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.

_________________________________________
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.

__________________________________________
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.

____________________________________________
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.

_____________________________________________
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.

____________________________________________
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.

____________________________________________
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.)

========================
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?)
____________________________________________
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.