

Traders,

Yesterday’s action was again mixed – the RUT (broader base) saw weakness and didn’t participate as much as the narrower based indices – but for the most part the end of day rally erased earlier losses. The earning season has been in full swing and the stories are as follows:

1. Banks beat estimates (and in some case show profit?) – which it has been heavily criticized. Note bank stocks have stalled after their recent rally as earnings come out.

2. Almost all companies are lowering forecasts considerably – which would imply the recession (or slowdown) will remain throughout 2009.

3. Revenues and profits have been down across the board.

There are some bright spots, this morning’s Ford earnings are looking like they might of found a bottom or at least on the right tract. EBay had record traffic and looks to maintain steady margins. Apple earnings beat substantial and while they lowered their forecast it didn’t suggest as bleak a picture of many in the technology field.

All that being said – it doesn’t seem that the Bulls of the past (looking at steady double digit growth is going to return) are not going to see that kind or growth and the Bears are certainly not going to get a crash. You could say the “summer doldrums” is a period of consolidation and finding balance. There is still many problems and bumps ahead and some companies are finding a “REAL” bottom (without government aid) – and other’s remain murky as to their true financial woes.

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Built Ford Tough!

The good news, Ford went it alone (no government aid). They hunkered down and cut costs considerably they worked through all their problems and trying to find a bottom fast and not shying away from reality. They still have a very tough road ahead, very tough. They cut costs by 50% in a quarter (going from an aprox. $7 billion burn per quarter to a $3 billion), while that certainly doesn’t solve the massive short fall in auto sales, it is a massive step of getting their business model in check. These companies have been running fat with massive debt and deficits – which put them on a permanent borrowing cycle, in some cases borrowing just to pay interest on their previous loans and we know that road ends the company eventually.

I don’t know what happen over there, intervention, a come to reality meeting, someone maybe just realized what it meant to be in business. Whatever – they got down, dirty, and have made a huge effort to clean up their balance sheet. And GUESS WHAT? – WITHOUT GOVERNMENT AID! It makes you sick to think of the 100s of billions tosses at GM and Chrysler (which is private). Ford is surviving in the biggest slowdown in auto history! Why can’t GM and Chrysler?

So the bad news? The revenue stream looks very weak, auto sales do not seem in the foreseeable futures to start to pick up. Consumers are still struggling with credit, savings, and jobs. They just don’t have money to spend and the financing of autos has come almost to a halt (for most consumers). That means we should expect to see slow sales for some time.

So what does that mean for Ford? The news today (in the short-term) means Ford is on the right tract, they still have lots to cut to get that burn rate down more. They still have to look at alternative vehicles and finding away to reduce costs in order to reduce prices to consumers. The big threat on the horizon is China and India – which have rolled out new cars in the $2 - $8,000 range and are slowly making a move to bring those low cost vehicles to the U.S. – Ford will need to compete (like back in the 70s vs. Japan).

I am very impressed with their ability to get real, cut costs, and NOT take government aid. It is commendable and while they have a long and very difficult road – I think it shows that a company in the worst situation ever can fix their own problems.

This story really slings mud on GM, Chrysler, Congress, UAW, and the Administration. For all the money we have tossed at Chrysler and GM – they didn’t get real. They kept the status quo and the money was a crutch to maintain a crappy business model. Now even Obama (after tossing billions at these two automakers) has admitted it was all for not and there is a high probability of bankruptcy.

Maybe not getting money, was tough love for Ford. Because it would be quite disappointing for the taxpayer to see Ford (who didn’t get money) survive, and the two that received billions of taxpayer money fail.

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Durable good order fall – less than expected

Orders for durable goods fell .8%, less than expected. The slow down had many economist expect a larger slowdown in orders for goods by manufactures. One economist on Bloomberg made a statement indicating that existing inventories (excluding autos) may have fallen more than expected, which could be one of the cause for it not falling as much.

Once we start peering into the numbers we see some areas are worst than others, obviously we all know about the autos (GM is closing plants down for extended periods of time). Transpiration sector saw a decline of 1.4%. Also declines were seen in computer manufacturing after reporting a gain in February. GE on the other hand said that due to their diversification they are seeing a mix bag and their impact to the slowdown is less dire.

We are still in decline and the only bright spot is that it is not as sharp as previously indicated.

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More earnings…

AMZN – Amazon beat estimates and their free shipping has helped captured more market share, while still seeing a slow down. Their electronic book “Kindle” sees better than expected sales. They lower forecasts.

AXP – American Express saw a massive drop in profits (over 50%) and a sharp increase in delinquent payments, but they had significantly lowered their forecast last year and they drew such a dire picture that it was hard not to beat it. Even with the horrible numbers and losses, they were less than expected and beat estimates. Of course they have set their forecasts to even more embarrassing levels, which will be hard not to beat. Stock is up in the pre-market.

MSFT - Microsoft beat estimates and are talking about bigger cost savings for 2009. Tightening the belt, which could be considered that they are lowering expectations. However, MSFT is still moving product – even on the lower cost sub-$500 machines.

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Futures Pre-market

The futures are up slightly in the early session. Ford is helping – but the lowering of forecasts is showing that we may not see a recovery in 2009. There is a small spread in – if it remains – expect ARB traders to short the futures and buy the cash – creating a small pop to the upside at the opening.

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Support / Resistance

Down/Up/Down/Up – are we building a trading range?

INDU 7750 – 8000 (Down getting close to the 7750 level, Up getting close to the 8000 level. Where to next? It seems that Ping-Pong is the market game for now as we absorb the earnings and the lowering guidance going forward.)

NDX 1300 – 1360 (Again – ping – pong. The futures look up compared to the rest – because of MSFT and AMZN which are helping spur the futures in this index.)

SPX 835 – 875 (Ping-pong? Yeah – we are getting a slight pop in the futures – helped by a boost in a couple of techs.)

RUT 450 – 480 (Unlike the other futures – this is fairly flat – since it is broad there is no overweight in the index to drive it up or down in the pre-market.)
==========================
Gold 850 – 900 (Ping pong)

Silver 12+

Oil 50+ (Looks like we broke through 50 – for now. Otherwise maybe we go back to the 45-50 ping-pong game.)

I guess the story for now is – you guessed it – ping-pong!
______________________________________
Conclusion

The Ford story is putting egg on GM and Chrysler’s face – Ford is not out of the woods, but has been busted hump to get to the bottom and roll this balance sheet – Good Job! AMZN and MSFT looked better than expected – but are also guiding lower (of course with consumers having less to spend – what can they do?). American Express on the other hand is completely embarrassing, I don’t know how anyone can get excited about their story – because it is looking worse not better. Sure they beat kneecap level expectations (but that wasn’t hard) – and they are seeing ramping defaults – GREAT. If you think FOX or CNN “spin stories” – all you have to do is listen in on some of these conference calls to see where “spin” is raised to an art form.

Now we wait for this Stress Test – my guess – Everyone Passed and Everything is FINE!!! Of course they are grading to a serious curve and are using the “No Child Left Behind” model.

4/23/09 (Apple over value? Ebay under value? UPS ouch!)

Traders,


Interesting action yesterday – down, then a solid rally, then a sell-off in the last hour. It seems the market still flirts with the 8000 range in the INDU – above/below/above/below. The bank earnings continue to come out (and for the most part beat estimates – but the earnings are suspect at best). Almost every company reporting has lowered forecast (rightly or wrongly – playing it safe with a more conservative forecast seems to be the game plan.)

As the market flirts above and below the 8000 range, Gold sits between 850 and 900, Silver sits at 12, Oil between 45 and 50, and the world waits for something substantial to hang our collective hat on (good or bad). Will it be the Stress Test, who knows – criticism abounds, the TARP’s popularity in Congress wanes, and commercial paper seems to be the next big concern.

No doubt at some point we will find a bottom and be able to point to it – but the comingling of politics, bailouts, accounting changes, and intervention clouds the ability to see the problem or find a bottom.

The waiting game seems to continue.

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Apple Beats Estimates

Apple – the leader of innovation – has had a couple of setbacks, Jobs being sick, no new surprising innovative technology in the pipe-line, and a consumer with significantly less buying power. Apple had significantly lowered their expectations last year going forward (Apple tends to be conservative in their forecasts). The estimates came in line with those expectations, but Apple surprisingly beat those estimates and surprisingly so. The big strength on their books – the iPhone! The iPhone has become more than just a phone, it is really a small computer – from email, surfing the net, and the massive amount of applications (Apple is about to announce over 1 billion downloads of applications). It certainly has changed the way consumers interact with the market. I don’t even think Apple expected it to carry so strongly in the slow down. All good news…so is there any bad?

The bad news is they (like other companies) are forecasting lower. The see the weakness in the consumer (worldwide) and while they are going to be releasing the next generation iPhone and cutting costs on current models – the reality is that consumers are tapped on credit. The application arena could make up for some short falls in margins on the iPhone side – but there is nothing in the short-term (or the rumor mill) of new innovative technology – just the next generation existing product lines.

The stock in the aftermarket has taken the news well, even with lowered expectations. The stock is back up to yesterday’s highs in the pre-market ($125) – which as an overweight in some of indices – helping drive futures in the pre-market higher.

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EBay Beats!

EBay is one of my favorite companies, from a business model standpoint. They don’t have to spend money on R&D, inventory, shipping, etc. They have eliminated or limited many traditional business model risks. They are a pure transaction business on the internet. As a business plan it is brilliant and a revenue generating machine. Their acquisition of PayPal was one of the best synergistic fits of any merger in the last few years.

It was the most visited U.S. e-commerce site. It best expectations and it looks like many of its changes to their site have been an improvement. So why isn’t it rallying higher like some other stocks? I would say it is all perception – it’s hard to really get excited about a company that has created an online garage sale. They don’t make anything exciting like Apple. I guess for a retail/internet/technology company they are not that sexy. That’s really too bad – because from a business model it is pretty awesome.

We may see EBay sales and transaction expand in a recession – as people sell their own stuff to raise money and those that need to buy things may look at the second hand items on EBay. I expect (from a business model sense) it will continue to do well in the recession.
The stock is up $1 in the pre-market.
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Jobless Claims rose 27,000 to 640,000

The previous week saw a surprise shrink to the jobless claims, but many said that was because of the Easter holiday. Now we are back to the expectations and the 12th straight week it has set a record. The automotive companies led the lay-offs and are expected to cut more in the coming week (GM just announced another 1,600 workers to be dismissed this week.) The number reflects that companies are still in job-cutting mode and as expectations that consumer spending will continue contract, companies need to shore up margins.

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UPS misses big time….

While Apple and EBay looked better than expected, UPS fell flat on its face. UPS reported a 56% drop in profit for the first quarter, as shipments from consumers and companies continue to contract. Net income contracted 40 cents a share, of course if we exclude the costs of the write-downs – profit was 52 cents a share, below the estimated 56 cents a share.
Of course they too lowered forecast next quarter to a 45 to 55 cent range, less than the 66 cent that was previously expected. Expectations are for a recovery in 2010.
Stock is down in the pre-market.

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Futures Pre-market

The futures are getting a good boost in the pre-market, mainly it is Apple grabbing some headlines and driving futures up. The spreads are in so expect Arb traders to short the futures and buy the cash basket, giving the market a gap to the upside at the opening.

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Support / Resistance

Seems to be a battle ground around this 8000 area – more of a pivot point than anything else. On CNBC a trader said the market seems to be range bound and the talk on the floor is the “Summer Doldrums” – which is rather surprising on the back of the recent volatility.

INDU 7750 – 8000 (Yesterday we spent a good part of the day above 8000 only to sell off and head lower. This morning we are getting a slight pop and maybe not enough to get up to 8000 at the opening, but no doubt we could visit it again.)

NDX 1300 – 1360 (What a range yesterday – this morning AAPL is about 9 to 10 points of the futures pre-market rally. If AAPL remains high we will see an opening around 1340 to 1350.)
SPX 835 – 875 (835 seems to be – for whatever reason – a sticky point on the downside that it just can’t get through. We are looking to head higher at the opening by a couple of points.)

RUT 450 – 480 (We closed pretty flat – but are looking to see a pop at the opening.)

================================
Gold 850 – 900 (We are getting close to 900 again – do we come off or break through)

Silver 12+

Oil 45 – 50 (It seems that we are range bound – we moved down to 45 and now it looks like we are making a move back to 50)

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Conclusion

Apple has made a massive move in the last month from 80 to 125. Now beating earnings is great, but those earnings were still a decline from a year ago and looking to shrink again next quarter. I personally think the news is out and with nothing exciting in the pipeline and expected slowdown – I think it is a little toppy. On the other hand, EBay - I think has a great story for the recession as we may see more consumers look to buy second hand items as well as sell some of their merchandise to raise money.

So for fun – I think we should put on the EBay / Apple long vs. short play – EBay goes up and Apple goes down by next quarter.

Obama and Congress are looking to curtail some of those credit card interest rates – which truly are out of hand (just below 30%). I don’t know how much traction they’ll get and while I agree with them on principal, I am sure there is some legal and contractual issues at play. It will be interesting as Congress is again intervening in business because they “think” people are paying too much interest. It’s tough - even for me – I agree on principal, but why is it the government’s job to set interest rate charges for credit card companies. People were not forced to apply for a credit card and spend money. People could read the fine print and it is not the companies fault that they ignored it. Does it suck that credit card companies charge too much, certainly. Is Obama and Congress right that they should lower it, certainly. However, is it the government’s job to intervene? That is the fundamental problem. When ideology and principals challenge the law and we the government “thinks they know best” we start giving up liberty – one small chip at a time.

Just like a lawyer friend of mine said, the hardest thing about justice is that it is blind.

4/22/09 (Tim Cheerleads, Morgan Loss? Print Money!)

Traders,

The earnings in the morning all told the same story, lower revenues and lowering forecast. The market saw downside pressure – so what helped spur the rally in the late session? Everyone is waiting to hear about the Stress Test (and whether banks will need more money). If we are to look at the earnings, increase in defaults on the consumer and commercial lending, as well as leverage the answer is yes. Additionally, criticism of the Stress Test seems to be more about the methodology than the results – so say the jobless rate, trade, and expected GDP don’t reflect STRESS – but are rather more optimistic. I heard it best from one economist when he said if it is a STRESS test we must STRESS the variables.

So – with all the concern about the stress test and banks needing more money (and the difficulty of getting Congress to reload the Tarp) – we needed some pre-cheerleading and Tim Geithner came to the rescue. Pretty much he said the “stress test” will show that most of the lenders will have enough capital (even though the results are not finished) and further said that those needing more may convert government preferred shares into common and seek investment from private sources. The reality (in my book) he knows that getting the votes in Congress for more money into the TARP will be a very tough sell – knowing that – what can he really say?

The market seem to only hear the optimism, again this was just a speech – not the results or exact method of the stress test – but optimism and hope is sometimes all we have. We got a good rally off Geithner’s assurances – but while I listened it seemed a little thin on substance.

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Morgan Reports a loss?

I thought these banks got to move bad assets off the balance sheets, use new accounting standards, and re-label assets to “long-term until maturity” – to ramp in huge revenue.

What happened Morgan? I guess even all the “tom foolery” wasn’t enough to get a big enough boost on the balance sheet. Or is Morgan being more honest than the other banks?

The first-quarter loss was $177 million (57 cents a share) – estimates were for a 8 cent per share loss. The company had a $1 billion loss in real estate losses in the first quarter. Also we saw another hint as to the next big problem, commercial real estate, from Peter Kovalski (fund manager of Alpine Woods $5 billion under management), “Residential real estate was last year’s problem and this year’s problem is all the other loan categories, specifically commercial real estate.” – I think we will see more of the commercial paper problem surface the rest of this year.
MS is looking lower by about 10% in the pre-market.

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The middle of the earnings cycle

The story seems to be the same everywhere – lower forecasts and the reality is that consumers have less to spend and little access to credit.

AMD – predicts computer sales to continue to decline for the rest of the year – lower’s forecast.

Capital One – reports first quarter loss and expects defaults on consumer credit to rise by 10% in 2009.

Yahoo – while it did meet estimates (that happen to be set so low it would be hard not to trip over) – the decline in ad revenue was massive which fell 78% year over year. The company plans to lay off 5% of its work force and of course lowered its expectations.

Here is the problem going forward – we are going to see falling revenue and lowered forecasts. However, the game has historically always been the same, lower forecasts so low that when the next round of earnings come it will be easy to beat. As a market maker in AMD for several years – I saw that game played quarter after quarter. Like with Yahoo – they had previous (in 2008) lowered their forecast – very low. Estimates matched that very low forecast. So beating really low estimates because they lost 78% in revenue pretty much SUCKS. But people don’t care about the balance sheet, revenue, margins, debt, etc. all they HEAR is that they BEAT estimates and in this market that sounds GREAT.

So here is a little prediction – I expect this lowered forecasts and future estimates to be so low that it would be hard not to beat them. So when they DO – everyone will get excited and we could see a bounce in the market and all the people come out and say “This must be the bottom!” Of course only a handful of people will actually do the heavy lifting to read the actual results and not just take a cursory view of beating a very low estimates. Remember the market moves on perception – expect very low forecasts. The only reason that won’t work is that their forecasts are not low enough.

__________________________________________
Revenue vs. Spending…

One thing the government doesn’t seem to understand or they just don’t care and that is the core fundamental model of how business works, which ironically is how our government works.

1. A business needs revenue.
2. A business has cost.
3. The difference between revenue + cost = Profit or Loss

The “margin” is the difference between revenue and costs.

The government works the same way.

1. The government has TAX revenue.
2. The government has costs (Budget, Debt interest, etc.)
3. The difference between the TAX revenue + costs = Surplus or more debt.

With the jobless rate ramping (millions of job losses), also means billions of lost tax revenue. However our government is spending more than it ever has in the history of this nation. Mainly the lending from the Treasury and Fed into the banking sector and auto companies. That doesn’t include the expanded budget and new programs (National Health Care).

The problem – we don’t have ENOUGH revenue (from taxes) to pay for that. But we need to the money now.

The only other way the government can really raise money (beyond selling assets) is borrowing money. The government does that by selling treasury bonds. It wants people and other nations to lend the government money so it can spend more money today. The government pays those people that buy treasuries an interest rate (now very very low).

But the government has a new problem, they want to spend SO MUCH money there is not enough people or nations in the world to loan us the amount of money it wishes to spend. So what does it do? It has the Federal Reserve PRINT more money to buy the treasuries. If it sounds crazy – the sad reality is that it is.

The U.S. Treasury sells treasury bonds to raise money. Now the Federal Reserve is printing money (out of thin air) to buy the treasuries.
We are printing money to finance printed money.

That wouldn’t be a problem if the government had ENOUGH TAX revenue to pay for it – but from resent data the TAX revenue short fall is going to be so massive over the next 3 years there is NO WAY to pay back the treasuries plus interest, without printing more money to finance it.

The government will have to sell $2.4 TRILLION in new treasuries (bonds, bills, notes) in 2009. That has never been done before and the government KNOWS there are NOT enough money in the world to loan the government that much money. So we are going to see the Federal Reserve (who has the ability to print money) – Print 100s of billions (perhaps a trillion) in paper just to loan the government.

But here is the question that no one asks , where does the Federal Reserve get the money? They don’t – they just print it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=anA.WOxto6qQ&refer=home

The math is simple = inflation is coming. You just can’t print that much money and expect inflation not to happen. I don’t know when it is coming, but you can bet your ASS that it is coming.

____________________________________________________
Futures Pre-market

The futures are down again in the pre-market as earnings are not looking that great, but Tim is speaking again today and he might cheerlead this market higher- expect a lower opening.

_____________________________________________________
Support / Resistance

Nice bounce, but I am hearing some call it a “dead cat” bounce already this morning. We will see.

INDU 7750 / 8000 (That 8000 line seems to be a pivot point.)

NDX 1300 / 1350 (Touched 1300 then rallied – now looking lower in the pre-market)

SPX 825-835 / 850 (The 850 seems like a pivot or resistance. Looking lower in the pre-market.)

RUT 450 / 475 (Could 450 be in the cards or do we head through 475?)

=================================
Gold 850 – 900 (It seems that gold doesn’t know if it should test 850 or 900 - in no man’s land.)

Silver 12+

Oil 45! (Oil came off and visited the 45 area but got a good rally going into the close yesterday – I think the dollar will play a bigger role going forward with oil prices.)

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Conclusion

Banks playing accounting games, Geithner knows it will be hard to get Congress to re-load the Tarp (there may not be enough votes) and he is doing his best to keep the calm, the amount of money the Fed is printing to buy MORE treasuries is absurd, and now the commercial paper default rate is starting to make headlines. We are certainly not out of the woods and the Congress/Administration answer seems to be trying to inflate (print) our way out of this. That may work in the short-term but it also means we could be creating the next massive bubble (the dollar bubble) that could make the Dot.com and Housing bubble look like a joke.

Why? Because – only those in that played the Dot.com game got hurt and those that turned their home into an ATM got hurt. However, with the dollar = EVERYONE feels it.

We may see a strong rally later in the year – predicated on very low forecasts and beating estimates and stability could come for some time. However, I think we need to keep an eye on the Fed and Treasury balance sheet and the national debt (and deficit). It is getting massive.

4/21/09 (Tsunami? Not Super Tuesday! Lost?)

Traders,

Yesterday saw some serious sell pressure and there was not the typical last minute rally that many had expected in the resent run up. No sector was spared yesterday and it seemed that we also saw some premium return as the VIX and VXN moved back up towards 40.

Reality seems to have pierced the vial of optimistic euphoria as investors realize that the banks are reporting only paper profits (thanks to moving assets off the balance sheet, relabeling them, and new accounting standards.)

The big story, or at least I thought it was a big story – was when the WSJ a couple of weeks ago wrote an article about the doubling of commercial paper defaulting. I did a little more reading and saw that it is fairly significant and a vast liability on the books at many of these banks. The nail in the coffin for me (reflecting it was more than just a story in the WSJ) was when General Growth (one of the largest commercial real estate holders – over 200 malls) filled the largest real estate bankruptcy in history (over 25 billion) – yet it still seemed to go unnoticed as people were more excited about JPM earnings and the market rallied higher.

This morning on CNBC – we are started to see the “prime time” talking heads start to talk about the Next Economic Tsunami, “Commercial Real Estate” – Hello – where have they been? http://www.cnbc.com/id/15840232?video=1098780352&play=1

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Super Tuesday

There are many “Super Tuesdays” – but in the earnings cycle – today is the day when (I believe) over 5 Dow Jones companies report their earnings, as well as some other big hitters.

Caterpillar posts their 1st loss in 16 years. They also lowered their forecast for 2009. I still think Caterpillar is a great company and if they can get a solid footing in China and India (they have but I think they need more) – we could see a good future in Caterpillar. As China and India continues to build (regardless of pace) they need heavy equipment.

DuPont reported earnings that beat estimates – but it is also lowering 2009 forecasts.

IBM missed sales estimates by almost 4% and they expect weaker computer sales in 2009.

Merck also missed estimates and reduced full year forecast for 2009.

The theme seems to be the same – missing estimates and more importantly lowering 2009 forecasts.
Which seems to go hand-in-hand with Goldman’s very low and slow growth estimates over the next 3 years.

__________________________________________________
Where are we going?

While I am not in agreement with Roger Altman (former Deputy Treasury Secretary under Clinton) political views on what should be done, I think he is right about the economist expectations. He explains the nature of the recession – which is spot on. He states that Goldman’s real GDP growth is probably the most accurate (1.9% in 2010 and 2.3% in 2011) – when many others are in the high 3% or even 4% range.

The reason is that consumers make up 70% of the GDP – but with job losses, no access to credit, negative savings, and massive consumer debt – it is going to be a VERY slow recovery. He stated it is NOT the traditional type of recession and he is certainly right about that.

The question we must ask ourselves (if we believe that Altman and Goldman are right) – is what is the best course of action. Altman is for more government intervention and programs, fully supporting Congress and the Administration. I do agree with him that that government can multi-task and I appreciate that while he is for National Health care he is real enough in his view that any payment or commitment should be delayed. That being said – they should still work on the program so that when it able to be funded it is ready. While I am certainly not of that view, I must say that Altman is painting a picture of the economy that is more realistic than what we have heard from the Government, Congress, Treasury, or Fed.

Here is the video: http://www.cnbc.com/id/15840232?video=1098784408&play=1

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Futures Pre-market

The futures are getting hit as the earnings coming out are showing concern about their forecast. The spread is in – so expect some pressure on the cash when the market opens.

_____________________________________________________
Support / Resistance

That questionable pivot point (of whether it was support or resistance) seems to be tested yesterday.

INDU 7750 / 8000 (The 7750 level seems to be near-term support – next stop down below that is 7500. The question is can we get a bounce off this 7750 – 7800 level. The earnings are not great and putting pressure on the futures in the early morning. )

NDX 1300? (1300 will be the first test – if we can’t hold than 1275 is the next support area. Earnings seems to be the driver this morning.)

SPX 800 – 815 / 835 (We are at the 835 pivotal point that we need to either rally above or fall down to the 815 area.)

RUT 430 / 450 (We are just above 450 which is a support area – but could quickly break. Watch the close to see if strength can return.)

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Gold 850 – 900 (We got a good rally in gold up to the 880 area – do we stay range bound or break out?)

Silver 12+

Oil 45! (We stopped at 45 it seems pivotal – either to 40 or 50.)

_______________________________________________________
Conclusion

The shine of optimism seems to have lost its luster as reality seems to have sunken in. The banks still have massive problems and new accounting changes and the “go fish” method of balance sheets have only fooled themselves – because labels and accounting changes doesn’t change math. 2+2=4 and it doesn’t matter if we take one of those 2s off the balance sheet.
I think the big concern is can the administration get another 750 billion reload of the TARP fund – which is certainly needed as the next wave (commercial paper defaults) is ramping. I think the administration is very concerned that they may not get the votes in Congress to get another 750 billion and thus we are hearing lots of talk about converting preferred shares into common shares (government taking a bigger stake) – maybe giving them some help to raise some private money (getting government out of the preferred line).

The political game of getting Congress onboard for a big reload of Tarp is going to be hard. Regardless of what you thought about the tax tea-parties throughout the country (Yeah – John Stewart and CNN spun it into some Fox movement – but as videos showed there were many Republican and Congress haters as well as many Democrats marching as well – and as Fox pumped it up, CNN tore it down. The battle of the networks – great. Maybe we could get some NEWS instead of what CNN, MSNBC, and FOX pass for news.) – anyway (enough rant) – the reality is that giving 100s of billions to the banks and auto companies is NOT POPULAR. And now people are seeing it is NOT working and they are going to NEED more. Maybe those people (Republicans, Democrats, and Independents) marching in the TEA PARTY have a point, What is Congress spending TRILLIONS of our money on?

I thought he meant - Trap?

4/20/09 (BofA move along, Sun and Oracle to marry!)

Traders,

Friday was fairly flat – nothing but more waiting it seemed. The market remained strong above those resistance levels, or are they support areas – I think it is still debatable – let’s call them pivot points for now. The big run was a push from the banks – but it seemed that the legs were seriously over stretched since the Wells Fargo news – as more banks report stellar earnings, the stocks are now beginning to see sell pressure (“buy the rumor, sell the news?”). This morning is the latest – Bank of America and yeah it seriously beat as well.

_________________________________
Bank of America - same old story...

A bank that had bought Countrywide and took on all their debt and added Merrill Lynch as well (with 20/20 hindsight of more debt), has reported an increase in consumer loan default, and expects more write downs. Of course nothing seems to be wrong and in only a couple of short months, taking billions of tax payer bailout money and a little new accounting standard trickery – they have a WHOPPING profit. Seems like another bank that really didn’t need any money and just a new mark-to-myth accounting standard – or is there something more?

It would seem a double edge sword, you take public money because you need help but then you report a massive gain? Kind of a slap in the face of the tax payer. Of course the reality is just a little more “tom foolery” as we pointed out last week with Citigroup earnings as they moved non-profitable sectors off the balance sheet and into the new Citi Holdings company, posting billions in gains from accounting rule changes, shifting “distressed securities” to a long-term held to maturity method. Great – government blessed book cooking. Sorry to be so bold – but I think even the investing community (and now public) is seeing through this joke – if proof of these banks now (after reporting) are starting to see sell pressure.

You would think after this news that Bank of America would be up 5%, 10%, 20% or more. I mean when was the last time you heard of a company beating the most optimistic estimates by 300% and the stock NOT rallying to match those crazy results? Maybe after we have seen this game played over and over by the banks that have reported before them.

In all seriousness – there is nothing to see here – move along.

Bank of America is down 5% in the pre-market.

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Sun and Oracle to marry...

It was only a week or so ago that Sun Micro and IBM were courting – then IBM pulled the plug. Sun traded lower and it seemed that it was pretty much over. However, this morning the marriage is back on – but this time it is not IBM, but Oracle. When I was trading the on the floor it seemed that every couple of years Sun and Oracle would be rumored to be in some kind of talk – of course nothing ever came out of it. The synergy was always there – Oracle runs a majority of their software on Sun’s operating system and they had several partnerships.

Truth be told I was more surprised at the previous IBM courting then I was this morning with Oracle. I had that feeling – you know- when you have two friends that you know like each other but never got together. The first thing that came out of my mouth was “About Time!”

The deal is for $9.50 a share ($7.5 billion). Sun (JAVA) is up in the pre-market and Oracle is giving up a little.

Arb traders – wake up – that deal you have been waiting for over 15 years - it's now happening!

_______________________________________
Futures Pre-market

Futures are getting a good smack down in the pre-market. Spreads are in – expect pressure on the cash at the opening as ARB traders unwind their long futures.

______________________________________
Support / Resistance

INDU 8000! (Are we to test 8000 again – that seemed the game last week – below / above/ below / above. Will it hold this time?)

NDX 1300 / 1350 (We are seeing a visit half way down based on futures – is 1300 in the cards?)

SPX 825-835 / 850+ (The 850+ range is a resistance band – do we crack below it?)
RUT 450 / 500 (Nice neck stretcher – but not 500 yet- is 450 in the cards?)

==================
Gold 850+ (we haven’t seen 850, but have come down into the 860 range. It looks like support .)

Silver 12+ (Silver is up above the 12 market this morning.)

Oil 35-40 / 50+ (We broke down below 50 again – big move down to 47. Do we get back to the 35-40 accumulation range?)

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Conclusion

The bank beating estimate story is getting old – people were fooled on the Wells and subsequent ones, but after a while – people caught on. To quote Bush (because I love how he f’d it up), “Fool me once, shame on, shame on you. If fooled, you can’t get fooled again.” Whatever – I think there are still several longs in those banks stocks that want a little bit more fooling.

It also seems some of the tech stocks got a little stretched in the recent rally as well – if we are to listen to INTC earning news (since they are the biggest) it wasn’t a pretty picture going forward at all (Down 55% in profit) and computer sales facing huge short falls as the only market that does pick up is the sub-$500 ultra portables (where margins are razor thin anyway).
Hang on – I think we might be in for a bumpy ride back down.

4/17/09 (Citi & GE set the tone, China looking inward?)

Traders,

Another big push higher. We did see some testing early in the session at the 8k market as the market pulled off – but then late day session was another big push higher. It was mixed news yesterday with JPM beating estimates and General Growth filing the biggest real estate bankruptcy in history. The market fought (it seemed) all day between the bank beating estimates and the reminder that we are not out of the woods with a massive bankruptcy and at the end of the day optimism won out.

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Citi & GE set the tone

Today it is Citi and GE that set the tone for the market as these two titans let the world know how they are and we speculate on how it will going forward. On CNBC this morning, Andrew Sorkin was asked to make a case for the bulls and bears. Certainly for the bulls the case could be made that the earnings are better than expected, but he said the case for the bears was easier since the new accounting standard changes and the shoring up for more reserves (by all the banks) against future loan losses.

Additionally David Kotok made the point that the one-time profit made this quarter from the unwind of leverage with the new accounting rules will not really show it’s net impact until next quarter – because this quarter it certainly pumped earnings.

http://www.cnbc.com/id/15840232?video=1095840315&play=1

Remembering the market moves on perception, I can’t help get over my fundamental concern about the accounting rule changes, shoring up capital, and the news of the increase default risk in the commercial paper. There seems to be a disconnect for now and that disconnect does leave me the somewhat concern.

For now Citi and GE have reported their earnings – not great – but better than expected. The stocks are up in the premarket – but are seeing some significant volatility. Let’s hope that this is not just the eye of the hurricane, but that it has actually passed.

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Treasury to retain shares in banks?

A report by Bloomberg states that even after the banks repay the Treasury may retain a stake – since they have warrants that can be converted to stock. Those banks that wish to give back the money additionally want to retire those warrants, but that might be an additional sticky point and the government may want to negotiate the terms.

JPM said yesterday that they could pay back their TARP money, Goldman is planning on paying it back as well. But both are under some political pressure, especially since the government now has a hold over them (mainly the ability to fire executive staff and cap salaries). Does the government want to give that up? Will holding warrants continue to give the government a power hold on the banks? Or as someone said – is it that the banks really don’t want to give the TARP money back (or can’t) and are just posturing and/or creating some media spin that they are fine? Who knows – but we certainly know that whether they can, want, or will pay it back, they certainly don’t want the government running the show.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9F3N8vvrHgY&refer=home

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China looking inward (maybe India too!)

The great wall?

As I have said in the past – China has something’s going for it that most nations do not – to recover quicker.

1. They have a trade surplus.
2. They have very little consumer debt (consumers have not had access to credit like in the West.)
3. They are a producing nation.
4. They have a massive population.
5. They don’t have a leverage bubble.

Sure, China is showing some contraction – based on trade and the ability for the U.S. consumer’s to continue to consume. However, China has slowly been looking inward as to their own consumers. Part of China’s growth, while relatively small vs. trade, was the massive growing cities which created a new era of domestic consumption. The Chinese people started buying TVs, computers, cell phones, fast food, cars, etc. Sure they didn’t have the access to credit that we did, nor did they get paid at anywhere near the levels we did, but they began to consume.

Fast food has, even in this economic crisis, been expanding in China. Online computer gaming has exploded in China and has seen monthly growth in subscriptions that would take 6 months to 1 year in the U.S. – and if they are playing online games, that also means they are buying computers.

India has been growing as well, but their infrastructure has been slower than Chinas – but growth is seen none the less.

I believe the shift of growth has changed in China and India – as they begin look inward. They exploded in the last several years in manufacturing and servicing the West and the by product has been giving their local people jobs and bringing money into their country. Now as the rest of the world slows and so does China (and India) trade (be it service or manufacturing) they are going to look inward.

Well at least Mercedes and Porsche think so – as they see China eventually surpassing the U.S. in car sales.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a.UGBK7Y4ZZM&refer=home

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Futures Pre-market

We initially got a pop in the futures with the GE and Citi earnings, but it is starting to pull off. The Arb traders maybe on the sideline this morning. So far don’t expect any big gap up or down – but anything could change in the next 30 min.

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Support / Resistance

We came down in the morning and went significantly below the 8000 level, only to see it rally hard up above the 8000 level to close over 100 points higher – going into the earnings of GE and Citi – which was on everyone’s mind going into the close. But are we over stretched. I still think that 8000 line is a test point and would not be getting long if we revisited that line, but rather stay flat.

INDU 8000! (Again – I think this is the magnet – just like we have recently gone below it and now above it – I think the 8000 line is still in play for now and not just a support point.)

NDX 1300 – 1350 (We are at the top of the range and closed just above the 1350 line – it looks like the futures are giving some back this morning. Do we close within the 1300 – 1350 range?)

SPX 835 – 857 (We are almost back to Feb highs – but we are still in this upper range area.)

RUT 450 (475) 500 (I think this is a pivot point that could send us to test 500 or back down to 450)

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Gold 850 – 900 (We seem to be testing 900 and then falling back off a little. The dollar had looked weak, but made some gains back this morning as Trichet fails to dampen concerns in the EURO zone.)

Silver 12! (12 is being tested – if it doesn’t hold we could see a slid to 11.)

OIL 50! (Over, under, over, under. 50 is a teeter-totter. The stories every day say demand is weak vs. OPEC cuts. Dollar strong, wait dollar weak. It is getting some push pull for now.)

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Conclusion

The banking story hasn’t played out yet – certainly the stocks have made a huge rally in a quarter – but now the story is how much was this new accounting methods and a one-time sale? Why are they stockpiling billions more against future loan losses? The big untold story that is not getting the press (like the residential housing) is the commercial market which is getting hit fairly hard. The largest real estate bankruptcy in history (27 billion of debt) and the ramping default rates coupled with the increase in vacancy. These banks hold tons of paper in that sector (in some cases more than the residential sector). I am not saying we are going to see a crash, human intervention (circuit breakers) will keep that from happening. But another test of the lows is certainly in the cards. And that has me nervous.

Today is expiration – so make sure to watch your post expiration deltas.

4/16/09 (JPM hoardes, Stress Test, Waiting Game!)

Traders,

Another unusual and mixed day – even the indices closed mixed. We did see some pressure all day until the close and then we saw a strong rally in the INDU, with the RUT also seeing gains. It seemed that after the financials had pulled off the previous day, they came back again into the close. INTC was still a drag on the tech sector and it would seem that we are starting to see a sector driven market – banks the winners and tech the losers (for now).

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JPM earnings…

JPM beat estimates and came in at 40 cents a share - however down from a year ago. There was some mix reaction in the stock price as it initially started to sell off as CEO Jamie Dimon – reflecting concerns for the rest of 2009. They are “hording” more cash that is set aside for bad loans (an increase of $4.2 billion for a total of $28 billion) – which did create some concern initially as it reflects a continued bumpy road. Their credit card unit lost $547 million and he didn’t expect it to be profitable in 2009. The default rate climbed to 7.72% and he expects continuing pressure on the consumer loan side. He mentioned the integration of Washington Mutual was “on track” – but beyond that it was rather a unknown. He did say that the firm was eager (like Goldman) to pay back the TARP money – but is waiting for government guidance.

JPM remains volatile during the conference call down, flat, up, flat, up – at this point it is reading into the forecast….

The ongoing problem is that JPM as well as Goldman and Morgan Stanley is what business model, since they have become more banks (with access to the FED/TARP). Will they be focusing on – traditional banking (mortgage, credit cards, consumer loans, etc.) or investment banking (trading, private/public investments, etc.)? The model in the short-term of traditional banking looks flat to weak – as consumer spending has fallen, their debt increase, job losses, and the limit access to credit.

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Stress Test

We are hearing all about this stress test for the top 19 banks to determine how much more money they may need. Ken Langone (founder of Home Depot and chairman of Invermed) said on CNBC yesterday – “the fix is in”. That is a pretty bold statement, but we are beginning to hear that none of the banks will fail the stress test, but what does that mean. I think that it is not about failure – but about a measurement.

Since there has been so much heat on this stress test – as to the results and the measure – the U.S. Regulators have caved and will not only make some of the results public, but also some of the test methods. One of the issues that critics have is that it does not stress higher unemployment numbers, but rather uses existing unemployment rates. One economist said that it needs to stress an increase of unemployment – which is a variable for determining default rates and revenues. There were other criticisms as well.

Whatever the method – it will have its critics – however I think it does need to reflect STRESS and not just CURRENT market conditions.

We await the method and the results – which should not only determine the strength (and/or weakness) of the banks – but also how much (if any) more money the government is going to give these banks.

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Hewlett-Packard taking top spot

Tech stocks are getting a little boost in the pre-market as a research firm reports that HPQ has gained in world-wide market share to claim top spot in personal computer maker (stealing it from Dell), 27.6%.

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General Growth Properties files bankruptcy

The largest real estate bankruptcy in U.S. history ($27 billion of debt) was filed by General Growth Properties, the second largest mall owner in the U.S.. The company had lost more than 80% of its market value in the last six months as it struggled to avoid bankruptcy. The stock closed at $1.05 yesterday, prior to bankruptcy filings.

The company will continue to operate over the 200 commercial properties and work with creditors.

http://www.bloomberg.com/apps/news?pid=20601087&sid=apSnp51kWD4E&refer=home

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Jobless Claims drop

Weekly 1st time jobless claims drops - which could suggest that layoffs have slowed, but it was pointed out that a holiday was included in the data, which may reflect an anomaly. The news did send a spike up in the futures.

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Futures Pre-market

The futures had been down in the pre-market and began getting a solid boost moving into positive territory in the pre-market. The spread is in – expect ARB traders to short futures and buy the cash at the opening. If the spread remains expect a small gap to the upside at the opening.

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Support / Resistance

It looked like the previous numbers were going to be resistance yesterday, until the close when we got a good rally and moved back into the higher part of the range.

INDU 8000! (This seems to be the pivot point – we have broken down through it and rallied back above it. It would seem a resistance, but then again not. It is certainly being tested. Do we close above or below it today? Futures have been volatile this morning – as of now it looks like we will open above it, but watch the close.)

NDX 1300 – 1350 (We seem to be bouncing between these numbers for now)

SPX 830 – 870 (The SPX is the same – still playing with these two numbers)

RUT 450 – 470 (We are also in a range here.)

I would say hold off taking a long or short bias – we keep testing the range in here. We did make a massive recent rally and the momentum seems to have slowed, but has it?

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Conclusion

It seems the market is in a pause – we had fear the first two months which drove stocks down hard, then it was optimistic euphoria which drove stocks up one of the biggest one month rallies in history. Now we seem to be reflecting on what has happened, where we are, and what is in store for the future.

Banks continue to shore up capital – CEO of JPM said as much this morning in the conference call ($28 billion in reserves – expecting more defaults). Jobless remains high, defaults continue. The question on everyone’s mind is “Have we found a bottom?” – so far none of the data has indicated that we have or have not.

So we wait - the market moves on perception and it was fear that quickly turned to greed and now it is in a wait and see period. So far the government money pumped into the banking sector has not trickled down to the consumer. The stimulus money has been barely deployed. So we haven’t (and should not expect to) seen if Obama’s plan is working or not. The big concern that has been in the papers is the state governments are looking worse for wear and are seeing a serious short fall of revenue. Bailing out the states may be the next stop for the federal bailout train.

For now – we wait…




Two days for expiration – so make sure to check those OTM options, which could come into play in the next day.