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.
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.
___________________________________
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.
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
____________________________________________________
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.
____________________________________________________
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)
=================================
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.)
_____________________________________________
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.
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