2/27/09 (Citi Nationalized! GDP -6.2%!, No We Can't!)

Traders,

Just when we think we might of found some support – it seems like we get a good punch to the stomach. It would be nice to find some sort of bottom or relief – if not just temporary so we can stop to catch a breath. However – it seems that the deleveraging needs to run its course and regardless of what the government does (in all its best intentions) it is just going to happen.

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Citi Nationalized !

Sure you can label it whatever you want, “Temp-Nationalization”, “Government Partnership”, “Bailout”, etc. At the end of the day Citi is now going to be owned 40% by the Government (with the option to take ownership to 80%). On CNBC they noted that Saudi Prince who owned only 4% was treated like a king and when he asked them to jump – Citi responded how high? Pandit (CEO) already pandered to Congress – I am sure he is now going to be just a lap dog.

Traditionally we point our fingers at Venezuela, China, Russia and say “Look the government is nationalizing their Oil Companies, or this or that!” Our politicians tell us how WRONG that is and that the government is stealing the people’s freedom and ability to prosper. Now we are doing the same thing – but under the guise of helping the bank (the very banks that the administration blames for creating the problem in the first place.)

What is ironic and sad – I would say that Venezuela, China, and Russia are WAY smarter in their nationalizing efforts – they are taking over companies and assets that MAKE money! You think THEY would pour good money after bad to save a failed bank? Of course not – they go after rich oil fields or shipping companies. Socialism is BIG government business and Venezuela, China, and Russia have mastered it well – it’s like our country is doing it all backwards. (Note: that is sarcasm – I know why we are doing it – it is just from a business standpoint a very bad investment with the people’s money.)

Citi stock is getting hit very hard in the pre-market and the news is driving the entire market down in the early session (the banking sector is getting hit pretty hard right now).

But there is more – converting half of the governments investments into common shares and also cutting the dividend on the preferred shares does NOT mean the government’s role is over. The government has indicated there will be fresh round of funding to Citi in the near future. At that point it is only a matter of time that the government dilutes the balance of their holding into common and might as well just take the whole company over at 80%. We also could assume at these large numbers that Citi is TOO BIG TO FAIL – meaning that the government will indefinitely continue to pour MORE money into that massive sink hole – why not it is their sink hole now.

The big fear is how will other countries (which the United States relies on to buy debt) see this move? If the pre-market indication is any measure – it would read – Don’t buy U.S. debt!

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GDP contracts greater than expected!

If the Citi news wasn’t bad, the GDP news was the knock-out blow this morning. The U.S. economy shrank in the 4th quarter at a faster pace than expected. Gross Domestic Product (GDP) – contracted by 6.2% (annual pace) – more than forecast and well above economist estimates. Consumer spending makes up about 70% of the GDP and the contraction on the consumer side was massive (the fastest pace in over 30 years.)

The news certainly took a chunk out of the futures in the pre-market after they already got the beat down on the Citi nationalization.

For more details: http://www.bloomberg.com/apps/news?pid=20601087&sid=aH1jAXX4xlIM&refer=home

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GM having problems on the other side of the pond.

If GM didn’t have enough of its own domestic problems – it is now reaching over to Germany and other European countries to ask for aid to keep their Opel unit from going out of business. Saturn, Hummer, now Opel. It seems we might as well stick a fork in this bird – It’s done. Of course it too will soon be nationalized – is it TOO BIG to fail? So far the government seems to think so – and if you ask the UAW (one of the top lobbyist) they certainly will tell you it IS too big to fail (not to mention the 10s of millions in campaign contributions must count for something).

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Futures Pre-Market

OUCH! Citi, GM, and GDP – doesn’t make the opening look good. The ARB traders would love to step in on this spread and ready to short the cash basket, but I think the low liquidity levels on the buy side at the opening make keep the spread wider than normal. Expect downside pressure at the opening.

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Support / Resistance

Day of capitulation? Let’s hope not – but it seems like hope is all we have left.

INDU 7000!!! (We might see the 7k number this morning – let’s see if the market and world can absorb this news and rally the market into the close.)

NDX 1100 !!! (We will probably see the 1100 number this morning!)

SPX 735 !!! (That needs a solid close above that number to hang on.)

RUT 400! (We are below it – which is not the low – but a big number for the broader market.)

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Gold 900-950+ (We had a good pull back from 1k to 950 over the last 3 days – 900 is in the cards – but we might see a rush to gold this morning from the negative economic news.)

Silver 13+ (Gold’s little brother)

Oil 35-40+ (We got a decent pop the last couple of days and are seeing a pull back this morning. I still think the 35-40 range is a big support area and we WILL see oil rise.)

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Conclusion

Sen. Gregg’s interview yesterday really got me fired up and upset. Citi’s nationalization was only a matter of time – more are probably to follow. The money we continue to shove into this seemingly bottomless whole is rather alarming – but most people either want to bury their head in the sand and ignore it or really don’t have problems with Socialism (which I find shocking).

Regardless if you are a Democrat, Republican, Socialist, or whatever – the most important issue we can NOT overlook is the dollar – which we are SERIOUSLY putting at risk. Because whatever government you want or we get – it is all based on the dollar. Regardless of moral philosophy as to the government’s need or want or responsibility to help those less fortunate (welfare or subsides) it cannot do it at the hazard of breaking our currency. Obama’s budget is insane – not for what it purposes to do, but rather it doesn’t take the dollar into any consideration. It ASSUMES that we will be able to finance 1.7 trillion. What country and WHO is going to buy 1.7 trillion in treasuries in one year? That is too big of an assumption to make – regardless if you feel you need to spend $600 billion on healthcare, or $1 trillion on bailing out banks. When the dollar breaks – how do you pay for healthcare? We need to CUT spending and not raise taxes on ANYONE.

So if we can’t fund the 1.7 trillion this year, and the purposed 1.2 trillion next year – it is just printing money time and massive monetary inflation. We may not be seeing it now – but come 2010 or 2011 (or sometime in the near future) the dollar bubble is going to be massive and if we don’t get a handle on that – none of the welfare, bailouts, healthcare reforms, or whatever will really mean anything.

We need to keep our dollar strong – because it is DOLLARS that is used to keep the economy going. The numbers coming out of Washington are just insane – we say 100s of billions and now trillions as if it means nothing. We continue to laugh at Zimbabwe – guess what they talk in 100s of billions too.

Please – wakeup to this. I am not trying to scare you – I just want us to get REAL! The math is right there – you just need to do the math and you’ll quickly realize this will NOT work – we just can’t keep printing money. It is just like the housing bubble or dot.com bubble – people failed to do the math. Are we just that stupid that we can’t do the math or just want to ignore it?

Sorry – it’s Friday and the news of the GDP and Citi – just got me fired up. I wish I would of slept in this morning.

2/26/09 (GM blows 9 Bill! Sen. Gregg - Concerned!)

Traders,

The market could not hold the gains (“buy the rumor, sell the news”) – eagerly waiting for Obama’s first speech to Congress – buy buy buy – Ok we heard it – sell sell sell. A few would say it was short covering – probably so – if you saw some of the short open interest. We DID have a big sell off earlier in the week.

This morning on CNBC – NH Senator Gregg (ranking member of the budget committee and recently abstained from being Commerce Sec.) – talked about the Budget that was introduced by Pres. Obama. His concern, was not really the increase in taxes – but rather the massive amount of spending, when this nation should be focusing on cutting spending. This budget (which to be fair to Obama was partly inherited) will be about 7-8% of the GDP and will be bigger than ALL of Bush’s budget over the last 7 years. The BIG concern – the dollar and keeping it strong. We need to finance $2 trillion in fiat currency (to spend that much) – how do you explain the budget and increase spending to the foreign nations we rely on to loan us the money?

This is a very good video to watch (he is very fair in his assessment): http://www.cnbc.com/id/15840232?video=1046232917&play=1


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GM – blows $9 billion in one quarter….

Today GM meets with the government’s audit committee – to review their options – of course they NEED another $2 billion by March (or face bankruptcy). The losses are staggering – of the $13.4 billion in aid they received (just a couple of months ago) they have gone through it fast. The deficit was $15.71 a SHARE – which is insane.

At this point – GM has failed (actually they failed months ago) – it is just barely hanging on. How much MORE money does the government give to a company. We CAN blame the economy only so far – but GM’s debt funding is decades old (and continued to get bigger). The only reason GM was ABLE to survive for decades was their ability to borrow billions of dollars based on a credit rating. They NEVER fixed their business model!

GM’s and the Governments problem is that they are blaming the economy – I would say the current economic condition just exposed GM’s failed business plan of never ending of borrowing of money.

The question – does anyone wake up to that fact or does the government just continue to pour money into it?

GM’s stock is down in the pre-market (I am still wondering – other than the government – what fools still own this stock.)

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Orders for durable goods drop

For 6 months in a row – companies are cutting spending, which can be seen as the orders for durable goods fell. The 5.2% drop was more than the largest projection. It CLEARLY shows – that the slow down (regardless of what anyone says) is big and getting bigger.

Economist on avg (71 of them) estimated a 2.5% drop, coming in at 5.2% is significantly higher. Big ticket items are not moving and that means more cutting and cost savings at companies that rely on the revenue from moving merchandise.

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Jobless claims rose

As the durable goods orders see a drop – so comes cost cutting. First-time claims for unemployment benefits unexpectedly rose last week by 36,000 to 667,000 – the highest since 1982 – while the number of people STAYING on benefits rose by 114,000 to 5.1 million.

Expectations for a continued increase is expected to continue for the next few months.

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Futures Pre-market

We are getting a boost in the futures in the pre-market, after the sell off yesterday. The fair-value spread is to the upside. Expect Arb traders to short the futures and buy the basket into the opening – which should give the market a little pop to the upside at the opening.

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Support / Resistance


INDU 7000 – 7500 (It looks like after the sell-off the INDU is creating a little range area.)

NDX 1100-1150 / 1200 (Really – who knows a move to 1100 or 1200 is really needed to make heads or tails.)

SPX 735-750 / 800 (750 is a support with 735 being the bottom range of support – which NEEDS to hold if you expect to see any strength.)

RUT 400!!! (We fell pretty hard in the RUT compared to the narrower indices – but held 400. Can we continue to do so?)

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Conclusion

The Video of Sen. Gregg (who is VERY well informed – both being a senior member of the budget committee – and in high enough regard by both the Democrats and Republicans that he was going to be the Sec. of Commerce – but decided to refrain from that post). His cornerstone concern confirms my worries about the US Dollar (fiat) – we face challenges by convincing our nations creditors (foreign nations) to buy more of our debt as the nation moves to spend MORE money – rather than cost cutting. His demeanor was calm and concerned – rather than a finger pointing blame game. He no doubt has respect for Obama – but is concern rather with the direction the budget has taken.

Please watch the video: http://www.cnbc.com/id/15840232?video=1046232917&play=1

it is important enough to listen too – as it does affect each and every one of us.

These are challenging times – we (as a nation) face very important decisions ahead – we have to go through this, but these decisions will determine longer term fates of this country.

2/25/09 (Bernanke, Obama, Jindal?)

Traders,


Yesterday was marked by Bernanke testimony and President Obama’s first speech to a joint session of Congress. Let’s review them both – as per the economy and market impact. Please note I am a member of neither party (but I am in the Chicago/Austrian economic camp and believe that Keynesian economics has failed in the hands of both parties – or at least the math has shown that).

The most surprising element yesterday was Ben. He only got better as more questions were hurdled at him and he most certainly has grown into his role. Three years of experience has done wonders for his ability to get his hands dirty and realize that while academia alone has value, it can hardly replace hands on experience. His confidence in the handling of the bailout, FED policy, Citigroup, and dealing with the “N” word (nationalization) was impressive. While I might not agree with ALL of Ben’s ideas or views, he is taking charge and bringing clarity and confidence to the Fed. The market responded very favorably as all eyes were on him.

Obama on the other hand scores an A+ in his delivery. He will be remembered as a great orator and his ability to bring Hope and Optimism to the people is awe inspiring. However, the speech was full of more questions than actual substance. He made some bold accusations (Cutting $2 trillion in the budget by 2010, more healthcare reform in the last 30 days than in the last decade, and that NO bailout money would go to those that were speculator home buyers or the neighbor down the street that bought what he could not afford!) – I think he might have been addressing Rick Santelli. However, those 3 big issues he brought up have been picked apart and even by NPR (which some of you consider pretty LEFT leaning). NPR said this morning that they didn’t know where the $2 trillion was going to be cut or that it is even detailed (I would add that he is also ADDING to the budget deficit so to cut what he is adding would really not be actually cutting). NPR said that it is very questionable that there has been that much healthcare reform in the last 30 days (he did sign in the children extension medical policy that would add about 5 million more children) – however even NPR said that Bush made some rather large healthcare reforms (surprisingly). And lastly, to address Rick Santelli, NPR said that it would be impossible to separate out the speculators or neighbors that couldn’t afford a home from those that are actually in trouble to determine who gets the money. In fact even Sheila Bair said that even if they DID check everyone’s mortgage’s it would be impossible to separate them out.

Obama also hinted that MORE money will be spent – but so far we don’t know what that limit is. Also higher taxes ARE coming – to pay for all this. I did find it ironic that he bashed the CEO’s and Exec’s (and rightly so) – but at the same time he is giving those companies and EXEC’s more money. Of course I doubt the government has really looked at the books – or even KNOW the liability they are taking with your money.

Obama, as with saying there was no pork in the Stimulus (not true) – made some rather bold statements that even NPR has shown to be questionable. However, that is not to take away anything from Obama (all presidents like to juice the story and bring hope). Obama DID deliver on an important aspect – OPTIMISM. It’s important to keep the faith.

However – all that aside – Bernanke did a good job, Obama gave a good inspiring speech (with a little fudge factor), the only disappointment of the night (for me anyway) was the media’s attention was not on Bernanke or Obama – but was on the bashing parade of Bobby Jindal (the Republican governor of Louisiana).

His speech was a RESPONSE to Obama, yet it got more attention than the President’s. I thought his speech was fine – he praised Obama, he blamed big government, he said his party screwed up, he blamed the past administration (his own leader Bush) for screwing up with Katrina, etc. Ok I buy all that. He then went on to give his view and opinion of how the Federal government should respond. (Remember this is a two party system – should be 3 or 4 but we only really have two). It was a good response speech, it made a point, he stated his view – but REALLY the night should have been focused on Obama and to a lesser extent Bernanke’s testimony.

It was appalling to see the media aim their guns on the governor – and start on the name calling. The Democrat’s have won both houses and the administration – Bush is gone. Just because a governor doesn’t agree with the Democrat’s agenda – doesn’t mean he is necessarily wrong - it certainly doesn’t mean he should take a tongue lashing!

What is bothersome – is that whether you agree with the Democrats or Republicans – they need to work together. Jindal made such a statement that Republicans do need to work together with the Democrats. However, if the media is any measure of bi-partisanship it showed last night that there is NO working together.

I guess it is back to reading the FT, Economist, and watching Bloomberg and BBC America – because CNN, MSNBC, FOX, ABC, CBS – have all turned into OP ED shows – injecting opinion and picking sides. They are as much to blame in dividing this nation as any politician. Really just sad.

At least NPR was objective this morning.

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Commodities on the rise?

Soft commodities are on the rise – and continue from last week. The dollar has stalled after a good run and has slide a little. Corn and Soybeans are on the rise – helped by crude as it pushes that 40 barrier. Sugar output and supplies are seeing larger deficits (one of the largest drops on record) – which is creating more speculation on higher sugar prices which could trickle over to pre-packaged food/drinks market.

Hard commodities are also on the rise – not just gold and silver. Zinc, steel, and other metals are seeing a rise – as China and a few other nations are stockpiling supplies (as continued uncertainty about the global and US economy remains high). Supply channels are running low.
Whether this is a basing area for commodities is uncertain. One could argue that a drop in consumer spending and credit means less consumption – however commodities need to be measured in two ways (Society Needs vs. Wants) and (store value / perishable). Supply and demand will do the rest.

Keep an eye on the dollar strength and watch supply channels. If supply continues to decline and outpaces demand – prices will rise.

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Futures Pre-Market

Well the market liked what Bernanke had to say and it seemed that Obama was more about the Hope than the substance. Futures are getting a little kick in the teeth this morning – if the spread remains expect some downside pressure at the opening.

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Support / Resistance

Nice rally!

INDU 7000 / 7500-8000 (Could we get to 7500, sure. However we could revisit 7000. We are now just absorbing the speech.)

NDX 1100-1150 / 1200 (Who knows – middle ground at this point.)

SPX 750 / 800 (735 is the really big support area that we can’t not let fail – that would not be good.)

RUT 400 / 450 (Nice to get above that 400 level.)

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Gold 900-950+ (We are seeing a pull back to 950ish, sure 900 could be in the cards. All eyes are on the dollar and faith.)

Silver 14+ (Following gold)

Oil 35-40 / 50+ (We are still in that building staging area of 35-40 – today we are testing that 40 area again.)

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Conclusion

Obama gave a good speech – A+ delivery. I would admit if I was there I might even be caught up in the euphoria. However, I was really hoping for a little more meat and less about giving out more money. Obama does have leadership qualities – but he really doesn’t have a handle on his party. Too many politicians are giving their view, ideas, and 2 cents. There is not ONE story – but many. There is little unification. I don’t know if this is a testing period for Obama and how far he can drive his party or if after so long away from power the all the Democrats are trying to get a little of the lime light. What all this talk and in partying jockeying does is create more uncertainty.

I think Obama also wants to reach across the aisle to work with Republicans. He has said as much and he has made an effort to talk with them and listen to them. I think they appreciate that. However, the Democrats in the Congress want NOTHING to do with them. Pelosi, Dodd, Frank, Reid, and the leaders when they have the opportunity blame everything on them and have given them no ear. Not that they have too – and not that they shouldn’t (if you believe in their message). But then what is Obama doing saying that he wants bi-partisanship and meeting with them. As you can see the Administration is saying and doing one thing – and the rest of the party is doing another.

The media bashing last night was appalling and disappointing. They should have been focusing on Obama’s speech and Bernanke (since both those people are running the country) – analyze the policies and the plan. Instead the bashing train the ensued on the governor made the media seem partisan and full of hate. What is funny is the governor even blamed his own party, the previous administration, and praised Obama – yet they still took a stick to his hide. I bet he didn’t even have to say anything and they would of made some negative comment. It is like having the R after your name is a scarlet letter.

Oh well – I guess nothing really changes in Politics or the media.

2/24/09 (Herding Cats, AIG Sucks! Design on a Dime!)

Traders,


Support was seriously busted yesterday as it seem the market could only do one thing – go down. The saving grace was the RUT closed just below 400 – which may yet be a sign of a short-term supporting area in the broader market. Surprisingly the VIX didn’t head higher – no doubt a 6+% move is big – but I expected a lot more.

So why does the market continue to head lower? My guess is that Uncertainty brings pessimism. People WANT to believe in HOPE, but we can’t even begin to HOPE without FAITH. And Faith needs a plan. The government’s plan has been fairly obscure – one of the problems is that every politician has to put in their 2 cents and half the time the contradict each other. Just yesterday Sen. Dodd talked about “short-term nationalism” – if that isn’t an oxymoron I don’t know what is. However, what he said was sure not vetted by the President. Additionally – President Obama was a ROCK STAR candidate – he ran an excellent campaign and brought many people together. The problem is he came to the office with lots of HYPE (from the campaign trail) and people expected on DAY ONE that he had a plan and he would hit the ground running, additionally he talked about bi-partisanship. The problem – is that he is running – but no one really knows what direction. He is having problems getting his cabinet seats filled – while Pelosi, Dodd, and Frank are running their mouths and not working WITH the President or the Republicans for that matter. Obama is spending as much time herding cats as he is making speeches and trying to fills seats. He needs to tell some of those Democrats to “Shut their mouth!”, fill his seats, and spell out a detail plan that we can understand (regardless if we agree or not). A good leader, leads – even if you don’t agree with them – you respect their leadership. Obama is facing a power struggle in his own party – which he needs to get under control.

One would hope that tonight’s speech would bring clarity – but historically speeches to Congress are general or self-congratulatory. I doubt will see any details to any plans – other than to hear they have a plan. It will be more of a 30-min infomercial – lots of style and little substance. Obama does know how to give a good speech and I think we may get some more “hope” out of it.
On the other hand – Bernanke is addressing Congress – and I am not sure where that will go either. So far his speeches have been defensive and we really need him to go on the offensive.

All that being said and the negative news the continues to flow – this nation has dealt with trying times before. We will be a little poorer, maybe we will not be able to afford a new 50” plasma or new car, instead of eating at Ruth Chris’s we eat at Outback. But at the end of the day – it’s just a consumer life style that we are really complaining about. There ARE jobs out there – most of us do NOT want to do. I saw HELP wanted signs at Wendy’s, Wal-mart, and even a looking for janitorial sign driving down the road. But we arrogant fools are looking for that sweet office $100k middle management position that gives us more time to surf the net – than actually toss a hammer.

So when things get tight – remember – what matters most – health, family, friends, and living a spiritual rewarding life (regardless of your religious beliefs). Having a new car or bigger house doesn’t make you a better person – it just gives you more headaches to worry about.

Damn – now I am sounding like Obama….

Just trying to offer some HOPE and a dose of reality.

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AIG another $60 billion

AIG is looking down the barrel of the biggest quarterly loss in U.S. history (in fact I think world history) – at $60 billion. The government has already tossed $150 billion at this company – it is nationalized for the most part – and our government “who knows best” management style is doing wonders. Of course they are going to toss ANOTHER $60 billion at this company – why? Because they can’t admit to failure and we can’t let anyone fail. Putting more bankruptcy judges out of work!

So what now? How about a do-over at their restructuring package – the first $150 billion didn’t really do it. But if we give them another $60 billion that might help them restructure better – yeah right.

Citi with the government’s $50 billion plus in preferred stock is looking at seeing 50% of preferred converted to common (making the government a 40% owner of Citigroup). AIG which has an ungodly $150 billion in of government money (sorry I mean YOUR money) is about to see a big conversion into common as well.

Little Rant: All the hatred for those CEO’s and their bonus packages makes me wonder, should we be mad at the CEO for asking for stupid money and bonuses or the morons that GAVE them the money?

Is it Thain’s fault for asking for $7 million or the Board and shareholders fault for agreeing to pay him that much?

Is it GM’s fault for asking for $30 billion or the Government’s fault for giving it to them?
Is it AIG’s fault for asking for $150 billion and now another $60 billion or the Government’s fault for giving it to them?

It seems that the government has not really been doing their home work – because they keep giving money and the companies keep asking for it. And then we blame the CEO? Something is not right!

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Home Depot – reports profit

It would be interesting to see the breakdown at Home Depot – it would stand to reason they have shifted from one side of the store to the other side. If you have been to Home Depot you would know that one side of the store is more raw building material, while the other side is more home stuff (light bulbs, garden hose, etc.) I was at Home Depot over the weekend (built a workbench in the garage) – I noticed that the raw material side of the store (where you would see contractors) was pretty empty – however there were lots of people in the store, but where. Over in the small home product section. I poked around and saw more homeowners doing low cost projects from changing light bulbs (to those twisty fluorescents to save money), small paint purchases (you can change a room with little money and a fresh coat of paint), etc. I asked a Home Depot employee about some items – he said those new money saving light bulbs are flying off the shelf and other small money saving items. Be that as it may – the kitchen renovation center and heavy construction area was bare.

Could Home Depot be focusing on the Design on Dime mentality – it sure seemed like a lot of customers heading in that direction.

Now doubt Home Depot will suffer as building and remodeling diminishes – but people still need to paint and do odd-fix-it projects as well as maybe spend a little to fix something up.

They beat estimates and reported a profit – I still think Home Depot has some risk in the building side and it’s questionable if the smaller items can make up for the larger building projects. It would be interesting to see the margins on the different items.

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Futures Pre-market

We DID see futures on a good rally in the pre-market, but it has been coming off. AIG news is sinking the ship fast – even though the stock price is below one dollar – the notion of the government dropping few billion more is not positive. The spreads have come in pretty hard from the earlier session. Expect a flat opening – unless something changes in 30 mins.

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Support /Resistance

YUCK! The bottom has fallen out – or has it?

INDU 7000 ? (At this point who really knows – we are now in 1996 levels – I remember being on the trading floor and making bets if the Dow could break 10,000 – every 1,000 points up CNBC would ring a stupid bell. I don’t hear them ringing bells on the way down. Stupid!)

NDX 1100 – 1150 (We are down below the 1150 line and looking like 1100 is in the cards. It would be nice to see a solid move up above 1150 and hold into the close.)

SPX 750 ? (We really need to see some strength and support – getting above and closing at 750 would be a good sign.)

RUT 400 !!! (The RUT has not hit the previous lows – unlike the SPX or INDU – it is a good sign that the broader market is holding – but we need to see a solid close above 400!)

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Gold 1000 ? (We are up around and flirting with 1000 – could we go higher or are we going to see a pull back to the 950 or 900 level. Good questions. It is amazing the dollar has held well – but I am not certain why – Gold seems to be ignoring the dollar – is it right?)

Silver 14+ (Gold’s little brother has more room to get back to the previous 20+ level we saw earlier.)

Oil 35-40 / 50+ (Oil still in that 35-40 range – which I think is a big basing area.)

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Conclusion

Bernanke and Obama speak today – I doubt we will get more details, but rather a rehash about tough times and they have a plan. The market WANTS (actually NEEDS) more details – not just we are tossing money at the problem. That uncertainty is keeping money on the sideline and investors are moving toward bonds (thinking they might be safer) because there is NO knowledge on what is next. The government SHOULD have a good handle on these companies they are bailing out – but they don’t. For the government to be surprised with Freddie and Fannie (after they have taken them over) that they need 100s of billion more, AIG needing another $60 billion, Citi needing more – means the government really doesn’t have a clue as to the extent of the problem. If you are going into business with someone (which the government is with your money) you BETTER have a f’n CLUE as to what the books, revenue, costs, liabilities, debt, margins, etc. look like. Cause when you are talking billions, 10s of billions, 100s of billions – you do NOT want to wake up in the morning to find out you really don’t have ANY IDEA of the problem. It is beyond silly and stupid. The problem is that once you are on the hook for a few billion – you are going to continue to toss more money at it.

Ask yourself – when does the government give up on AIG? $150 billion, another $60 billion, what happens next time when they need another $20, $30, or $50 billion? Do you give it to them? When do you figure out that you are in a losing trade or business? Then what do you tell the people – who’s money you spent (when they didn’t even volunteer to invest in the first place)? We just blew $200 billion of your money – sorry – I know we didn’t even ask you if it was OK – but we did it anyway because “we know best”!

It’s not like you or me are a shareholder making a conscious choice to invest in Freddie, Fannie, AIG, Citi, B of A, GM, Ford, Lehman, etc.

Let me ask you one question. Would you take your hard earn money and invest it in AIG? Probably not – (since they are bankrupt and now need $60 billion more). So why would the government do it? Do they really know best?

2/23/09 (Hot Pockets, USSA, Gold 1000?)

Traders,

Expiration Friday was certainly a mixed trading session. The market is trying to wrap its head around the future of the economy and government intervention as we inched towards nationalization. We did slip in the INDU to new lows (not seen for over 6 years) and we could continue lower. At this point there are very few (if any) techinicals to keep us from sliding. The intraday rallies seem more about short-covering and any sideline money either remains on the sideline or is in search of some sort of bond (regardless if safe and/or yield producing or not).

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Growth Sector – Frozen Food?

I heard an interesting segment on NPR this morning on my drive in. One of the ladies being interviewed from Boston had a decent job, was married, and their life style matched their income (on a consumption level). They would go out to eat after work, drinks, take-out food, etc. However, she recently lost her job and now has been purchasing more “pre-packaged” frozen dinners (Certainly not healthy – nor as cheap). She readily admits that she COULD buy fresh food and prepared dinners herself (AND SAVE MONEY). However – she maintains that she remains busy searching for a job (or that she really doesn’t want to play housewife). It could even be said that there is a psychological effect of instant gratification in being able to eat (FAST FOOD) – we do live in a instant “hot pocket” society.

The next lady they interviewed (also without a job) did the opposite. She cooked whole chickens, made soups, made many home made pre-pared (leftovers) and admitted while it takes longer she has cut her food bill by 40% and is living healthier.

The last segment of the story was most interesting, it was a speech by the CEO of Wal-Mart – he said their FASTED (and possibly only) growing segment in the store is Frozen Food.

In these times people are downsizing, like going to McDonald’s instead of Red Lobster. Or buying pre-packaged frozen food instead of ordering out. It sadly means the nation is becoming less healthy and with a obesity epidemic already in fool bloom – a bonanza in frozen food sales is not the future this country needs to get healthy.

The irony is Obama is about to spend billions on a new national health plan, at the same time people are getting less healthy – making the road that much higher. Maybe Obama should spend some time looking at proactive and preventive medicine, at least I hope he is.

As for investing? Wal-mart already seems to be a long-term recession survivor, but what about those companies that make frozen foods? Maybe it’s time to do investigative digging!

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Nationalization at the doorstep…

As much as the Obama administration says it doesn’t WANT to nationalize U.S. Banks – they are taking a serious step in that direction by converting their preferred shares to common in Citigroup. With more TARP and other government loans – converting into common shares is one step closer to nationalization. Each move is closer to becoming a majority shareholder. Rumor has it that the stake could reach 40% in Citigroup or should I say, U.S. Citigroup. Senator Chris Dodd (Chairman of the Senate Banking Committee) already hinted at such nationalization in late January, when in a interview on CNBC.

However, is nationalization the only answer and the best answer? Everyone seems to think so – IF you don’t want a bank to fail. It is interesting that it is the ONLY answer if you are looking for a none failure answer. But not letting people or companies fail – with more government bailouts creates a psychological dilemma relying on the government (it’s tax payer) to be in the never ending bailout cycle. When failure is NOT an option, and nationalization is – the next step is socialism, more government planning, and the government taking away YOUR equity for the common good. Morally, and also because we care, we don’t want ANY ONE to fail. However, we have bankruptcy courts and FDIC and many other provisions to help failed people and businesses – they are there for us to use.

The U.S. government holds $52 billion in preferred shares in Citigroup (five times the banks market value) – if they converted all of it they would own 80% of the company.

Obama continues to tell us that he doesn’t want government controlled banks, but we could see any day (very quickly) the dominos fall and Citi, followed by B of A or other become nationalized banks. (Just like Freddie and Fannie). The problem is that we give control of the bank’s capital to politicians and Washington. They did a great job with Freddie and Fannie – how would a nationalized Citigroup fair?

It’s a damn if you don’t, damn if you do situation. The question you need to ask yourself – should we be bailing out the banks (many of which caused this problem to start with) – or let them fail and as citizens move to the smaller regional banks? Some would argue we live in plutocracy, I would say that is true if measured by campaign contributions and those that have received support and or money from the government. It is quite frustrating when it is NOT the will of the people, but the will of the few. Remember how popular that TARP was and the tons of mail that voters sent to their representatives. It passed, but only with 400 pages of pork added. Same is true with the stimulus.

Watch the banks closely….

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Futures Pre-market

The futures are getting a good boost in the pre-market, some say it looks like short-covering. At this point the news about Citi is getting mix reaction on Wall Street. Expect a slight pop at the opening.

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Support / Resistance

We broke some serious support levels and even with the pop this morning it is not a positive sign for the near term.

INDU 7250 ??? / 8000 (I think we could get a strong rally – on nothing but combination of short covering and hope. If we do manage to make it back to 8000 in the near-term, it would be an excellent place to re-hedge your position.)

NDX 1150 / 1200 (The NDX never got back down to the 1000ish area we saw in November (unlike the INDU) - we are currently in a narrow volatility band.)

SPX 750 / 800 (It would be nice to get this above 800, unlike the INDU we did stay above those November lows, but not by much.)

RUT 400 / 450 (We got close to 400 – but stayed above it. That is a key level for the broader market.)

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Gold 1000? (Do we go higher or pull off to the 900 to 950 level? We could see some pull back from some profit taking – the real question is the worldwide run to gold – which hasn’t seem to slow down as the dollar continues to slide as a reserve currency.)

Silver 14+ (Silver is making bigger percentage moves that gold, but also has a lot farther to rally to get back to its previous levels in the 20+ area.)

Oil 35-40 / 50+ (We are slightly above that 35-40 support band – while the consumption in the U.S. has slowed – global growth is still positive against a finite extraction rate. Toss in a dollar that (I am predicting) can and will slide – we could see a pop in oil sooner rather than later.)

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Conclusion

The recession and problems look to be a lot worse. I am betting the government will nationalized a few banks, it is now only a matter of time. Additionally – the TARP and Stimulus will not be the last – the government HASN”T seen any immediate reaction to dollar strength – which gives them the false sense of security that it is ok to print more money (without risking the dollar). However, I am nervous that this false sense of security is just that false. They will get to a very difficult position when they need to print MORE money (cause we will) and when the dollar starts to lose traction we could see the crack get bigger. It is a fine line we walk – very fine. Keep an eye on gold, silver and the foreign currency basket – that is the only measure of faith we have to go by.

Have we gone too far?

I would argue that if Prime Minister Vladamir Putin has to warn us about Socialism, we may have started heading down the wrong road.

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Russian Prime Minister Vladamir Putin has said the US should take a lesson from the pages of Russian history and not exercise "excessive intervention in economic activity and blind faith in the state's omnipotence".

"In the 20th century, the Soviet Union made the state's role absolute," Putin said during a speech at the opening ceremony of the World Economic Forum in Davos,
Switzerland.

"In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated."

Sounding more like Barry Goldwater than the former head of the KGB, Putin said, "Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors, and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state."

http://www.therightperspective.org/?p=1472

2/20/09 (Chicago Tea Party!, GM, New Bubble?)

Traders,

The market slid some more yesterday – and we stuck our head down below those November lows on some of the indices. The INDU is at a 6 year low and we may have seen some capitulation yesterday (from the long-term traders.) Today is the last trading day before expiration – we are already seeing some volatility in the pre-market futures and some individual issues. Don’t expect pin risk from hedging to force stocks to strikes – which means get in FRONT of your hedging.

Chicago Tea Party? Yesterday a video of Rick Santelli had made the rounds (I even sent it out to a few people). Even the Press Secretary was asked about it. Pretty much Rick said, who is the government to decide WHO gets a mortgage bailout and who doesn’t – with OUR money? He even made joking reference to a Chicago Tea Party. If you haven’t seen the video – here it is: http://www.cnbc.com/id/15840232?video=1039849853&play=1


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GM – the good, the bad, the ugly!

At one time GM was buying up, partnering, or investing in some of the world’s smaller auto makers. Now since they can’t manage their own business they are letting many of those same auto makers fail. This week the CEO of GM said that if they could not sell Saturn or Hummer they would wind them down (that means shut them down – within 6 – 18 months). Saab is the first to fall – after their parent company (GM) just cut their ties to let them float on their own – Saab filed for bankruptcy. I am sure the Swedish car maker is kicking themselves for ever getting into bed with the GM behemoth that couldn’t even get out of its own way.

However, while it sounds bad – it is actually longer-term good news. Saab’s plan to file (thus fully severing the umbilical cord from GM) and bringing back the company to its motherland means that have an opportunity (being independent) to stand on their own – yet again. Being small, nimble, and working on a business plan (without being held hostage to the larger sinking ship of GM) means they HAVE a future.

Some however are saying that Saab’s marriage to GM was too long and that Saab will need serious help to get back on their own feet. But let’s be optimistic – once they cut the ties – rework their business model – (look at the formula Revenue – Cost = Margins) they may have a good chance of raising money, issuing a bond, or even receive government aid (Sweden is a socialist country remember).

Good news for GM as well – there is one less mouth to feed.

The question for GM – can they shed Hummer and Saturn as well?

I am all for having more small independent auto makers (competing) – rather than just the Big Three pushing out the same car with a different label on it.

GM stock is down in the pre-market on the news, but I wonder if it is just the Bankruptcy and people not looking as to the benefits to GM with cutting the ties?

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Corporate Debt – the new bubble?

Everyone is trying to figure out where to put their money, safety first and yield second. Treasuries are assumed safe, but they pay nothing. Stock market doesn’t seem safe, and it’s going down. So what next? Well if the government is not going to let anyone fail – why not corporate debt? If the government is backing the company, some would say it is as safe as a treasury – however they PAY a yield. The demand for this paper is out of control (just like the Dot.com, Housing market, and CDO) – investors are rushing in as if it is the new new thing. Again, I am SURE investors have NOT read the fine print – which CLEARLY state’s YOUR PRINCIPAL IS NOT PROTECTED. They just skip over that part – just like they didn’t bother to look to see if a Dot.com company had any revenue, housing prices never go down, and CDO’s have a AAA credit rating (by the way none of that equals math).

Being human we are stupid and greedy (case in point lotteries, casino’s, sports betting, gambling, beanie babies, etc.) – I wager that understanding risk and probability is not a intuitive trait among us humans.

That being said, Corporate bonds (just like stocks, homes, CDO’s and other investments) – can work, can make you money, have some degrees of risk – you just need to DO THE MATH and home work before you invest.

Roche Holding, Honeywell, and others led about $34 billion of U.S. corporate bond sales – the companies need for cash and the investors appetite are meeting and we are seeing supply and demand again create flow. However, remember the PERCIVED risk of the company is based on a credit rating (the same credit rating and credit rating agency that rated those failed CDOs). But with rates at 4 to 5.5% investors are rushing in and ignoring everything else.

Will Roche, Honeywell, or others fail – probably not and thus your bond is probably could. But remember – it might be improbable, certainly doesn’t mean it’s impossible.

There ARE ways to hedge the corp. bond paper. The smart money will.

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Futures Pre-market

The futures are getting hit fairly well in the pre-market. We broke some lows yesterday and that is sending some people for cover. There is enough spread in the game for the Arb traders to buy the futures to short the basket – which will create some downside pressure on the market at the opening (if the spread remains).

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Support / Resistance

OUCH!

INDU 7500!!!! (We broke down below 7500 and now at 7465 – a 6 year low. We will be even lower this morning –base on the futures. However, we could rally and close above 7500. Today is a key trading day – psychologically. Do we close above 7500 or are we on a race down to 7000?)

NDX 1150 – 1200 (We will probably touch the 1150 today. 1140 is really more the support area. Still above the 1100 area – which we could well be on our way too. Watch the close, above 1150 could show some support.)

SPX 750 – 800 (Unlike the INDU we haven’t hit that ugly 750 support level yet – but we are below 800. A visit to 750 is in the cards, but do we bounce?)

RUT 400 – 450 (Just like the SPX the RUT is heading down – it was floating around that 450 area for weeks – but it couldn’t hang on. 400 is key. If we can see some strength in the broader market it might mean that the narrow based indices are just getting a little short-term shock to the down side.)

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Gold 1000? (We have moved up hard from the 900 area and in a week almost hit 1000. What is surprising is the dollar remains strong – chalk that up to short-term deflation, which could quickly turn into inflation.)

Silver 14+ (We are going to be ripping through 15 soon – it seems. I still think Silver is way undervalued as priced in dollars.)

Oil 35-40 / 50+ (The shocker on the inventory numbers send a little jolt into the oil markets – but 35-40 range is support and I think if the dollar breaks we could see oil rip up – regardless of demand.)

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Conclusion

There are many forms of inflation – some measure it by price, other measure it by supply, there is also currency rates. The man on the street doesn’t care how it happens – it just means to him that his dollar doesn’t buy what it dead. In Iceland when their currency broke – it took several days (weeks) before the man on the street felt it because there was still inventory in stores to purchase at current prices. However, when they started importing MORE stuff to fill demand THEN the man on the street REALLY starting feeling it.

Inflation is traditionally a measure of buying power. How much did that widget cost last year, as compared to the price this year? Well ask yourself this – if they don’t want your dollars (at ANY price) for the widget – is that inflation?

I am not saying we are experiencing inflation right now – we certainly are not. But as a trader we don’t focus on today, we try our best to forecast the future and make value decisions today based on our forecast. People constantly tell me – why are you worried about inflation, we are experiencing deflation or dis-inflation? It’s tomorrow that I am concerned about, it is tomorrow that I am forecasting, it is tomorrow that I am planning and trading for – not today.

Just like earnings – I really don’t care what the number is or how a company DID (key word is DID past tense) – I want to know what they will DO in the future.

I think that is what separates the traders from the economist. The economist like to explain what is happening now, people like Rick Santelli (or traders) are explaining what will happen in the future.

Just like our government (and why Rick was upset) focusing on the present and paying no mind to the consequences of their action in the future!

2/19/09 (UBS army knife? HP free printers! Whole Food Money!)

Traders,

The market seemed to be absorbing all the news – from the stimulus to the $250 billion plus foreclosure fund. Good news or bad news – at this point it would seem (for the short-term) at least that it is good news. We may halt or reduce the slide of housing prices, make credit available, get people to start spending money again – that is the plan right? Even though it is very short sighted, as how we plan to finance it.

It is also expiration week and we look at it with an uncertain eye. The market has moved enough to nullify typical pin risk (or plays) – creating more volatility into the close of the week. Which means another 2-3% move could be in the cards, regardless of expiration hedging. So make sure to keep a close on those deltas.

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UBS getting squeezed

If UBS (as well as other banks) didn’t have enough problems with write downs, UBS has agreed to pay $780 million and turn over (some) names to the U.S. – after the U.S. threaten prosecution of the bank in alleged tax evasions. The U.S. is the one of the very few nations to tax its citizens based on their nationality. That means if you work abroad you are of course subject to the taxes of the country you are working in, as WELL as U.S. Taxes. Foreign citizens (German, English, Swiss) are taxed on their residency, if a German citizen works in the U.S. he pays U.S. taxes, but Germany doesn’t tax him as well. Additionally, many nations do not treat “Tax Evasion” as a federal crime. UBS practice a policy that was legal by the Swiss standards, but not the U.S. standards. Even several U.S. citizens that have not lived in the U.S. for years, but had an account at UBS and used these “Tax Evasion” practices at UBS – but are now subject to U.S. prosecution, even if they paid taxed in the country they resided in.

As the credit crisis worsens and the U.S. has to print more money – they need more revenue to finance it (selling treasuries, taxes, etc.) – Expect the U.S. to go after foreign nations more vigorously as well as its citizens to collect money to pay down the national debt and the trillion dollar deficit.

However the knife cuts both ways – those foreign banks that might get squeezed by the U.S. for their tax policies are the same ones we are asking to help buy more U.S. treasuries to keep the U.S. government credit flowing. No doubt these are interesting times and relationships will be tested.

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Hewlett-Packard (HPQ) miss!

Swing and missed expectations and lowered 2008 guidance – computer and printer sales are not what they use to be. The lower end computer models are turning into commodities, while printers already have (as a give-away when you buy a computer or something else). The revenue shift on the printer side of the business has not been the hardware, but selling the ink (print cartridges). However the cost to build, design, and keep printing technology up to date, just to give away, does hit the bottom line. Additionally, what is great for consumers (competition) is also bad for margins.

HPQ is getting hit in the pre-market. ($30 looks to be the previous low area).

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Whole Foods (WFMI) up?

People still need to eat and while Whole Foods sells their products at a premium – many are still buying into the BRAND name and what is selling right now is GREEN. Slap a green label on it, say it is Organic, blessed by monks or picked by Amish, and bingo – you got a winning formula. The reality – is much of it is more about branding than actually healthy food. Being the hypocrite that I am, I too sometimes buy the overpriced granola (not that it is going to make me any healthier than eating the off-brand granola), but knowing that some crunchy I-love-the-earth company put it into a recycled box does make me feel better.

Stock beat estimates and is up solid in the premarket.

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Futures Pre-Market

It looks like it took a day to absorb the stimulus and the home bailout packages. The futures seem to be thinking it is good for the short-term and we are getting a rally in the AM. Expect the Arb traders to short futures to buy the cash – thus putting upside pressure on the market at the opening.

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Support / Resistance

As I said yesterday – we are at some big time need to hold support levels.

INDU 7500 / 8000 (We closed above the 7500 area again and are looking stronger in the futures premarket.)

NDX 1150 – 1200 (Still in la-la land – looking higher.)

SPX 800! (If we can close above the 800 line – maybe this was just a temp dip below support?)

RUT 400 / 450 (Getting back to 450 would show the narrow indices that the broader market is holding.)

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Gold 900+ (It is certainly ignoring the dollar strength – so one of the two have to break, my bet is the dollar breaks first.)

Silver 12+ (Silver has been climbing and breaking the 14 market yesterday – it’s gold’s little brother?)

OIL 35-40 / 50+ (Again we just sit in the 35-40 range waiting – I think when it moves it will move up fast and hard when we least expect it.)

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Conclusion

There is lots of chatter about the Stimulus and now the billions going to steam the foreclosure tide. The money is flowing – but many are concerned about the financing of this money. It will not come to haunt us, until we don’t realize it. Keep all eyes on the USD – that could be the first sign.

Also – don’t expect too much “Pin Plays” this expiration – many issues have blown through too many strikes to see effective hedging volume against the strikes. That means expiration could see more than typical volatility. It looks like to the upside now.

2/18/09 (GM Ouch! MBIA Doppelganger? House of Card!)

Traders,

OUCH! That Stimulus Bill signing went over well. The market saw a serious suck out and we are getting to some very serious support levels. The futures are showing a little pop – but we need some follow through to stay above water.

I received a few emails yesterday – one person actually didn’t believe there IS any pork in this bill – because Obama said so. Another person made even a funnier comment calling the bill “Pork by Design”. He was right – it was and is Pork by design. While all eyes have been on the Stimulus bill (pork fat and all) – what we continue to forget is HOW are we going to fund it?

I mentioned previously that the FED met with the Execs of the major banks and lending institutions (note: the same ones that Congress grilled the day before) to ask for their help because the number of dealers (in the treasury auction markets) are so low (I think only 15 or 16 left) – that there is NO WAY this country can issue $2 trillion in treasuries this year without help. The primary market would cave in and if there really is no secondary – it would mean the FED would have to be the buyer (selling our own treasuries to our self – yeah it’s a circle – the Japanese are really good at that.) That is the issue that we cannot ignore or over look. I am getting a little concern about the USD ramping up to these levels – against the basket. Additionally – you would think that Gold and Silver would of come off if the USD is ramping strong (but it is not). I think the Gold and Silver market is accurate and there is something a foot in the USD market. My expectations? The USD comes off again – possibly sooner rather than later.

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GM – we need MORE money?

They are looking for another $5 billion and could be even asking for more come the end of March. The CEO of GM was on CNBC this morning and I have to say – he was pretty frank about the situation. They lowered their outlook (really low), clarified that $10, $20, $30, maybe a total of $40 billion is needed (predicated on the market turn around – by 2009, 2010, 2011.) Expectations were for a bigger and longer slow-down than initially thought. Additionally – point blank – is bankruptcy an option? They did a detailed study – it would cost the government about $100 billion if GM declares bankruptcy (based on GM figures) – of course that is their TRUMP card they are playing. You could say a mild threat – don’t help us with $20 or $30 billion today and a bankruptcy will cost you $100 billion. Game of chicken? Truth or not? Who knows – the UAW on the other hand has really not made any concessions and according to CNBC the hourly wage difference (even minus the legacy) between US foreign autoworkers and the UAW is still between $4 - $7 dollars an hour.

It is interesting how this will play out – the UAW has the ear of this administration and Congress (you can’t forget the millions they spent on Congressional and Presidential elections – they sure will not let them forget). Additionally – isn’t the auto makers a staple in this country? The government will not let them fail – government run bankruptcy, more money, nationalization, all those are seriously in the cards. Regardless the outcome GM will be around – it might be in the form of the Pelosi GTX (http://www.youtube.com/watch?v=rAqPMJFaEdY ) – but it will be around.

As an investor – there are too many risk factors – a nationalization, bankruptcy, or some form of government control have a high probability – that means you could lose 100% of your investment. Additionally – any debt structuring could also mean a loss of potential as a shareholder.

Smart money is sitting on the sideline and watching this unfold.

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MBIA stock rallies?

The failed bond insurer, MBIA – is now splitting into two companies – one for muni bonds and the other for that toxic mortgage-related debt and the rest. You would think the decision is easy – invest in the muni bond insurer and let the other company fail. However, with how things are looking in California, Florida, and many other states – bond failing means that insurance could also be risky. Of course the Federal government could always step in and print money to bail them out (which is probably going to play out). The muni bond is a traditionally safe writer – but I am just not sure. I guess an investment in MBIA is really an investment in the USD and the U.S. Government as a back stop. I also have a sneaking suspicion that ONE of the two companies is going to get the GOOD stuff and the other the BAD stuff – it shouldn’t be too hard to figure that out.

As a investment – I would stay clear. As a trade – I think there will probably be some arbitrage opportunities between the two (but since it is only trading at $4 the option possibilities are pretty limited.)

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Futures Pre-market

We are getting a good future rally in the pre-market after that throttling we took yesterday. Expect the Arb traders to short the futures and buy the basket – which could create some upside bias at the opening.

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Support / Resistance

YIKES – we are at or close to some very important supports. A rally is needed or a parachute!

INDU 7500 / 8000 (That 7500 is a big psychological number – it was the previous low we rallied off of in November and have managed since then to stay 500 points above (8000) it for a few months. The drop yesterday was NOT good. We need a rally – because if 7500 does NOT hold – there is NO support underneath.)

NDX 1150 – 1200 (We are in a empty zone – we came below the 1200 mark – but above the 1150 mark. Not looking as bad as the INDU – but this also means MORE volatility.)

SPX 750 – 800+ (We really want to see 800 as support and would love to close above it. Just like the INDU the 750 area is not a friendly place to visit because there is NOTHING below that to show any support.)

RUT 400 / 450 (We haven’t seen the draw down to those previous lows below 400 like we did in the INDU or close in the SPX. However – getting back to 450 is a nice area. If we can see the RUT remain stronger the drop in the INDU and SPX might just be volatility and we could rally back. However if you see the RUT break the 400 line – I don’t think we can see the INDU or SPX get out of the hole.)

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Gold 900-950+ (It is amazing that the dollar is NOT coming down and GOLD is rallying – but like I said – I think GOLD is telling the REAL story and there is something fishy with our FIAT currency and I am NOT biting. I think the Dollar could invert and start CORRECTLY tracking gold. – that’s my take anyway.)

SILVER 10 – 14+ (I didn’t buy enough at 10 and now I can’t get any more – the physical bullion is getting harder to come by as well. This has more room to the upside.)

OIL 35-40 / 50+ (I still think that the 35-40 range is the narrowing volatility support area and we will ramp from there. When the dollar SLIDES (as I think it will and could) you will see OIL rally. Oil and the Dollar are not always connected – but in this case I think that may have a stronger hand at play.)

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Conclusion

I saw the “House of Cards” on CNBC last night – I suggest everyone watch it. It is interesting and in a very superficial way explains the mess we are in – from the homeowners buying what they could not afford, the designer of the CDO, Wall Street selling them, AAA ratings handed out like candy, people buying what they don't understand, the government failing to regulate, and a hedge fund that bet it would all come down that made a billion!

They don’t point the finger at any one person or group. It was both the buyer and the seller – and everyone in the chain that is to be blamed. Everything failed. The best line was the woman that bought a $700k house she couldn’t afford – she takes responsibility she says – here is the quote, “I am stupid, but they are guilty!” – I agree with her statement, but she also needs to realize that stupidity is not an excuse to skirt accountability or liability. I think she realizes that – but there is a need to blame the predator too (rightly or wrongly). Watch the show – it has been repeated several times. The Hedge Fund guy was the only person on the show with a brain to do the math himself – everyone else was starry eyed over AAA credit ratings!

2/17/09 (Pork & Seals!)

Traders,

The week ended with the Stimulus Package passing both houses and being signed today by Obama in Denver. Obama SAID there was NO PORK in this bill – but it has gone from 100 pages, 400 pages, now to over 1,000 pages. Every Congressman and Senator got to add in their “for my vote” pork.

However, the list of PORK and EARMARKS was long by the time this got past; $15 million for 17 projects from the Senate Appropriations Committee, $14 million for 12 projects from the Senate Agriculture Subcommittee, $3 million for 4 projects from the House Agriculture Subcommittee, etc. The list is long and this 100 page legislation turned into 1,000 pages (of which it would seem from the list of projects it’s 900 pages of pork!) – Remember this is YOUR money the government is spending.

Of course some would argue it is only a few billion or maybe a few 10 billion – the stimulus check is $700 trillion. There is no such thing as “ONLY”! It’s like the CEO of GM (which is in debt just like our government) saying we will fly the private jet down to D.C. for the Congressional testimony – it’s ONLY $10,000 to fly it down there. Or the family that is underwater in their mortgage and the husband has lost his job and the wife is working two jobs to just make ends meet, and the husband comes home with a new flat screen TV and says “it’s ONLY….”
I guess “it’s ONLY…” wouldn’t be so bad if it were NOT for the fact that our GOVERNMENT is in TRILLIONS of DEBT!

This wasn’t just Democrats or Republicans – it was BOTH. These are our trusted politicians! They don’t seem to CARE about your tax dollars being spent (deficit spending remember) – it’s black mail time for votes. Pretty much they are saying, my vote cost you XXXX amount.
Here is how it goes. A company, a union, a special interest group donates money to help get a politician elected – of course they expect something in return. It doesn’t take a genius figure out who. FOLLOW THE MONEY - look at WHO gets the pork and connect the dots as to which member of Congress got the support from that group, business, or union.

Of course these Congress people will say all this money is to stimulate the economy by providing jobs. ($600k for the Congressional Cemetery? $500k to deepen the Anchorage Harbor? $2 million for bioengineering research training at Jackson State University? $4.5 million for comprehensive maritime domain awareness? $3 million in better counter-drug task force training? $1 million for advanced battery technology? $2 million for National Center Research on Student Testing skills? $3 million to protect the Harbor Seal?

Each one of these can be justified by the Congress person, and the company, union, or group getting the money. The problem is the Stimulus is not even CLOSE to being defined. It was a free-for-all. Justifying everything an anything – there was schools, companies, parks, museums, save this animal, save that tree, biomedical engineering, everything. It is a giant socialist bill. The problem is most of that money will go to a few people – because NO ONE really knows what happens to the money after you write the check. Do you really think that $3 million will go into actually protecting the Harbor Seal, or maybe that group will get some nice salaries and bonuses – along with new offices? Of course I could be wrong – but NO ONE will know – because there is no accountability or responsibility – which means no liability. Many of these groups and companies have all ready received millions if not 100s of millions over the year. I have read a couple of these programs – one that had ONLY needed about $30 million dollars (that was 5 years ago) now has received over $120 million and got some more in this round of pork.

It’s a prime example of the government flushing your money down the toilet. Guess what – they STILL do NOT know how they are going to finance it. Last week the Fed met with the same CEO’s they grilled in Congress to ask for their help (need more dealers) in financing the $2 trillion into treasuries this year. I can almost hear the toilet flushing right now – well at least we know those Harbor Seals are safe – or at least the people looking over them will have a nice new office in which to do so.

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Wal-Mart – recession proof!

Wal-mart is bucking the trend again and falls far less than analyst estimates. It looks up in the pre-market – as they continue to remain the one stop shop for food, drugs, clothes, and other staples and needs.

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Futures Pre-Market

The futures are getting hit pretty good. Spreads are in – expect ARB traders to buy futures and sell the basket causing pressure at the opening.

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Support / Resistance

We should didn’t get the rally on Friday – but we did stay in some of those key ranges. This morning doesn’t look good – but things could change after the opening.

INDU 7500 / 8000 (We could hit those NOV lows of 7500 again and that WOULD be KEY support. Watch the close)

NDX 1200 – 1250 (We will probably be down below the 1200 line at the opening – can we close above it?)

SPX 800 (850) 900 (We are moving to that 800 line and probably will be there this morning.)

RUT 400 (450) 500 (The RUT has held well at 450 – the question is can it close there today – if it does we could see a bounce in the narrower indices.)

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Conclusion

Obama will be talking today – he could spin the signing of the Stimulus into good news and a kick-start for the economy. The question is will the market bite? Right now the market is being sent down fast and hard – it will take another miracle speech to save it today, but don’t count Obama out he has pulled off the “Hope” and “Change” speech well. While we might bite on it – the big question is can we get the foreign nations to do so? That is the serious question.

2/13/09 (Leaks? China Recovery? Abercrombie!)

Traders,

Yesterday we saw interesting action, we saw the market pulling off as the concern about economic recovery and all the “if’s” associated with the stimulus package created more ambiguity than anything else. The market was just selling off – but at the end of the day a news story leaked out that created a pretty massive rally from the lows. The “leak” from the Obama administration started making it rounds – Reuters, Bloomberg, Knight, etc – the story was that “they” are near agreement on a subsidy plan to keep people in their homes. The “leak” came out about an hour prior to the closing bell and it seemed like the sellers took their foot of the pedal and the market just shot up. Unfortunately, their didn’t seem to be too much meat on the story – as reporters tried to figure out more of the details.
http://www.reuters.com/article/bondsNews/idUSN1247259120090212

However, it does show that optimism is alive and well – and certainly present in the equities market. A very well respected person said, that while he enjoys reading the Market Preview everyday – and while he agrees the news is pretty dismal, I need to inject some optimism (if I could find any). I understand his point and agree. I don’t want to sound negative or pessimistic. And as it says in the disclaimer – my passion gets the better of me sometimes. While it may sound like I am not an optimist, I would argue it is more about the reality of the situation rather than being an optimist or pessimist. A realist, which I would like to think that I am, is quickly labeled a optimist or pessimist – depending on which way the wind blows.

The advantage of the market marker (and options trader) is we do not HAVE to be an optimist or pessimist – we can take a position to profit in bullish, bearish, volatile, and even neutral markets. I do get feedback from friends in the FA, Broker, or other retail arena who consistently say that I am bearish or a pessimist. However, I would argue that is the times we are in – they are more critical of me because they cannot afford to be anything BUT an optimist – simply from the nature of their job. They are “BUY” side investors. They ONLY prosper (or their clients do) when the market goes up. They need, want, and hope for the market to go up. Hedging is not part of their vocabulary because they either don’t know how or are handcuffed from doing so.

That being said – I will tone down my rhetoric and be more open to “up side” or “hope” opportunities. I understand (even though it is NOT my duty) that enough people read this – I should probably avoid too much of the “doom and gloom” – it is just very hard to see the end of this tunnel.

Will we get through these difficult times? Sure – I most definitely think so – I think the questions we need to ask are not IF we will, but rather how and when. The road will be bumpy for sure and I believe the government CAN smooth those bumps – we must be optimistic that they can. My concern is what may seem like a optimistic solution NOW may create BIGGER problems for the futures – and thus move the WHEN date further down the road. But we also can’t be fully reliant on the government to solve our problems – we as a people MUST be self responsible, accountable, and liable. We collectively MUST work together. There is a lot of “blame game” and “class warfare” going on – and that solves nothing.






If you want my optimistic answer to the future – I think it can be best found in Calvin Coolidge’s quote:

“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan "press on" has solved and always will solve the problems of the human race”


NOTE: Yesterday, I inferred that Geithner worked for Goldman, he did not – he worked for the New York Fed and worked WITH (or FOR) Paulson (who is the ex-CEO of Goldman) during the bailout. Sorry for any confusion or misrepresentation.

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China maybe the first to recover

China which relies heavily on exports and has seen a massive job loss in the worker sector – may yet see better growth. China is working on several fronts - not just stimulus packages, but also is starting to see that their own people are a nation of consumers. If measured by domestic sales alone – the story is very impressive. The fast-food industry alone is expanding – even in this economy – very fast in China. Additionally – low-end retail product lines are still being sold. As many had moved from rural areas to seek jobs – even when layoffs occur many have remained in population centers.


China may yet come to terms that there export trade may not be as robust as it once was and growth (relative) maybe slow for sometime (but positive absolute). The shift to local consumption could help ease China’s problem – more so than other nations.
According to a Bloomberg survey China’s economy may expand by 6.6% - after the previous 6.3% quarter.

China has several advantages to recover quickly. Unlike the WEST (Europe and the U.S.) – they do not have massive consumer debt. Credit spending has NOT been available to the people (on any measureable scale vs. the population). That means a government stimulus package goes right to the bottom line and not to write-downs and to consumer debt. Expectations are for a quick recover on that alone.

How is this in play – well those companies that have larger exposure (as exporters) into China may be a little more recession proof than initially thought.
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Abercrombie & Fitch – rally?

Abercrombie made a smart move a few years ago – getting a wider foot print into middle America and really starting to set the trend among teenage and tweeners. Enough so – that they are now the leaders in the sector, followed by American Eagle. Once there was Gap – but Gap (just like other trends) is stuck in a middle ground. Those that once shopped at GAP (when it was the trend setter) are now in their 30s and 40s. GAP has also lost a grip on what market it is going for – and those that had shop there are now middle aged and measuring the buck’s buying power and not as easily persuaded by trend. Abercrombie has taken the torch for the younger crowd – and has done it well.
They are up in the pre-market and even in this slowing economy beat the estimates by 10% ! Fad and Trends are a big part of the American Consumer – it doesn’t matter the economy – when the 17 year old boy wants that faded pair of jeans – he will find a way to get them!

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Futures Pre-market

There was some positive stories out – the “leak” that sent the market higher, China’s quicker recovery, and ANF showing that retail can still make money. However, Obama losing another cabinet member and still having to SELL the stimulus is creating a drag. Futures were up and now down. We may yet see the ARB traders come into play – but for now expect a weaker opening.

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Support / Resistance

Was it short covering or did the sellers take their foot off the pedal when the “leak” circulated. It all happened at the same time and created a hyper rally at the close to finish positive or unchanged.

INDU 8000 (It seems that it was support and not it is a magnet resistance level. Can we close above it going into the weekend. If not 7500 is a serious support level and in the cards next week.)

NDX 1200-1250 (What was resistance a week ago 1200 – now seems to be support.)

SPX 800 (850) 900 (Sure 800 is in the cards – but we made a good move back up toward the 850 pivot level. It’s about the close today.)

RUT 400 (450) 500 (Close right ON that pivot point. If there was ever a magnet it is on that 450 line. Let’s see if it has staying power)

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Gold 900 – 950+ (900 was recently resistance – now support – FT had a story on 2/9 about the biggest gold bullion run in history. China is also a big player in gold buying. If we close above 950 then I really think 1000 is in the cards.)

SILVER 10-14+ (We are now up at 13.25 and I think while 14 may see some resistance – if gold head higher – silver will follow.)

OIL 35-40 / 50+ (We are just in the lower band below 35 – but this is still not a trading band but a support band.)

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Conclusion

We wait for the stimulus and as I said – the government can do a good job smoothing the bumps. My real concern is our future dollar and prolonging the recession. Please keep in mind that we could see a great move higher after the stimulus checks go out (just like last year). But take the time to learn how to hedge your positions and lock in those gains – don’t let the market take your winnings from you again.

I don’t expect too much volatility today – I don’t see too much in the new cycle – of course that could change fast.