Last Friday was pretty uneventful, the swine flu spread (but seems to be mild), no results of the “Stress Test” – but rumors abound, some mix earnings with lower forecasts, and Obama needs to pick a new Supreme Court justice. While it would seem that it is eventful, it is more like the pause of uncertainty before.
The market had been mixed last week and the previous weekly momentum seems to have slowed (which was lead by the financial sector). The GDP came in lower than expected – but optimism of the first 100 days trumped the fundamentals. I think it is going to be the second 100 days that will test not only Obama, but also Congress. He has lead the charge of optimism into the “Red Zone” – now he needs to convert that in to a score.
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Buffet and Berkshire – a Party in Omaha
It would seem that a little of that Buffet Luster is looking a little tarnished. Berkshire has fallen a significant amount, his credit rating has been downgraded, and he is receiving some criticism from some investors as to his recent investments and why he will not name his eventual successor. Buffet seriously criticized the banking sector and regulators. He certainly made it clear that the worst is NOT behind us, but also turned that concern in to long-term opportunity. Buffet tends to be a realist, but also looks for opportunity among the (as he calls it) “Economic Pearl Harbor”. He is certainly right, there are probably some excellent opportunities – if you know where to step.
Buffet (and his partner Charles Munger) are also a little more critical of Obama (who they support) – certainly the Cap & Trade issue which they both see as a major setback – especially during these economic hardships – will create (in their mind) more economic hardship.
Criticism of Buffet’s derivative holdings (that caused $10 billion in liabilities) were dismissed by him, but one investor (also a fund manager) said that while Buffet has a way with words to ease concern of the investors, the derivative holdings still remain a significant risk. As I say – you can’t avoid the math.
Over-all it was successful and even the Oracle of Omaha has some issues to work through. One thing is for sure – I think Buffet is correct – we have not seen the bottom in the economy and long-term investments need to be chosen very carefully.
http://www.bloomberg.com/apps/news?pid=20601087&sid=acueGq.4ODLc&refer=home
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GM – bankruptcy approaches
Obama has made it clear – he stands in favor of the UAW (one of his biggest supporters during the election) – and that continues to cause a conflict which is approaching an impasse of possibly bankruptcy. GM (and the UAW) are at odds with their biggest bondholders ($27 billion) that needs to be resolved before June 1st deadline. On one side the UAW wants a sizeable amount of equity and on the other the lenders of the money (bondholders) want to be first out (since they put up the risk). The bondholders proposed they would get a 58% ownership stake, in exchange for their $27 billion bonds. GM (UAW) prose they only get a 10% equity stake, while the Union would get $10 billion in cash (for their health fund) and a 39% stake.
CEO of Fridson Investments stated in the Bloomberg article, ““This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders. It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.”
CEO of Fridson Investments stated in the Bloomberg article, ““This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders. It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.”
It looks that we may face another impasse and that means, just like with Chrysler, the government just flushed 10s of billions of tax payer money down the toilet. Because in bankruptcy – no one wins.
The end of the month will hopefully bring more resolution to GM’s fate. Right or wrong – one side has to give. The question is who should get the equity, those the lent GM 10s of billions and put up the capital risk or the UAW?
For now – stay away from GM – it’s has to many variables to make a qualified decision. Expect some volatility to trickle across the INDU as this plays out.
http://www.bloomberg.com/apps/news?pid=20601087&sid=awCyiNlvcfUA&refer=home
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B of A and Citi need billions more?
According to an article in the Financial Times (FT http://www.ft.com/cms/s/0/4843a178-3824-11de-9211-00144feabdc0.html ) - Both Citi and Bank of America are working on plans to raise more than $10 billion each as a last ditch attempts to convince the U.S. government they don’t need to boost their balance sheets.
There were rumors flying last week that Citi and Bank of America failed the “Stress Test” (even as some critics of the test say it wasn’t a good Stress Test, even Buffet said this weekend the Stress Test wasn’t good). The stocks did see some volatility – but really didn’t sell off as some would of expected.
After the FT article this morning, B of A quickly came out with a press announcement saying they were NOT trying to raise $10 billion to try to defuse the situation. The stock seems to be rallying now after B of A responded.
Expect a mix market in the banks and financials: Between the “Stress Test” results, rumors, Buffet recommending Wells, while B of A and Citi look to need more money.
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Futures Pre-market
The futures are getting a pop, but that seems to come from China’s rally as they reported increase in production. The spreads are in – so if they remains expect a small pop at the opening.
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Support / Resistance
INDU 8000 / 8250 (We are going to test 8250 this morning – do we close above it?)
NDX 1350 / 1400 (Futures are pointing to a 1400 opening.)
SPX 850 (875) 900 (It seems that 875 might be a pivot point – a slight opening higher – but some mixed in the financials and other concerns could create downside pressure during the day.)
RUT 450 / 500 (The RUT closed lower on Friday, while the others closed slightly higher. Watch the broader based index to see if money is flowing in.)
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Gold 850 / 900 (We got above 900 only to see it fall back down again – still we wait to see how the dollar and economy pan out.)
Silver 12+
Oil 50+ (Oil made a move above 50 and seems to stay up there now )
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Conclusion
We seem to be in a big holding pattern, Obama’s plate just got filled up with the Supreme Court nominee and the “Stress Test” bickering between the banks and examiners last week. Pile on GM issues with the UAW vs. Bondholder fight and he certainly has more than his share of headaches.
I think until we get some resolution we will see market action like we did last week and that means some intra-day volatility but overall a slowdown to the upside. That means that hidden volatility is ramping – get ready – we could get a knee jerk when we get some resolution to some of these issues.
After the FT article this morning, B of A quickly came out with a press announcement saying they were NOT trying to raise $10 billion to try to defuse the situation. The stock seems to be rallying now after B of A responded.
Expect a mix market in the banks and financials: Between the “Stress Test” results, rumors, Buffet recommending Wells, while B of A and Citi look to need more money.
___________________________________________________
Futures Pre-market
The futures are getting a pop, but that seems to come from China’s rally as they reported increase in production. The spreads are in – so if they remains expect a small pop at the opening.
___________________________________________________
Support / Resistance
INDU 8000 / 8250 (We are going to test 8250 this morning – do we close above it?)
NDX 1350 / 1400 (Futures are pointing to a 1400 opening.)
SPX 850 (875) 900 (It seems that 875 might be a pivot point – a slight opening higher – but some mixed in the financials and other concerns could create downside pressure during the day.)
RUT 450 / 500 (The RUT closed lower on Friday, while the others closed slightly higher. Watch the broader based index to see if money is flowing in.)
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Gold 850 / 900 (We got above 900 only to see it fall back down again – still we wait to see how the dollar and economy pan out.)
Silver 12+
Oil 50+ (Oil made a move above 50 and seems to stay up there now )
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Conclusion
We seem to be in a big holding pattern, Obama’s plate just got filled up with the Supreme Court nominee and the “Stress Test” bickering between the banks and examiners last week. Pile on GM issues with the UAW vs. Bondholder fight and he certainly has more than his share of headaches.
I think until we get some resolution we will see market action like we did last week and that means some intra-day volatility but overall a slowdown to the upside. That means that hidden volatility is ramping – get ready – we could get a knee jerk when we get some resolution to some of these issues.
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