3/31/09 (Obama Sells! Huffington vs. Frank!)

Traders,

Well Obama fires the CEO of GM the day before the dead-line of their feasibility plan (the second one) – but of course (as I suspected) whether GM did anything or not – we would give them a 3rd chance – which is of course what Obama did. Obama had to have a fall guy (the CEO) – regardless – because you can’t give them MORE money and a 3rd chance to get their act together without blaming someone. So GM has another 60 days and Chrysler has 30 days. It reminds me of the mother that keeps threatening to punish her kid, but keeps giving the kid another chance. What we DO know is that the this administration will NOT let GM fail – even if it has to turn it into a subsidize job center. What was the most silly (yet alarming) part of the whole GM Fiasco was when Obama did the GM sales pitch for them “Your warranty will be safe. In fact, it will be safer than it’s ever been, because starting today, the United States government will stand behind your warranty.” – there is some irony in there if you didn’t catch it – but you have to say it is a great sales pitch. Can you imagine the flack that Bush would get if he said that?

The market didn’t like the Auto news – one of the unsettling remarks that kept surfacing in the news was the government’s ability to fire and change staff at companies – which has gotten some companies a little concern because of the double speak from the Administration – on one hand they administration agrees with the companies that the Congress should not keep changing the rules on the bailouts, but on the other the administration has the right to change the board and fire people. Which certainly creates a mixed message.

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Another merger? Rumor or not?

Alcoa was looking like it had just bottom and was making a decent return, no doubt the high volatility (down-up-down) of the commodities market has made managing Alcoa’s future more than a little difficult. But are they are takeover target? Sure, it depends on your commodity forecast, business synergy, business model, and how does the balance sheet REALLY look. BHP Billiton (world’s larger mining company) is making a grab for Alcoa (one of the biggest aluminum producers). The market is weak and some believe the commodity market is poised for a rally (in the coming year).

Alcoa is seeing a good 5% plus pop in the pre-market. There is no bid on the table yet – but the rumors are spinning.

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Difficult year ahead?

That’s what CEO of Morgan Stanley (John Mack) thinks. In a conference call yesterday he was concerned and thought it was going to be a difficult year ahead because so many toxic debts have YET to be cleansed from the banks. This confirms Geithner’s comments on ABC about the need to flood the banks with more money as well as Barney Frank hoping to water down the mark-to-market accounting rules. Over 529 financial institutions have received tax payer assistance in one form or another so far.

Hugo Banziger (Chief Risk Officer for Deutsche Bank) echoed similar comments, “ The credit crisis is far from over!", and Abby Cohen said last week on CNBC that banks are NOT yet in the clear.

Mack was one of the few bankers that recently meet with Obama about going forward and Mack indicated that Morgan Stanley would be one of the firms to buy and bundle-up toxic assets and resell them to their clients. He concluded that while he did hear about all the talk coming out of the Administration (and Congress) about capping compensation and taxes – that he is all over it. As if to imply that he is not going to let it happen or do something about it.

Needless to say – after the big financial rally – some of the top level people in the banking sector are still concerned and more money IS needed, despite the optimistic 50% rally in the sector we have recently seen.

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Futures Pre-market

The futures are making a slight rebound from yesterday – it is also quarter-end – so expect some marking today. The spread is at play – so expect some selling of the futures at the opening as ARB traders buy the cash basket. Expect a slight up market at the opening.

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Support / Resistance

We touched some of those short-term support levels – but we did hold or close above them for the most part.

INDU 7500 ! (We blew down through it, but rallied at the close to finish 20 points above it. We could test it again today – but the futures are currently pointing to a higher opening. It will be about the close.)

NDX 1200 / 1250 (We slid down from the 1250 area to the 1220 – still above the 1200 line. The futures are looking at a 1230 opening. 1200 and/or 1250 are in the cards today.)

SPX 775 / 800 (The big 800 number is what all eyes are on – it looks like we COULD get to 800 at the opening. Keep eyes on the close.)

RUT 400!!! (Again we closed above 400 –which is a positive sign. Futures are looking up. Do we close above it at the close?)

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Gold 900+ (Still above the 900 level – we have been watching gold play between the 900 to 950 level – the longer it stays in this range the more hidden volatility ramps – so when we DO see a move it will be violent and fast. I think 850 or 1000 is in the cards when it breaks – expect a hyper move in the coming weeks – volatility is building.)

Silver 12+ (Silver is in a similar position – 15 or 11. When it does move it will fast and hard. For both Gold and Silver it will really be perception of fundamental strength in the U.S. economy or not that could be the catalyst.)

OIL 50? (We dipped below the 50 line – which also go either way)


Markets – it looks like we are at a pause in the commodities – coupled with some volatility in the currencies – something is a foot – either up or down.

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Conclusion

The best entertainment this morning was watching Barney Frank and Arianna Huffington going at it this morning on CNBC. Not that I am much of a fan of either one – Huffington was getting in some serious good blows at Frank by calling the new accounting rules “water downed” and she was very upset that a lax in standards is being applied. Frank in all his huffing-n-puffing was pissed at it being called “water downed” –

But Arianna was right – when you let the regulators determine whether to apply the accounting rules OR not based on the balance sheet – you have watered down the rules. It was a good exchange and I was surprised that I agreed with other Arianna’s opinions as well. She did conclude that the Truth knows no sides. I can’t deny she’s one tough cookie and made Barney look the fool (which some would argue is not too hard to do.)

More money is needed – we have heard it from Geithner and now several others are coming out and speaking about additional concerns at the lending institutions, couple that with the story in the WSJ about the doubling in defaults on the commercial paper side – it is certain that we are not out from under the credit crisis yet.


My other concern is that the VIX, volatility in currencies, and parabolic moves in some sectors is creating more uncertainty – which some (IMHO) have confused for a bottom in the market. A revisit to the recent lows as well as spiking highs are in the cards. We may not be in a bear market, but we certainly not in a bull market – it IS a volatile market as the rules change daily and thus so does perception.

3/30/09 (Obama Fires CEO, Geithner Dog & Pony Show!)

Traders,

We peaked out on Thursday and Friday after a great run up – and a great time to lock in gains and hedge those deltas. Friday saw some weakness across the board enter the market – but it stopped short of breaking the up-trend support lines. The implided volatility (VIX, VXN, etc.) has been running low compared to statistical volatility (hi/low/close) – which is more reflecting the trading activity and the skew shrinking than actual underlying volatility. Looking at the VIX to gauge anything other than what it is – well is subjective at best. I have seen recent days where the VIX, Skew, and Statistical volatility are spewing contradictive data – if one was to use them to gauge any market sentiment. The one thing it has shown is that the market is volatile and even the VIX is having a hard time reflecting that.

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You’re FIRED!

Obama fires the CEO of GM (Rick Wagoner) – of course Obama didn’t really fire him, rather “word” came from the White House that he is going to step down and then Obama had more to say on TV over the weekend. However, is it really that big of a change or just public image?

Obama and the administration knew before hand and said nothing about the AIG bonuses – until AFTER the public went nuts. Obama wants to give GM another massive bailout package worth 10s of billions (giving money to the auto makers is almost as unpopular as giving money to the banks) – so Obama THIS TIME to get in front of public opinion needs to have a “fall guy” – who better than the CEO. Now Obama can say – we are seeing change – out with the old guard and in with the new. Hopefully the public will be able to swallow that lame excuse for giving more 10s of billions to GM.

Unfortunately for anyone with the slightest inkling of business will see through the charade – the problem isn’t Wagoner and it will not be the new CEO either (when they decide to blame him for the next round of funding) – the problem is SIMPLE if they bothered to do the math. The problem is the business model – it doesn’t work. Now I am NOT talking about selling or making cars – I am talking about the finance side of the business. Revenue – Cost = losses. Their costs (especially the legacy programs are billions of dollars) – GM has been borrowing money for a decade JUST to pay interest and legacy programs. That model was due to fail simply because the legacy program was growing faster than their revenue. They could not and will not be able to sell as many cars to keep up with the growth of their legacy. The whole problem is quite simply EPIC FAILURE. The problem, which Obama will NOT address is the Union and Legacy Program. (I am not saying the Union is the bad guys and that they don’t have a justifiable reason for existence) – I am saying the Union feels ENTITLED to money and does NOT care about the business model of GM. There is 1 worker for every 4-5 retired workers (legacy) who get a rather large portion of their salary including healthcare costs. At some point (as people living longer) the growing retirement pool gets too big to sustain – it is just simple math. Japan saw and learned from that – which is one reason they do not want to be handcuffed with Unions in their programs. European automakers have taken a different approach to their retirees as well.

But here is how Obama will be fooled (or is being fooled) – everyone is going to point to the bad economy and the slowdown in car sales as the problem. They can point to Japan and Europe that is also suffering. Obama – of course will buy that as the excuse of GM’s failure. Obama will also not make any move against the UAW (who help get him elected). They will restructure GM – but they will NOT solve the business model problem and I am afraid that the only Obama answer (because failure and cracking down on the Legacy is NOT an option) is for a more socialistic agenda with a heavier Union hand. Going down that road (ignoring the business model and the point of being in business in the first place) and looking at the problem from strictly a job (entitlement) issue – government aid (for the long-term) will be a fore gone conclusion.

GM is done as a business that is profitable – in my book it will be a subsidized jobs program (whether the government sees that or not – that is what it WILL become)

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Road Show

Obama and Geithner are on the road show trying to convince the American People that more bailouts, social programs, and higher taxes are the answer. The promise tax cut for the middle class has already been wiped out as Congress needs to find ways to over $3 trillion for the budget deficit. While Obama was playing Donald Trump “You’re Fired”, Geithner was on ABC telling the people they will need to spend “substantial” amounts to keep the financial institutions from failing. They have already spent 80% of the $700 billion TARP and Geithner and the Administration need to keep the door open to spend more. Thus they have to get the American people on board. Geithner has about $135 billion left in his war-chest and avoided answering the question if he will seek more (which he will if he plans on pushing forth the Obama plan).

His argument is that in previous crisis around the world and in this country the government acted too little, too late (I guess he hasn’t heard about the New Deal which there was nothing little about it or – and I hate to say this – but the NAZI’s did a great job bringing their country out of a great depression with TOO MUCH, TOO SOON - not that we are going to war – but Fascism and Socialism are both powerful tools to wield.) Additionally – Chavez has brought Venezuela forward with his nationalized programs. Geithner was selling us more government spending, intervention, control, and taxes – I’m not buying it.

Obama has already mustered his troops on a door-to-door campaign and letter writing campaign to get the people to put pressure on Congress that the Obama plan is the right plan. He seems to be back on the campaign trail again from Jay Leno to public speeches – if he is able to get the people behind him – they may put enough pressure on Congress to move in that direction. The problem is the people are sheeple – do what I say and don’t question what I ask.

Expect MORE and not less bailouts – in the tune of GM, AIG, Freddie, Fannie, etc. Geithner is justifying more intervention and Obama is mustering the troops to write their Congressional representatives that SPENDING $3 trillion plus, raising taxes (or cutting the tax break for the middle class), socialism and nationalistic reforms are a way to save this country. I ask – save it from what – a recession or the market going down? Or is it saving us from that horrible notion of Liberty?

Sorry for the rant – but the road show is getting old.

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Futures Pre-market

The futures are getting a good hit in the pre-market, with JPM and B of A predicting a more difficult time, more banks needing more money, and GM looking at bankruptcy – well the world markets didn’t have a fun Monday and the futures are seeing some pressure.

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Support / Resistance

INDU 7500 (7750) 8000 (We got close to 8000 and pulled back to the 7750 area – the question is do we close at 7750 – or is 7500 in the cards.)

NDX 1200 (1250) 1275 (We are just at that 1250 line – but it looks like it will not hold.)

SPX 800! (We are above 800 but will test it this morning – will we close above it?)

RUT 400 / 450 (400 is key support – watch the close.)

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Gold 900+ (We are still above 900 but have come off from the 950 level.)

Silver 13+ (We could snap 13, but I think there is thick support down to 12.)

Oil 50+ (Last week we almost hit 55, now we are pulling off and are just above 50 – do we break?)

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Conclusion

We all rushed in to the market after it got hit and sent it up in one of the largest 3 week rallies of all time. There was NO fundamental data or change to the economic environment to warrant such a thing – however our faith, hope, and optimism was pumping hard. However – the reality is that we are IN a financial crisis, GDP is contracting, job losses increasing, and more government aid to banks and companies. They were on TV (trying) to convince us they need to spend 100s of billions MORE. I have heard many in Europe and Asia speak of the Big Mistake - one went as far as to say “Didn’t American’s learn anything about Europe’s history?” – The U.S. has been urging their European counterparts to also spend more money – but they have backed away from that as they don’t want to put their nations into massive debt. China went as far as to ask about another currency. However, in this nation we don’t LISTEN and give little attention to what Europe, Russia, or China says – as if we KNOW better.

These actions were are taking are bets (speculative) – they are massive bets with YOUR money. The question we need to think about is SHOULD we be spending money we DON”T have – based on HOPE?

Obama has a massive force to get the “message out” – maybe my little newsletter will get you to think before you just nod your head in agreement. Don’t agree with me or Obama until you have seriously thought about yourself and bother to do a little of your own research.

3/27/09 (Inflation! Banks and Obama, MGM and INTEL)

Traders,

Another rallying and note – topping day. The revised job numbers and the GDP (-6.3%) clearly showed continual contraction. There is some good news and let’s look at it from a reasonable expectation. There IS a bottom in the jobless and foreclosures – simply because they are finite. At some point companies cannot trim any more staff and there are only X amount of homes. So we may see a bottom to the jobless and home foreclosures this year and maybe sooner than we think. But just because it does bottom doesn’t mean we should rush in. The contraction needs to stop and we need to start seeing positive spending (not deficit), jobs, currency strength, and debt reduction before we have any measure of a recovery. So while it is true we may (and should) find a bottom soon – doesn’t necessarily mean a recovery – until signs point that way.


Now for the bad news, if we thought that we are getting close to a bottom in the foreclosures, jobless numbers, etc – it was the story in the WSJ yesterday about commercial real-estate that looks like it may be the next big wave. According to the story defaults have doubled in a quarter and is expected to go higher. Rents have come off 25-40%. This morning they talked about it extensively on CNBC – it does look like the next punch of the credit crunch can happen and prying eyes are trying to find those lenders holding the hot potatoes – which means for some banks (and lending institutions) write downs may not be over. But on the other hand – just like with residential real-estate – it is a finite commodity and there is an X value.

http://online.wsj.com/article/SB123802456807742287.html?mod=googlenews_wsj

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Consumer spending rose – but what does that mean?

Consumer spending numbers are tricky because you can measure dollars or you can measure moveable products. It is important to understand what we are really measuring – in the case of consumer spending they are measuring price, not products being moved. February consumer spending rose .2%, after a 1% rise in January. But that doesn’t mean more products were sold – a detail look reflects an increase in price of products purchases – which is actually eroding buying power. That’s called inflation.

On the other side – incomes fell .2% more than forecasted .1%. Between incomes decreasing and prices of goods rising – it’s certainly a squeeze play. However, foreign eyes (mainly China) was very interested in the Consumer spending numbers prior to going into the G20 meeting next week as they are concerned about inflation in the U.S (and new policies that creating inflation). As the largest debt holder in this country – it is China who extends this nation credit. They are starting to get vocal and like those collection agencies hounding those that have not paid their debt – China is saying “Stop printing money!” and has gone so far as to ask for an international currency. While that is a long shot – and would take years (like the Euro) to deploy – China is no doubt very concern.

While Obama has said the Dollar is Strong in his press conference – that is actually relative. Is it strong to the Chinese Dollar? Is it strong to commodity prices? Is it strong to Gold or Silver? Recently the dollar has been falling against all currencies – so what might of looked strong against the Euro (and Euro only) it certainly hasn’t been looking strong against all currencies or commodities.


Is this a few first crack we are seeing in the inflation dike? Can the levees hold back the dollar.

The hot topic at the G20 meeting will be inflation and devaluation and this Consumer Spending number will be a sour point with the Chinese – reflecting that inflation is coming.

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Obama and Bankers meet

Goldman and JPMorgan want to return government money – after the Fed and Treasury told them to take it (even when CEO of JPM said they didn’t want it) – but the government wanted all the big players to play ball – as a “duty” to the country. They said ok – but then Congress changed the rules, and then changed them again, and are not threatening to change it again. Goldman and JPM said enough – we didn’t NEED the money, we don’t WANT the money, and we certainly are not going to concede to all these changes Congress wants because NOW we have taken the money. So they want to give it back. The tax payer should be happy, so should Congress, and the government – because that means they are GIVING it back and maybe we could pay off some of our national debt, or reduce the deficit, or it could go to those that may actually need it.
But that is not the case – Congress is mad – and doesn’t WANT them to give it back – because Congress wants to impose their rules and they can only do that if they lend the money (which gives them leverage). Obama also doesn’t want them to give back the money – because he is afraid that it might show WHO the strong banks are and WHO are the weak banks. However – we all KNOW who the strong one are and who the weak ones are:

Goldman, JP Morgan, and Morgan Stanley are in the camp where they can actually give money back.

Citi, Bank of America, and some others are in the camp where they might even need MORE money.

Would giving back the money by a few create a run on the others? Probably not unless Obama and Congress make a big deal out of it.

So Obama is going to meet with these CEOs and try to convince them – but what the CEOs really want is for Obama to STAND UP to Congress and say – create the rules BEFORE giving the money and don’t change them AFTER. I don’t think Obama will stand up to Congress or actually voice his concerns – that means expect this meeting to be more a political stunt to show that they are working WITH each other and I am sure the Press Office of the White House will have some hand holding and hug story that everything is fine.



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MGM is it a Mirage?

MGM fell almost 10% as the casino company controlled by Kerkorian (the 3 times failed American auto investor) is now struggling to make payment deadlines today. Many are concerned that it could quickly fall into bankruptcy as a large portion of equity was pledged against loans – some for new projects on the strip – but others believe he may have used the funds in his failed acquisitions in GM, Ford, and Chrysler.

Stock is getting hit in the pre-market.

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INTEL sells to buy?

INTEL stock is down in the pre-market as the company plans to sell as much as $1 billion in stock to fund potential acquisitions. However, one analyst made an interesting observation – (which would stand to reason) – money is becoming very cheap to borrow, why not borrow the money instead of selling large amounts of stock (which reduces the equity holdings) if there is a potential of acquisitions, which means growth? Would you want to OWN lots of stock if you thought it had potential and borrow money cheap for those acquisitions?

He is right – that means one of the following:







1. Money is actually really tight and INTEL is not able to borrow what it needs – which means they possibly have a credit problem.

2. INTEL sees a slow down and needs money today to keep going.

3. INTEL doesn’t see a positive futures in the near-term with or without acquisitions and wants to be flush with cash

4. Inflation is coming and they want to leverage their cash as stocks may not increase in value fast enough to beat inflation

Without doing more homework it will be hard to tell – but there is more than what they are saying- you just don’t dump $1 billion in stock to raise money for “potential” acquisitions. That is just marketing speak for something else or a Red Herring.

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Futures Pre-market

The futures are coming off pretty good after this week’s massive rally – the spreads are in – so expect the Arb traders to buy futures and sell the basket. Expect a down market at the opening.

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Supports / Resistance

We are testing the resistances and are very close to those big numbers if not through them.

INDU 7500 (7750) 8000 (Only 75 points away from 8000 – do we touch it – it doesn’t look like it. That may have been it.)

NDX 1200 / 1285 (1285 was the previous two tops in Jan and Feb – we are right there – it looks like it is pulling off)

SPX 800 / 850 (We could go a little higher before testing resistance – unlike the INDU and NDX)

RUT 400 / 450 (Actually 450 is not the broader resistance levels – it too has some more room – but it does look like we may see some pull off from 450)

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Gold 900+ (Gold has been moving between 900 – 950. I think we might get some movement to 1000 or 800 after any fallout from the G20 meeting.)

Silver 13+ (Same goes for Silver)

Oil 50+ (It has flirted with 55 level and now is pulling off to 52.50 this morning. Does 50 hold?)

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Conclusion

Optimistic rally – talking heads are trying to dig through the garbage of good news or spin bad news into good. Faith as I said is a very powerful emotion and tool that the government needs to use and I think Obama has used it to his advantage. However faith can also be tested – we can only follow a belief so far before the reality and gravity of a situation becomes too much to bear.

We had the biggest rally in the last 3 weeks since 1987 (and that wasn’t a good year) – additionally one of the largest market rally years was in the middle of the depression. I also saw an interesting article about candy sales rallying and drug trade picking up. Why? Because when things get bad people turn to vices. My grandfather said to me that gambling and alcohol always expand in bad times (depression and hope). My wife and I were talking – you know how people SPEND lots of money to make them feel good (they go shopping) maybe right after they lost their job or had a bad day.

Well – let’s think about this in a broader sense. The market just rallied almost 25% in 3 weeks (one of the biggest market rallies of all time in one month). Financials rallied over 50% in many cases. Yet – nothing has fundamentally changed – they haven’t even voted on many of the plans or the Budget Deficit – in fact the government is just starting with some of its plans and the bulk of the money and plans have not even been initiated – we don’t even know how well they will work or if they will work.

So WHY the rally? Optimism and perception. It is HOPE that it will work.

A healthy bull market? Well that should be a steady growth in the market (1 to 3% a month). With fundamental data to back it up. Companies are expanding not contracting. Jobs are being created, not lost. The GDP expands not contracts. The percentage of the GDP that should be growing is from consumer spending not from government printing money.

I don’t want to be a bear, but I certainly can’t be a bull – structurally speaking we are seeing a bear market rally.

I wish I could bring better news – but it is a time to be patient – we will get through this.

3/26/09 (GDP Shrank, Dr. Doom, Volatility?)

Traders,

Yesterday was very interesting action – the market up after the largest 3 week run up in 17 years started giving way when the Treasury Auction saw some problems as yield went up (even after the Fed bought 7.5 billion). Then at the close the market rallied (across the board) to close up. Meanwhile the VIX and implied volatility decreased (as statistical rose) creating havoc in the options market. Additional – end of the quarter is seeing a ramping of funds moving back into the market.

Geithner goes in for round two today – and will be requesting more power to manage AIG or Lehman type issues. There is will be lots of give take with Congress on these requests – as it moves the authority for decision making from Congresses hands into the Treasury and/or Fed. He will pled his case today….

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GDP Shrank

Gross Domestic Product (GDP) shrank by 6.3% (annual rate) from October to December (the weakest since 1982). Profits dropped by 16.5 % the most since 1953. It is clearly evident that the economy is still contracting – the question is when does it stop contracting and find a bottom. The second question is when does it expand. I think the first question can only be answered when the deleveraging unwinds completely – which could be 1, 2, or even 3 more quarters. After the bottom is found, the answer to the second questions is going to be resting on the government’s budget deficit and policies. More taxes, less taxes? Expansion of the debt? What? Any growth will be determine by government policies to allow business to expand.

70% of the GDP is fueled by consumer spending, which contracted 4.3% the last quarter (the first back-to-back drop since it was measured). The problem with the government plans and budget deficit is that it will expand by over 100% of the GDP. Obama’s forecast is that GDP will grow by 2.6% and make up for the Deficit and Debt – but that is a big if.

The World Trade Organization predicted global trade will decline by 9% this year – which if we expand out that means we should expect to see consumer spending also shrink. So GDP doesn’t look to be expanding anytime soon.

The jobless claims additionally continue to be an issue with over 1.2 million jobs lost this year. The jobless claims continues to grow – so add that number into the equation and it confirms that consumer spending should continue to shrink (at least through the next quarter).

Nouriel Roubini (The economic professor that has predicted what has come to pass and been dubbed Dr. Doom) continues to see serious bumps in the road and that the economy will continue to contract through 2009. Expectation is for more banks to need more money (bailouts) and possibly nationalized. His expectations remain at $3.6 trillion in losses – which we are not there yet.

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GM up – cuts more jobs

GM is up in the pre-market as the company has “persuaded” more than 6,000 UAW members to take buyouts.

However, while it has reduced the overhead considerably – expectations are that additional funding will be needed by the government.

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Futures Pre-market

The futures rallied in the pre-market prior to the GDP and Jobless, then it saw some up-down volatility after the numbers came out with slight down pressure. The spread is in for now – but volatility is showing that can change. Expect a higher opening unless it changes.


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Support / Resistance

We had some serious whipsaw action yesterday – still testing the resistance or is it support area.

INDU 7500 (7750) 8000 (7750 seems more of a resistance point – but also a magnet at the same time. Watch the close.)

NDX 1200 / 1250 (Again closed almost unchanged right between the 1200 – 1250 area, it looks to move higher at the opening.)

SPX 800! (The 800 line which was tested yesterday – is a short-term support that could easily become resistance.)

RUT 400 (425) 450 (It looks like we may open higher – but volatility with the GDP is uncertain.)

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Gold 900+ (It seems that gold gets stuck at the 900-950 range and hasn’t made a move higher or is having problem. However if it breaks 1000 I think we could see a big knee jerk up move.)

Silver 13+ (Silver is Gold’s little brother)

Oil 50+ (It’s moving higher now to 53.50 this morning.)

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Conclusion

The budget deficit at about 3.5 trillion (that’s trillion with a T) is creating some waves. It may look like the administration will push it through it’s agenda with a Reconciliation. Obama is on the campaign trail to sell his massive deficit – tonight he will have a town hall meeting online. Many “Blue Dog” Democrats are also having problems with it. It is going to be a fight and it’s going to be all up hill. The big concern is that if it does pass close to what it looks like now we could see more instability in the dollar, which means that $300 billion may not be enough for the Fed to keep interest rates at zero. They just had a problem yesterday – as yields went up and the UK auction failed, giving the Chinese concerns more weight at the G20 meeting in London next week. If the UK and US can’t even finance their own debt – then a new world currency maybe in the cards and if no one wants to play in the sandbox – we could see more nations take a tariff / isolationistic stance to protect their own economic issues.

We have had a massive rally – over 20% in 3 weeks (with 5% to 7% moves in a day) – the financials have moved almost 50% in most cases. The short-interest in the last few weeks by 25% - and every knee jerk up is additionally fueled by more covering. We are seriously testing those first resistance levels and we could go either way – the more we hang and contract at these levels more the hidden volatility is injected into the market. Long equity funds are open at the end of the quarter and looking for deployment – so we are also seeing more buy side investor volume come into the market.

While true the news has been miserable there are a few rays of sunshine – but even those are questionable as anomalies. Faith is a powerful thing and right now it is faith that we will get through this and buyers are willing to take equity risk – regardless of fundamental data (including today’s GDP and jobless numbers).

So the question that we need to ask – is this a short-term bear market rally or have we really found a bottom. Market perception is that it is a bottom, but after the 20% rally – many are starting to take a second look.

What is certain is that options volatility (VIX) at 40 is expecting a 10% monthly volatility –however the market is moving as if the VIX was priced at 65. And the expectation is that it can continue to make large moves up or down.

3/25/09 (Obama Broke? Durable Goods Up?)

Traders,

Yesterday the market pulled off and gave back a couple percent. Obama came out defending his budget deficit even though the government’s own Congressional Budget Office shows his proposals seriously in the red. Even Senator Gregg mentioned that at conservative estimates (using the CBO numbers) the government would be paying $600 to $800 BILLION in interest alone - we WILL go Broke.

However – the president doesn’t want to budge on spending money for Healthcare, Energy, and Education – even if it meant eliminating the middle class tax cut (which he avoided to answer).

In one sentence he says "his people's" projections are for a GDP growth rate of 2.6%, while the CBO and others are in the 1.9 to 2.2% and thus based on "HIS" projections we will be cutting the deficit.

(Cutting the deficit NOT by cutting spending but “hoping” for growth to pay it down. The spend now to “hopefully” grow later.)

Then in another sentence he says NO ONE can predict what growth is going to be 4, 6, 8, or 10 years out. Well if that is the case – then WHY would "his people's" estimated be correct and why is he spending NOW (increasing the deficit massively) based on his projected HOPE of growth.

He argues that companies should not speculate on tax payers money, but I would argue that is exactly what he is doing with this massive spending bill – speculating on growth in the future. Let me remind you he is NOT cutting the deficit, he is increasing it massively – based on the speculative growth rate that in the future growth will pay it down. Why bother having a Congressional Budget Office if you are not going to even use their estimates and who is HIS people to say the Congressional Budget Office is wrong? Who are his people?

The argument here is NOT about healthcare, education, and energy – the argument is let’s FIRST reduce the deficit and debt – get the government’s balance sheet cleaned up, fix the economy, and strengthen our currency. THEN after we do that (if it takes a 6 months, a year, 2 years) – THEN we can have the healthcare, education, energy spending debate as to how much we CAN afford to spend. He is justifying his ideology and ignoring how he is going to pay for it and it is all predicated on his people’s prediction of growth in the future. It’s an ALL IN bet – because if he is wrong and depending on how wrong he is – the interest on debt could be massive and Senator Gregg is correct – he could bankrupt the country.

The administration reminds me of the GM dilemma – what sank GM was not selling cars (in 2006 they had record sales) – it was the massive debt and deficit spending – GM had to borrow money JUST to pay their billions in interest payments. At some point debt WILL destroy a company or country.

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Durable goods jump!

Durable goods unexpectedly jumped on a rebound demand for goods. It was a massive increase of 3.4% ( the biggest in one year). It seems to be indicating that the economy might be finding a bottom – however once we pull back the numbers we start seeing that it’s not retail as much as it is defense. Bookings for military equipment jumped by 35% (Lockheed won a $5 billion military contract for example). Non-defense goods (excluding aircraft) climbed 6.6%. Additionally – looking further into it – there was a huge push to move out inventory at steep discounts.

One economist pointed out this jump is an anomaly as it reflects a larger increase in defense and while there was growth in non-defense it was also based off the gluten of inventory that was moved at steep discounts (in some cases for losses.) His expectations is for a more volatility as inventory needs to be pushed out and companies are still in cost cutting modes. The important number that he reflected was growth in new orders has significantly dropped (Boeing had only 4 aircraft orders, down from 18 a month earlier) – indicating that when old inventory is pushed out – new orders indicate a slowdown and not to read too much into this durable good number. I tend to agree.

Futures made a small spike from the news.
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Failed Government Debt Auctions!!!! The first crack….

The U.K saw something very concerning – for the first time their bond auctions failed for regular debt (they DID have two previous failures in 2002 and 1999 – but they were not regular debt auctions and did attract about 95%). The U.K. gilts fell after demand at action of the bonds fell short of the amount offered. The market sold off hard as realization that the government could not finance its own debt.

On the other side of the Pond – we (the U.S.) will not have that problem – WHY? Because Bernanke just printed $300 billion (he is printing money to buy the nation’s debt) – this country will not let its bond auction fail if that means we have to print money out of thin air!

This is one of the reason that China is requesting a new world reserve currency and will bring it up at the G20 meeting in London. You just can’t keep printing money and not finance it. At some point someone will stop buying it (or there is not enough money to buy it) – then you have failure. I am sure that China was not happy with Obama’s speech about more spending – when our government can’t even sell enough treasuries to cover it (30% will be financed by printed money by the Fed.) China is our largest creditor – if they don’t want to buy it anymore, are showing a lack of faith, and now will ask for a new reserve currency – maybe we should start listening (if we value them buying our debt.)

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Futures Pre-market

The futures got a good pop from being flat after the durable goods orders surprised the market, but I think as people read into it – it could be just a one month anomaly. The spread is in – expect arb traders to short futures and buy the basket if the spread remains.

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Support / Resistance

Well after being well into resistance levels – thus creating new supports we are now in a range to create new levels (or are we)????

INDU 7500 (7750) 8000 (We fell over 100 points yesterday down below the 7700 line. A move to 7500 or 8000 is in the cards.)

NDX 1200 / 1250 (We are now backed off and below the 1250 line. Where too – I think people are trying to figure that out.)

SPX 800! (That is a big number – do we close above it?)

RUT 400 / 425 (Again – above 400 – that is a big number do we remain above it?)

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Gold 900+ (Gold came off as we saw people rush to equities – the lemming law.)

Silver 13+

Oil 50+ (Oil is coming off this morning but still 52+ )
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Conclusion

As much as politics should be out of the market – it’s here. We can’t ignore what is going on in the treasury markets around the world, China’s request and concerns, nor Obama’s budget proposal. They will all determine the fundamentals of the market. Obama needs to come to reality about the economy and the government’s balance sheet. I am not denying that Healthcare, education, and energy are important and he has very valid concerns and we need to address them (so how) – but we SERIOUSLY don’t have the money to go on a massive spending spree (SERIOUSLY) – it doesn’t matter if you want to blame Bush, Republicans, Congress, or Democrats.

The reality is we are all in this sh#t storm together and we can’t afford to put this country into massive debt by deficit spending and printing money – pinning ALL our HOPE based on a speculative forecast of growth to reduce the debt (especially if his people’s forecast is incredibly rosy compared to other economist, government agencies, and members of both parties). He truly is the President of HOPE. Because we really are HOPING that it grows as much as he says it will – because if it doesn’t this country will SERIOUSLY be in the hole in 4 years.

The Chinese are right to be concerned – we just can’t ignore that concern. We need MORE than just HOPE.

A New Reserve Currency?

Stimulus, TARP, TALF, Private/Public Geithner’s Plan, FED Discount Window, FED Injections, etc. how much more can we print?

Being a Fiat Currency (Faith Backed) - the U.S. Dollar (USD) is only as good as the full faith of the U.S. Government. The USD is NOT backed by anything, other than faith.

The government (in the simplest terms) has two sources for creating money (without monetary inflation), Collecting taxes (revenue) and Raising money by selling Treasuries (debt).

However, if we print TOO much money (regardless of reason) we may not be able to collect enough taxes in the future - thus we increase the debt. However, more importantly (while taxes are future revenue to pay down debt) - we need to finance the money TODAY. That is the function of treasuries. However if we print more than we are able to sell in the Treasury market we are now creating inflation (printing too much money).

Currently the government is printing so much money that we can't finance it. It has gotten to a point where the Federal Reserve (Bernanke) has printed $1 trillion (of which a large portion) is being used to purchase U.S. Treasuries. Why is that crazy? Because the Goverment (Treasury) is printing money and it is being funded by the Fed who is printing money. Both are printing money - so we are really NOT financing the debt - on paper it looks like it - but WHERE is the FED getting the money? They are not really able to fiance it - they are just printing it.

The US Dollar has been falling quickly as the world reserve currency. OPEC is increasing taking other forms of currency for payment for oil. China is been actively buying gold. And if that wasn’t proof of the eroding faith in the dollar , the FED is printing money to buy Treasuries (other printed money) because they know the market cannot absorb the debt.

So is there a new currency coming?
Who knows – but at this point it is not out of the question. China thinks there should be a new reserve currency!

Read story:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae6ezzIMK6cs&refer=home

http://www.foxnews.com/politics/first100days/2009/03/23/china-takes-aim-dollar-urges-new-global-currency/

3/24/09 (Bear Market Rally? Bank's Roller Coaster!)

Traders,

Massive rally – WOW! The bears ran for cover and right at the opening the shorts started covering – all throughout the day. Last week I mentioned that we heard some “this is the bottom” rumblings and that the perception is just tired of the down-every-day market. And we had a good rally – even with the slight Thursday / Friday pull back.

It was Geithner’s Plan that spurred optimistic euphoria – and no doubt it is a great plan (for investors). But will it solve the problems? If you asked Pimco and Black Rock – they are all for it and are promoting it’s accolades. Why? Because they will be two of the five designated to buy the toxic assets. Even Bill Gross of Pimco said the tax payer will be on the hook for 85-95% of risk.

The other two big issues is that only certain products based on their credit ratings will be available for this plan (leaving many of the more toxic assets that are causing problems on the banks books). The second issue is price discovery – on the high credit grade paper banks are at 80-90 cents on the dollar, while the buyers are 30-40 cents on the dollar. No doubt giving the massive amounts of leverage to purchase the paper will bring the bidders up to possibly as high as 50-60 cents on the dollar, but I doubt they will pay the 80-90 the banks are asking for.

This morning one investment advisor mentioned that when the people really start looking into this plan it is simply just subsidizing the financial markets and allowing hedge funds and investment firms to leverage up massively (12:1) on the back of the tax payer. Little capital for huge rewards. He said he is just waiting to hear the “This plan is for the rich to get richer!” – So far the people are buying into this subsidized leverage plan – of course those that will be buying the paper on 12:1 leverage with 85-95% government backing are for it – wouldn’t you be?

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All eyes on Bernanke and Geithner

Congress will start questioning Bernanke and Geithner as to the AIG debacle, what they knew, and when they knew it. I doubt that “most” members of Congress will give Geithner to hard of a time, but questions will be raised. Additionally – more details about the Feds’ pouring of liquidity into the system and Geithner's Public/Private Plan will come to light.

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Bank Stocks !

If you missed the run in the bank stocks, well we might see a pause. Expectations of continued 30-60% rallies in one month are more than a little optimistic. Just the other day a couple of firms had downgraded a few banks from buy to hold – seeing they had already made a decent run.

Some of the banks are seeing a slight pull back in the morning after their nose bleed run yesterday. Goldman, JPM, and Morgan Stanley don’t have the problems that Band of America, Citi, and a few others have – but they have all participated steeply to the upside. It’s time to lock in some gains and be happy for what you have received.

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Futures Pre-market

The futures are down some in the pre-market. Expect ARB traders to buy the futures and sell the basic putting some pressure on stocks at the opening.

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Support / Resistance

Just a couple of weeks ago I was asked about playing the downside more aggressively as we were down in the 6500 range, a week later and 20% higher I am sure I will hear the other side. These are volatile times no doubt.

INDU 7500 / 8000 (We RIPPED through the 7500 line like butter – a test to 7500 this week is realistic, but so is 8000 – which is serious resistance.)

NDX 1200 / 1285? (We ticked at 1285 in Jan and Feb – is that a revisiting top area? Is it resistance?)

SPX 800 / 835? (Again not a resistance area of any caliber – but an area of previous low consolidation.)

RUT 400 / 450 (We need to find a support and resistance at this point.)

==============================

Gold 900+ (Still up in the 920-930 area)

Silver 13+

Oil 50+ (Oil saw some volatility yesterday but played a back seat)

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Conclusion

Was this a violent up move in a Bear market or the start of the new Bull market? That is the question that everyone is asking – but has anything really changed in a day? Not really – just like the huge knee jerk down days, we will have knee jerk up days. The market will probably remain slightly bearish for the year as the fundamental recovery has a long long way to go. The job market has not turned around – nor does it look to for a long time. We quickly forget that the GDP is traditionally made up by 2/3rd consumer spending – which we all know that has dropped. The spending by the government will surpass consumer’s contribution to the GDP very quickly – however no one seems to be alarmed by that.

The Geithner Plan (which I think is great for those investors) does nothing to tackle the larger problem on the balance sheets (the real toxic paper at lower ratings) and at the core of the plan is another 85-95% of tax payer money at risk (via FDIC or FED). Ask anyone if they would want to make an investment for 50 cents on the dollar with 12:1 leverage and anyone would jump at the chance – it’s a one sided trade and I am surprise the public hasn’t lashed out yet. Of course it’s a case (the government would argue) of giving money and advantage to the (privileged) few for the betterment of the people. Really? I think there is some grasping and hoping at straws on this one. For now it’s not the fundamentals, but the hope and confidence we need to get out of this hole. For at the end of the day the dollar and economy are moving on faith and fighting math. Unfortunately in the end (regardless of how long it takes) – math always trumps hope.

As I say – we can choose to ignore math, but we can’t avoid it.

3/23/09 (Government's Hot Potato Plan)

Traders,

The market sold off on expiration Friday and didn’t hold in the resistance levels, however it is important to note that the RUT did close above the 400 marker and the INDU was holding fast at 7250 – so it wasn’t a complete wash out. So where are we coming from here…. Well the futures are pointing higher, anything can change.

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Government Hot Potato Plan
(Public-Private Asset Program)


The government has had three plans and all of them have not accomplished the intention of getting to the bottom of the toxic assets. Today – the Treasury will announce the NEW and APPROVE plan to buy the bank’s toxic assets (wasn’t that the intention of Paulson’s TARP?). This time it is a public-private partnership. Before we look at it in detail – let’s be very clear these assets ARE for sale, however banks either do not want to sell them at low prices and/or buyers don’t’ want to buy them – Regardless there IS a market. I make that point because many of the talking heads (including the government officials) talk as if there is NO market, the reality is that there is – they are just not happy with it.

So here is the plan, I am going to use Steve Leisman’s example (from CNBC) to explain.

1. A bank wishes to sell $100 billion in toxic mortgage back securities.

2. The FDIC reviews the $100 billion (due diligence?) and auctions them for $84 billion (84 cents on the dollar)

3. The “authorized” fund manager can buy them (on 6:1 leverage) 12 Billion (government puts up half / fund manager puts up half) = that’s 6 billion each. (note the Fund manager is really buying it on 12:1 leverage – since the government is putting up half).

4. The balance of $72 billion is insured by the FDIC.

So let’s look at the Pro’s and Con’s.

Pro’s are IF the fund manager can purchase these at decent prices, they are getting them on HUGE leverage (12:1). So if there are any returns, they could be massive. Let’s just say that the product can later be sold at par value $100 billion. That is a $16 billion return (the fund manager get’s half – that’s $8 billion) or a 130%% return. However, one of the concerns is the recent Congress changing the rules. Some are concerned if they made any profits on these that the government might tax them (90%?) – at the end of the day, if that is even a possibility there is no incentive.

If that is the Pro’s the Con’s are a little more concerning.

1. Massive leverage – this is the reason why were are having the economic problems, we are deleveraging. Having the government and private sector leverage up in toxic assets is just inflating the bubble. The reality is these products (in the example) still have room to lose money. Purchasing them on leverage 12:1 (since the government – tax payer’s are ponying up the balance) – means we haven’t learned our lesson.


2. FDIC is broke – Sheila Bair just two weeks ago mentioned they are pressed for capital and has reached to the Treasury for more money. To expect the FDIC to back the bulk (over 80%) of these toxic assets. They do NOT have the money.

3. FDIC review? – The FDIC failed at measuring the risk of the failed banks and had not managed their capital accordingly. To expect the FDIC to have the expertise to review these complex products – well is quite frankly a joke. Their job seems more of a rubber stamp.

4. The Secret Circle! – Ok this is just my idea. If I am a bank with these toxic assets – I would set up a separate company (fund manager) to buy them from me with on leverage and have the FDIC carry the bulk of the risk. Not that I am, will, or would do that – but these program does set-up a situation where the B of A’s can have a subsidiary or affiliate buy the toxic assets.

5. A market? There is already a market for these products. The banks don’t want to sell them too low because they give up any possible upside. Some would argue they are priced already at rock bottom prices, why would the bank want to sell them now. The buyers are concerned if they are priced too high and if the government would later come back (as they have) and tax them excessively on any profits.

It does seem like a great plan if you are a fund manager, but as a tax payer I think the plan blows – the returns are too small vs. the risk. (remember the FDIC is backed by the tax payer too.)

Think about the taxpayer side of the equation.

You get to put up $6 billion, assume $72 billion in risk (total $78 billion) for a return at par of $8 billion? So the private fund manager only has %6 billion at risk for $8 billion (130%) and we the taxpayer, have $78 billion at risk for $8 billion (10%)? – I think I’ll take the private fund manager side of the trade.

The plan might create buyers (why not – there is very little risk vs. reward), but it may not create sellers (banks may be reluctant). Additionally – it doesn’t mean the risk is gone it is just shifting more debt (and risk) over to the government (or the tax payer).

My vote: Crappy plan for the taxpayer, great plan for a fund manager (except if Congress gets mad and taxes them at 90%)

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Banks rally

Banks are rallying in the pre-market on the Public/Private bailout fund. All the banks stocks are rallying on perception this morning. Expect a gap up at the opening.

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Futures Pre-market

The futures are rallying on the Public/Private bailout plan. The spreads are massive, expect ARB traders to short futures into the opening and buy the cash – thus putting pressure at the opening to the upside. Expect a big gap up.

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Support / Resistance

We pulled off – but could revisit the resistances this morning.

INDU 7000 (7250) 7500 (The INDU futures are looking up big – expect 7500 at the opening. Is that resistance – watch as the market absorbs the news.)

NDX 1150 / 1200 (We will certainly hit the 1200 line this morning.)

SPX 750 / 800 (800 is possibly in the cards this morning.)

RUT 400 / 450 (We are at support 400 – expect a big gap up at the opening.)

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Gold 900+ (Gold is pulling off a little to the 950ish area.)

Silver 13+ (We are in the mid 13s)

OIL 50+ (Oil is at 52 and little action.)

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Conclusion

I think the big plan is just another stab at the problem (4th time) – the reality is that it is NOT letting the prices find a real price – if we allow people to finance them on 12:1 leverage with government debt and the FDIC back them. Senator Gregg (recently asked to be Commerce Secretary) said we NEED to CUT the deficit and cannot continue with these bailout programs. The new deficit and massive bailouts will push the deficit to 80% of the GDP and will permanently put this country on a $1 trillion budget deficit and that is impossible for the long haul. He as far to say if we don’t do something NOW – this nation WILL face bankruptcy. He’s right – if we can’t finance the debt (which we can’t because the Fed is printing money to buy the Treasuries’ printed money) that circle can only last so long.


I think we could get a good boost in the market – but I think many will see into this new improved bailout program as nothing more than leveraging toxic debt (AGAIN!)

3/20/09 (Automakers Buy/Sell, 90% Taxes!, Stupidity)

Traders,

After the market rally on Wednesday from Bernanke’s Rambo Style printing run of $1 trillion – the market stopped and took a deep breath and realized – what a CRAP DEAL that was and proceeded to sell off. The dollar has had a two day clobber against global currencies. The moves in currencies over the last couple of days is massive – just think what it COULD be like. Waking up in a Iceland type situation is not that unrealistic (regardless of how low the probability is). It may be improbable, but not impossible.

I think Mr. Creatura (Manger of Federated Investors Inc. - $400 billion) put it best in his interview on Bloomberg: “With one hand the government is issuing debt, and with the other it’s repurchasing it using paper that it is printing. This is a shell game that’s not going to be overlooked by global investors.”

We have moved beyond faith and need political leadership, accountability, responsibility, and LIABILITY. This is getting old and they only thing they are doing is seriously putting our currency and economy further at risk. If our Congress members are going to give away OUR money they need to be responsible and accountable and LIABLE. How far does it have to go before it breaks or the people (we the people) say STOP?

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Automakers Buy / Sell

Ford (F) has been moving up off the lows, being out of the limelight, unlike GM and Chrysler (indicating they may NOT need the big bailout dollars) is giving them a slight edge – enough so that UBS rated them a BUY. The stock is UP in the pre-market

GM on the other hand has been having significant problems and like Chrysler may need significantly more money – with government taking a bigger role – UBS rated them a SELL and said “shareholders face a significant risk of dilution”

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TALF PLAN – the latest, but not greatest.

The government seems to have a flavor of the week plan – but the problem is twofold:

First the money in many of these plans is used to finance other government money. If you give a company money to help them with toxic assets and THEN you give someone else money to buy that toxic assets from the first company you gave money too – at some point you create a massive circle. These plans have become so confusing as to who gets the money and what it is suppose to be spent on.

Second is the rules keep changing. We already heard Goldman and others want to return the money (that some were forced to accept by the government under the guise of helping the economy) – they don’t want the money, or need the money – especially as the rules change.

Julian Man (manager of First Pacific Advisors) put it best when he said to Bloomberg “Given the daily, evolving nature of congressional tampering with established contracts, it’s difficult to imagine how a fiduciary could prudently deploy capital into these instruments that appear to be heavily subject to ex post facto modifications.”


Part of those changes are the recent legislation to raise taxes. Everyone is mad at AIG bonuses, and rightly so. But now Congress is micro managing and creating legislation to JUSTIFY taxing people 90% - let me repeat that – they have legislation to RAISE taxes on those making OVER $250,000 to 90%. They don’t even know WHO got the bonuses – so now EVERYONE will get punished. Of course this is for companies that receive government aid. Talk about a great incentive to go work for a company! <- note that is sarcasm.


The point I am making – which is VERY IMPORTANT – if you can JUSTIFY raising taxed to 90% - what next. We just opened the door.

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Futures Pre-market


The futures were off coming into the morning – but are now up slightly. The spreads are narrow so expect a mixed opening.

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Support / Resistance

We came off but in some cases still well into those resistances.

INDU 7000 / 7500 (Just below the 7500 level – could we move back up and close there?)

NDX 1200! (We closed about 1200 – I wouldn’t put this in the support column yet – because expiration could cause some pin risk issues – so let’s look ahead.)

SPX 750 / 800 (The SPX pulled off the most yesterday – is 800 in the cards – sure there is some heavy OI on that line so we could see a rally to pin.)

RUT 400! (We stayed about 400 – a pin there is not out of the question.)

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Gold 950? (We rallied 50 points from 900 to 950 – is that now the support?)

Silver 13+ (We made a good move up)

OIL 50! (We rallied over 50 – does that become support?)

Commodities made a huge run as the FED dumped $1 trillion (Printed money ) into the system. ______________________________________________________
Conclusion

Little Friday Rant – skip if you don’t want to hear it…

Didn’t Obama just say yesterday, “Going forward in the future, we're not going to find ourselves in these kinds of terrible positions again!” about Companies spending money of Exec’s and CEOs. (like John Thain (Ex-CEO of Merrill) spending $1 million on an office or AIG bonuses).

SURPRISE – CITIGROUP (receiver last week of $45 BILLION) is adding in a $10 million office for CEO Pandit. http://www.bloomberg.com/apps/news?pid=20601109&sid=a6s3AjDJAs_Y&refer=home

Come on – is Congress and our administration that STUPID – get on the BALL. You can’t keep giving OUR money away (printing more money) and put the entire currency and economy at risk and wing it. Our government (Congress, Fed, Treasury) is handing money out like candy and they have NO IDEA what these companies are doing. Then they get mad after the fact? Come on – this is getting just stupid silly.

Government gives money to GM and Chrysler (TWICE). Government ASSURES us they have done their due diligence – SURPRISE! GM and Chrysler need Billions MORE!

Government gives money to AIG (3 times). Buys 80% of the company – you would THINK they would KNOW what is going on – SURPRISE! Biggest single quarter loss in the history of the world – they need more money and a bonus!

Government leverages up Freddie and Fannie – gives them more money. Nationalizes both companies. You would THINK they would KNOW what is going on – SURPRISE! They need another $200 billion!

Government gives out TARP money to Citigroup. Buys warrants, converts to 40% ownership. You would THINK they would KNOW what is going on – SURPRISE! They need MORE money and are building a $10 million office!

A retail investor is not that blind. A broker and financial advisor does more due diligence on a $1000 investment then our Congress. My 4 year old son isn’t that DUMB.

Come on – how many times can Congress look this stupid and then give the same companies MORE MONEY. This is getting seriously stupid, SERIOUSLY! It’s like they have run AMOK – completely. They KEEP giving away OUR money, the Companies keep giving bonuses and spending as they see fit, and the risk is still uncertain. And Obama thinks we are not going to find ourselves in these positions again. I can TELL him how we will not find ourselves in these positions – STOP GIVING THEM MONEY!

Who is the more foolish – The government for giving the money, or the companies spending the money? Let me rephrase that – who is the more foolish, the government for giving the money, or WE the people letting the government give away our money?

Of course we could continue to print money to pay for more bailouts.

Sorry about the rant – I am just waiting for Congress to get all freaked out about the Citigroup $10 million offices and act like they didn’t know that either and watch another hearing so they can publicly b*tch slap another CEO (totally useless) – as if Congress has a handle on it. I think Reid and Frank need a stiff talking too.

3/19/08 (Bernanke Rambo! Got Inflation, Yet?)

Traders,


Yesterday as all eyes were on the testimony of the AIG CEO getting grilled by Congress (on what Congress had responsibility to know in the first place), Bernanke came out and pushed “All In”. Everyone was shocked, because while he did “SAY” it was an option back in February – no one thought he would pull the trigger all at once. As Buffet, the Chinese Premier, and other’s have sounded their concern about the possible inflation (or weak dollar) – yesterday Bernanke confirmed it.

Everyone that had done the math KNEW that Obama would NOT be able to fund a $1.7 trillion budget, the Treasury planned to sell $1 trillion worth of debt this year into the market (many analyst said even $1 trillion would be impossible). The only answer, was for the Fed to “print money” and buy our own debt. The Fed is taking down $300 billion (30% of the debt). So really we are hoping to only sell $700 billion this year (Still a massive number – which many think will be difficult). The Chinese premier was correct in his concern – the government is just printing money and thus at some point the value (or principal) comes into question. Of COURSE the government can pay its obligations, but the question is NOT whether they can pay, but HOW. If they pay off debt with “printed money” how much is the money really worth? That is what is on everyone’s mind. At some point a FIAT currency (of FAITH backed) currency – needs FAITH. Faith is the only value the dollar really holds, for it is not redeemable or backed by anything (other than the good faith of the U.S. Government and their various departments).

The gold and currency markets reflected that concern quickly as we saw some of the biggest single day drops in the dollar against the Euro, Pound, Franc and others. Additionally gold rallied 50 points. The big shocker wasn’t the dollar slide – it was the treasuries exploding to the upside (with the yield in the 10 year making the BIGGEST drop since the 1987 market crash). Who is really buying? We know that the FED is. A bond trader said if you didn’t think there was a bubble in the market before – well….

The market also got caught and we saw short covering across board as bears and short positions got caught by the surprised and quickly started to cover. The Futures massive intra-day pop on a few big trades caused a scramble on the basket traders – rushing to cover. Like the tail wagging the dog. We are well into those resistance levels – it is now time to see if those become supports….but keep an eye on monetary inflation.

Buffet said when asked on CNBC if he thought that inflation was coming and if it would be worse than the 1970s, he concluded his answer with: “The only party that can leverage up is the US government. They have the ability to take on anything because they can print money as long as people will do business in US dollars. So it could be--it could be worse. And, you know, in economics there's no free lunch.”

Bernanke (IMHO) just pushed “All In” with a 7/2 off suite. Now we can only HOPE for a good flop – but I have a sneaking suspicion he might be drawing dead.

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FedEx sees profits fall 75%

The company is looking to extend pay cuts as well as more jobs. It is looking to cut $1 billion from operating costs by next year – which will include a $100 million 4th quarter charge. Not only did profits fall but sales fell for the first time in over 10 years.

While the market may see a bottom – the long term concern is stagnant (or flat to negative growth). That means cutting costs now. Additional concern is ramping oil prices and a weaker dollar.

FDX is down 7% to $40 in the pre-market.

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Alcoa buy recommendation

I reported last week that Alcoa got hit pretty good with the selloff in the commodities market. However, it’s commodities and society needs them. Additionally with massive international sales a weak dollar could help the bottom line. JPMorgan raised them to a “overweight” based on higher earnings going forward.

AA is up in the pre-market by 5% to $5.70.

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Oracle following IBM’s lead?

IBM moved out of the manufacturing business and moved into the service business. They had realized some years back that consulting and support have very little over-head in comparison to manufacturing (additionally it wiped out the massive R&D budgets which required a company to rebuild their computers every 18 months to keep up with technology.) Well Oracle has been in the software business for a long time – but they too have increased their support and consulting services which continue to increase the bottom line with very little additional costs.
Oracle surprised analyst by beating estimates and but a closer look shows that consulting revenue helped make up for slowing software sales.

ORCL is up 7% in the pre-market

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Futures Pre-market

The futures have been swinging around fair value a lot this morning – up then down then up then down. Most Arb traders will be on the sideline. The opening market looks pretty flat or mixed for now.

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Support / Resistance

We are solidly in the resistance levels right now – question is ARE they resistances or new supports. Nothing is confirmed for now.

INDU 7000 / 7500 (We are just below the 7500 level – the market rallied (with help from big short covering) after Bernanke went Rambo style. Do we close above 7500?)

NDX 1150 / 1200 (We are just above the 1200 level – a couple of stocks are looking strong in the NDX this morning – ORCL being one of them. We may stay above 1200.)

SPX 750 / 800 (There is a lot of action on the 800 strike so we could see pin risk going into expiration.)

RUT 400!!! (420 looks like another small resistance area – but keeping the RUT above 400 means we could see solid strength in the other indices and convert some of these resistances into supports.)

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Gold 900+ (We made a huge move $50 points to 950 after the dollar started sliding against foreign currencies.)

Sliver 12+ (After selling off sliver rallied up and now through 13)

OIL 50?!?!?! (Oil sat in the 35-40 area which was broad band accumulation support area – the run to 50 has been quick. The dollar coming off help push it quickly above 50 – is that now the new support?)

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Conclusion

Well Bernanke has gone from weak (baby steps last year) to full-on Rambo. For the Fed to print $1 trillion ($300 billion to buy already printed money – note the circle of debt) was a shocker to everyone. The bond traders went nuts on the 10 year with one of its biggest moves since the crash of 1987. A serious bubble is building into that market – coupled with the dollar bubble which lost some serious air yesterday (seeing currencies make those kind of moves in a few minutes is shocking and scary.)

The market got sucked in and over the last couple of trading sessions the bears are getting sucked out (as seen with the decrease of short interest across the market). A couple of other important notes – for the rest of this week we MIGHT see some pinning to the strikes with expiration on Friday. I say MIGHT because all the news seems to be out – Bernanke can’t really offer any more surprises now. Additionally – month end is also quarter end. We are starting to see some order flow into equities and we could see some ramping as money is redeployed.

Keep you head down – the news is out and while we might of bought the rumor it is a question of selling the news. I am unsure about what is about to happen next – but expect volatility. The real cards will be played after expiration and if we close on some strength after expiration (above supports) we could get some optimistic follow through.

Additionally – we will eventually see foreclosures and jobless claims diminish (because it is finite) – however it may take a long time before we see growth. Also – watch the treasuries and currency markets. We have pushed our ability to fund of deficit to a breaking point – enough so that the Fed has to buy $300 billion of our own treasuries, confirming China’s concern about this nations ability to continue to fund bailouts and spend.

We are coming to some pivotal times in our nation’s history. Bernanke has gone full RAMBO!

3/18/09 (GE Capital Yuck! IBM drinks Java!)

Traders,

We I have to hand it to Bernanke – he has improved on his cheerleading skills and today is we should see a stellar finally. The market had another terrific up move pushing into those resistance barriers with strength, the RUT getting above the 400 marker and closing there has brought wider confidence in the broad market. Let’s see if it can hang in there. Remember we are also going into quarter end – so we could see some large deployment volumes enter the market at the end of the month – maybe giving it a little more boost.

The AIG bonus is taking a life on its own – it is frankly silly. The government just gave them another 30 billion just a week or two ago and the government KNEW about the bonuses (if they claim they didn’t they are the fool – meaning they should know ALL the contractual obligations, risks, balance sheet, cost, etc – before handing over billions upon billions of our money.) Additionally – they SHOULD know that there is ANOTHER plan bonus for 2009. If they act surprise if and when that is paid out – they have no one to blame but themselves. Now Congress is talking about taxing them – how stupid can they really be. They OWN 80% of the company, are giving them billions of dollars, and many of these employees are not even in the U.S. – they would be taxing themselves and some of the large bonuses are to employees that don’t pay U.S. taxes. Congress is seriously a bunch of tards, it is almost embarrassing. These fools we trust with our tax dollars – and some of them don’t even PAY taxes (Geithner & Daschle) – great way to lead by example. Oh well – today Congress gets to pound on the AIG CEO (for no reason and will do nothing – other than a dog-n-pony show for the public), just like the Financial CEO pounding. And tomorrow they will give AIG more money and ask for the CEO’s help. This circus is getting rather stupid.

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Mexico carries through with threat

Mexico will impose 10% to 45% tariffs on goods estimating to be excess of $2 billion dollars and will take effect tomorrow. Obama has entered his first trade war with his neighbor – at least Obama is carrying through with criticism of NAFTA during his campaign – focusing on a protectionist and isolationist stance. Europe and Asia have embraced the move by Mexico as it has traditionally been difficult to penetrate the Mexican market with US at its doorstep.

Obama is trying to defuse the situation, but Economic Minister of Mexico, Mateos can’t begin to negotiate with the U.S., since Obama has yet to appoint a Commerce Secretary. “We’re waiting to begin work,” Ruiz Mateos said. “Unfortunately, the U.S. Senate hasn’t designated our counterparts yet.”

Mateos summed it up, ““This is the antithesis of competitiveness!”

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Sun Micro (JAVA) rallies

The stock is up as the Wall Street Journal reports that IBM is in talks with Sun to buy out the company for at least $6.5 billion. These might be the times of seeing more mergers and takeovers. Initially it was only in the pharmaceutical business – but we might see more of the same in the tech sector as price competition and margins get squeezed.

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GE’s red headed step child

GE Capital is still looking to be on the ropes. A story in Bloomberg indicates they have larger risk exposure than initially thought and many believe that the parent company (GE) has no handle on what is happening at GE Capital. GE Capital’s operation include the world’s largest store-name credit card business and lending in Russia. When the Russian currency began to collapse – default rates skyrocketed, leaving GE Capital with large exposure. While GE Capital is estimating a $5 billion revenue stream for 2009, credit rating agencies disagree. S&P doesn’t expect ANY return and downgraded them from AAA to AA+.

GE seriously needs to spin off GE Capital, but it is a double edge sword – as it is a serious source of funding (and access to government bailout money). Could GE go it alone and separate from GE Capital? Maybe not in this market – it’s the red headed step child.

GE did make a good run from 7 to 10 in the recent weeks as the market rallied, but I would not put too much faith in it until the GE Capital problems can be resolved.

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Futures Pre-market

We are seeing the futures pull off – expect the Arb traders to put pressure on the market at the opening as they unwind their spreads.

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Support / Resistance

Nice rally – getting deeper into those resistances levels.

INDU 7000 – 7500 (A visit to 7500 or back down to 7250 is in the cards today – the Bernanke factor?)

NDX 1150 – 1200 (Could we see 1200 – sure why not. Futures coming off at the opening – but watch the close.)

SPX 750 – 800 (It’s about the perception and the Bernanke factor today.)

RUT 400!!! (Do we close above it – giving confidence to the broader market?)

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Gold 900+ (Still bouncing off that upper support area after the big run up.)

Silver 12+

OIL 35-40 / 50+ (We are getting closer to 50!)

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Conclusion

We have seen a good rally, almost too good. A strong market would move on big volume and up .5 to 1.5% per day, not 5% in a day. Those kind of up jerk moves are more indicative of short covering and sellers (shorts) taking their foot off the accelerator. Just like in at Bull market you have single big down days, in a Bear market you have upside big moves. I don’t think we are out of the woods yet. True we may find a slowdown in the jobless claims and foreclosures (simply because they are a finite measurement) – but we may not SEE an increase of jobs or home purchases for some time. People are not going back to work right away.

The other issues that concern me on a broader area – is still the dollar issue and now this isolation protectionist stance with the first salvo been shot at Mexico. What I find surprising is how fast and strong they reacted. They see we are down and weak – and they are holding back nothing. Obama has yet to defuse a situation with our neighbor that could get uglier – he NEEDS to fill his cabinet to handle these problems NOW!

I would lock in gains and hedge positions – Bernanke can go either way and it really depends on how people read into it – it is perception and not fundamentals that will drive any volatility today.