4/1/09 (Government Motors? G20 Party!)

Traders,

We had some interesting action – expectations were for a quarter-end rally combined with some marks after the pull-off we recently had in the market. But about 1 hour going into the close the bids stepped aside and the selling picked up. The futures continued to get hit in the after-market. The reality is sinking back in and with more talk from financial firms about it being a tough road ahead, Geithner talking about banks needing more money, and Obama giving the GM a 3rd chance – we are certainly not out of the woods. We did have a massive rally – and for those long-term investors it was an opportunity to roll-up your hedges or get out of some positions (especially in the financial sector – with some stocks gaining more that 50% in 3 weeks.)

What is certain is that the economy fundamentally has not found the bottom – that means expect more volatility – with knee jerks up and down. Don’t listen to anyone who thinks this is a bottom and a bull market or that we are in a bear market. I think the one realism we can all agree on is that the market has seen 20% gains and 20% losses in very short spurts. Uncertainty remains the reality. A bull market today, bear market tomorrow – means NO ONE REALLY KNOWS!

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GM = Government Motors?

Obama booted the CEO and then gave them a 3rd chance (more money) and another 60 days – but now word has come that Obama believe that Bankruptcy is the Best Option for GM and Chrysler. Maybe (finally) Obama has seen the light – why toss good TAX payer money after BAD? At the end of the day it is not any one person (CEO or Union Leader), it is not the product, it’s the business plan – and it simply does not work without sustained funding and debt.

But that is NOT the end of the story – the government will continue to manage the business and it seems to me (anyway) that GM (and possibly Chrysler) will turn into subsidizes employment centers – regardless if they can turn a profit.

Welcome to the new Nationalized Car Company (GM = Government Motors). Hey our Congress has done a great job with Freddie, Fannie, and AIG – a car company should be easy for our brilliant members of Congress who fully understand business and debt structures (hopefully you have picked up on my slow-pitch sarcasm)
GM is getting hit in the pre-market.

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ADP report U.S. Companies payrolls Fall by 742,000

The ADP numbers come out before the government numbers and many use it as a guide to expectations for government jobs data. However, we could see an interesting phenomena that is seen when socialism begins to grow. This is similar to what was seen in the New Deal and the rise of the German Socialist Party in 1930s. Companies begin to shed more jobs heading into the recession (or depression) – however when government starts to issue new social programs that require public work projects we could possibly see the government numbers job numbers increase.

The important thing to remember that IF government numbers begin to expand, because the government is hiring more people – that does NOT mean the economy is becoming healthy. What it means it the government is expanding and taking on more debt and obligations. When (and if) this phenomenon happens many will not bother to peer into the numbers, but rather point to the increase in jobs as a positive sign. However, I would argue that while we might see an increase in jobs (because the government is employing more people) at the same time we see taxes rise and government debt expand – which means we would be putting more pressure on the currency and the government’s ability to reduce the deficit and pay down debt. That could be the catalyst that would crack the dollar – as foreign nations (who are already aware of the debt problem in the U.S.) would pull back in funding that debt.

Keep an eye on the difference between Government and Non-Government pay-roll (jobs) data. The Congressional Budget Office (CBO) has already indicated that Obama’s current purposed budget deficit would expand the deficit by 2 trillion more in the next 2 years than Obama’s “people” predict. Add more government jobs (or subsidized auto companies) and that could get significantly bigger.
For now the ADP report came in more-than-forecast and the futures in the pre-market is getting hit. Now we wait for the government data.

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G20 Party Starts!

Obama got to London early to meet with the U.K. Prime Minister (Brown) and make a public address to bring unity and confidence to the credit crisis. Obama wants governments of Europe and Asia to spend MORE money – (bailouts and socialism) so as to help burden the credit crisis stress. The U.S. has been criticized for spending too much money on massive bailouts (Fed, TARP, TALF, STIMULUS, etc). Europe and Asia have committed money – but only fractionally of what the U.S. has and doesn’t plan to push more money into the hole. They want to enforce current and new regulations to curtail the problem – not pour more money into it. China and Russia have called for a new reserve currency (with the IMF issuing it) – because they feel the U.S. spending is out of control and the deficit that Obama has envisioned will spend more money (according to the Congressional Budget Office) than all the presidents in U.S. history combined. The debt loan is at a breaking point and the world is becoming concerned.

There are VERY different views of the approach – the U.S. (with some support from the U.K.) wants to spend MORE money and create more programs, Europe and Asia want to take a regulatory enforcement approach and let those companies that can’t stand on their own balance sheet fail. If the G6, G7, G8 can’t come to any agreement – what makes anyone think the G20 can agree?
London is already seeing massive protesting – I unfortunately think that nothing will come out of the G20. But who knows – it is going to be fireworks with Russia and China (and possibly Brazil) calling for a new reserve currency, Europe saying STOP SPENDING and ENFORCE regulation, and the U.S and U.K. pleading with others to SPEND more to not let any company fail (inflate our way out of the problem).

Expect some fireworks – but nothing of substance.

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Futures Pre-market

The futures didn’t like the GM comments or the ADP numbers and are getting hit in the premarket. The spread is in – expect the Arb traders to purchase the futures and short the cash creating pressure to the downside at the opening.

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Support / Resistance

We rallied up to resistance and now we are coming off – will we test supports?

INDU 7300-7500 / 7750 (7500 is the high-end support, 7300 needs to hold if it doesn’t 7000 is in the cards. We could test 7500 today.)

NDX 1200 / 1275 (Futures are showing a 1220 opening – we are range bound between the 1200 -1275 area.)

SPX 775 / 825 (We closed almost at 800 – but now are heading lower based on the futures pre-market. 775 needs to hold.)

RUT 400! (We need to see 400 to hold – it’s a place to get flat. )

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Gold 900+ (Gold has come off – we also saw currencies pull off against the dollar. However depending how the Russia/China request for the new currency plays out (as far as talk) we could see a spike in gold.)

Silver 13+ (We are right there – but it will follow gold.)

OIL 50? (We broke back down below 50 – that means back to 45 possibly. 35-40 is a support band and I don’t think you will see it fall below that. If the dollar starts getting hit – expect oil to rally back up above 50.)

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Conclusion

This week is about data (jobs / housing) and also perception at the G20. There is certainly 3 different ideologies at play at the G20 and pressure is going to be put on the U.S. like never before. The economy is failing (worldwide) and many are blaming the U.S. (Brazil said it was the blonde – blue eyes that cause the problem – pointing to the U.S.), China, Russia, etc are all putting pressure on the U.S. Everyone’s big problem is not just the blame game with the U.S. but also Obama’s plan to inflate our way out of it. The problem with inflating our way out is that this nation DEPENDS on the foreign nations buying dollars (loaning us money). Obama hasn’t ASKED their opinion (and he doesn’t have too) but these are the nations that allow our credit to flow buy purchasing our debt.
I never ever thought that China would ever come out and SAY they would want a new currency – I always thought that was talk from the “tinfoil hat” crowd. Maybe those “tinfoil hat” people are not that crazy – so far several things they have predicted have come true and yet they are still treated like wack-os (probably rightly so). The AMERO rumors don’t seem that crazy anymore and those that pointed at Obama as being the bringer of socialism and nationalism also doesn’t seem that farfetched.

If I told you in 2007 that Freddie, Fannie, AIG would be nationalized and taken over by the government, Lehman & Bear Stearns would fail, budget deficits in the 3+ trillion levels, housing market would fully collapse, and China would publicly demand a new reserve currency – you would call me a NUT JOB!

Who would think we would be living in this? I still wake up and think this is really crazy – really. GM is about to become nationalized (after bankruptcy) – Congress, Treasury, Fed are spending money out of control and the rest of the world is saying STOP!

I don’t know what to expect – we certainly will eventually find a bottom – but I certainly think we will never get back to normal and that this nation might permanently move towards socialism (to some degree).

I DO expect more volatility.