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...