Thursday, May 2, 2013

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Wednesday, October 28, 2009


The Market Preview blog has moved to:

Monday, July 27, 2009

7/27/09 (Dollar Slips - but a New Hope?)


We continued the push higher into Friday last week, but we did see a couple of stocks miss – the two big ones were Microsoft and Amazon. When you have a breakout (to the upside or downside) and there is no resistance or support – eventually the acceleration of the move slows and begins to consolidate to find that new support or resistance level. That consolidation period is a combination of the big fish being done, some profit taking, and a pause looking for the next undervalued sector or product.
The big movers and shakers have for the most part reported earnings – and they have been better than expected. Forward guidance has been a little mix – questions about the holiday sales and growth is still a big concern.

Dollar slipping – but a New Hope?

With all the excitement from the 2 week massive rally in equities, the dollar has all but been ignored. The dollar has been slipping against foreign currencies and also commodities (Oil and Copper have been rallying).
The general view is becoming apparent, as I had earlier stated – we will see two types of countries emerging from the recession – those with debt and those without debt (when I speak of debt – I refer to government, consumer, and corporate – I am also not implying that a nation has NO debt, but relatively little compared to the debt burden nations). The question is can those growth nations (without massive debt) carry the nations with debt? India and China vs. U.S and the West
It is important question and it will translate into the market based on sectors and international companies. Companies like Coke, Apple, CAT have positioned themselves for growth in those nations (China, India). Apple is working on making a huge push of the iPhone into China, Coke is trying to acquire the largest juice manufacture in China, CAT’s biggest sales are in China. China has a trade surplus, little debt, almost no consumer debt, and the money is going to the bottom line.
While this is great news for many companies that have made that leap into China (and India) – there are companies that either do not have that exposure or are late to the party. One friend that I spoke to made an interesting observation – we could have some strong sector driven market growth (in equities) and at the same time remain in a rather dismal domestic economic landscape – as the consumer continues to suffer.
So what is the New Hope? In the late 90s we had the boom (and bust) that created a whole new wealth in this nation (for many it was temporary), that was quickly followed by the housing market boom (and bust) and that too created a whole new temporary wealth. There is a possibility that the next bug is the appetite for China and India growth. Even the word BRIC (Brazil, Russia, India, and China) has become a familiar term and the term is becoming synonymous with debt FREE growth. Investors are already latching on as ETFs and mutilifunds are popping up. However there is one small problem with this possible economic booster, actually there are a couple. First, unlike the and Housing boom – consumer credit availability is gone. Most investors used margin that was leveraged off of debt (that is gone). Second, the dollar continues to slip and we didn’t face the massive inflation risk we face today – thus any gains in the and housing boom translated to REAL buying power – which may not now be the case.
I still think there is huge advantages in either direct investing or finding companies with strong balance sheets and international exposure. But hedging that dollar / inflation risk is a new and much needed addition to any equity play.

Interest rates on treasuries continue to climb as the government auctions more money and the Fed continues to take down billions – in order to avoid an auction failure. Bernanke is doing what he can to keep rates down – but they continue to move higher.

Watch the dollar – look for international exposure – and hedge buying power.
Futures Pre-market

The futures are off in the pre-market, flat to lower and below fair value. Expect a slightly lower opening.

Support / Resistance

INDU 9000 (9000 is support, but where is resistance – after the breakout the upside is going to be about a consolidation area. – but not a support area to get long, but rather flat.)

NDX 1600 (We are right up there at 1600 – is it resistance or are we seeing a consolidation area?)

SPX 950 (950 was resistance – we broke out – will we revisit 950 – it could be a support area – but a place to get flat rather than long.)

RUT 550 (The RUT finally moved higher and got above that 540 area. Watch the 540 to 550 area.)


The earnings season has created surprises, the rally has moved into 3 weeks, we have seen some mixed economic data and a couple of big companies report rather concerning numbers. However – the market perception remains optimistic and has pushed it higher. We have yet to see a consolidation area – which could create either a new support or possible resistance – we are just in lofty areas at this point and while some companies have made moves on fundamentals, others have been pulled up by the overall optimism.
My concern about rallying too fast and too high – is that the economic data, lower revenue numbers, commodity prices heading higher, keep me skeptical if we can continue to see a general market rally into the 3rd quarter. Maybe it is time to take some profit off the table, hedge those long deltas, and start looking at some value plays rather than just momentum.

7/24/09 (Microsoft and Amazon MISS !)


Breakout!!! The SPX and RUT finally snapped up and was sucked up into the 2 week long rally to break above their resistance – it was a euphoric and rapid move to the upside. It seemed that we could continue on to 10,000 or even 11,000 in the Dow Jones – even Crammer (Mad Money) is said this is a rally you can believe in (that’s if you give anything he has to say any weight).
But there was mixed economic signals yesterday, jobless claims (taking a back seat to the big rally) we up 30,000 and while existing home sales were up – we had additionally been reminded that foreclosures continue to mount. No worries – the market ignored it and headed higher.
Then after the close – the futures began to flush pretty hard. Microsoft missed earnings and sales were down, the stock was hit. Then Amazon got hit on their earnings, AXP and others starting following suit. The futures began selling off and the put volatility (skew) started increasing rapidly.
Certainly the resistance has now become support, but was the aftermarket session the indication that the short-term rally is over?

Microsoft – reported a profit decline

Microsoft the world’s leading software company reported a 29% drop in profit and a sharp delinquency in customer credit payments. If customers can’t make a payment for their software – which is showed a 29% drop - how are they making payments on their computers or other items? Apple is unique in that the majority of their iPhone sales are via a cellular carrier that makes up a significant amount of the revenue, rather than direct sales. But you must begin to wonder about that consumer spending power.
Microsoft was not optimistic with their forward guidance coming out of the first quarter – they had been conservative (like others) lowering expectations – but they didn’t even make that hurdle. When we step back and look at the earnings and compare the two important factors; year-over-year and revenue = the earnings on the whole across the board look pretty crappy. Repeated again on Bloomberg this morning (and we keep hearing it) the earnings surprises have been from cost cutting measures – NOT because they had increase revenue. Sure there are some rock stars out there – but if Microsoft is having problems collecting payments, seeing a slump in computer sales, and couldn’t even beat (let alone meet) their relative conservative guidance – I think it is a clear sign (that while the market is up) the economy has a long way to go to recover.
Microsoft down in the pre-market.

Amazon – Brick and mortar online

While I mentioned yesterday that I had a love affair with eBay, Amazon is a different story for me. Sure I use them and like their services – but really they are just a brick and mortar store online. The warehouses, shipping, returns, sales, credit card payments, etc. They have a lot of items to manage and WAY thinner margins to work with than an eBay.
Great idea, while executed, and a brilliant use of the internet – however they are subject to the same problems that every retailer has (inventory, short-term financing to stock inventory, shipping prices, credit payments, sales, returns, etc.) Of course they don’t have to have a store front or a sales staff.
But just like Microsoft – Amazon (the world’s largest online retailer) saw a decline in 2nd quarter profits and a slump in sales (even after discounts).
This doesn’t bode well for “back to school” sales and if that doesn’t pop – I think “holiday sales” could also fall flat. So far the picture for the 3rd and 4th quarter is not looking too hot – if we measure it by consumer purchases using Amazon as a bell weather.
Amazon is down in the pre-market.

U.K. reports the economy shrunk twice as much as expected

The U.K. our closest ally and economic mirror in many ways reported that the economy shrunk twice as much as forecast (.8%) in the second quarter. The slump is lead by the same conditions in this country, job losses, credit availability, payment delinquencies. Sure the market has rallied abroad as it has here – but the economic outlook continues to remain weak.
The pound is off about .5% to the dollar this morning, but for now the U.K. report is most likely similar to our own.

Futures Pre-market

The futures after market fell sharply on Microsoft and Amazon’s poor earnings – fair value is considerable higher from here and the futures continue to look lower in the pre-market. Expect a gap down in the market this morning.

Support / Resistance

Just when we saw the SPX and RUT finally breakout above those resistance levels, Microsoft had to ruin the party and pull it back down. Sure we are still above those resistance levels – even after the lower opening this morning – but as one investor on Bloomberg said this morning, “When I saw the Dow Jones hit 9000, I knew I should take some profits.”

INDU 9000! (We not only touched it we ripped through it yesterday, however futures are pointing to a opening below the 9000 level. The question is can we get back there today or was that the short-term top?)

NDX 1600! (Just like the INDU the NDX ripped to 1600 and then sold off over 20 points in the aftermarket.)

SPX 950! (We broke through and went to 975 – futures are looking lower but above 950. Watch the close.)

RUT 540! (Again we got through it – but it looks like we are opening right at 540 this morning.)

It is the weekend and we may see some additional profit taking. Watch those numbers at the close – if we close below them or above them. If we get a rally into the close – that means we could see more strength next week. If we close on some lows and below those numbers it could mean that the short-term rally has lost some steam and a visit to slightly lower levels is in the cards.


No doubt, most traders I have heard from – had all expected (for those technical guys) that the head and shoulders from a couple of weeks ago, coupled with the talk that the stimulus was not working and second one was in the cards looked like we might drop. Then as we started getting back up to that 20MA (or shoulder top) – we had a gap and a run during expiration week that was between 5 to 8%. Coming into the week the short open interest was getting up to February record levels (before the sell off into March lows), and that gap up on Wednesday triggered some serious short covering which has continued to help fuel the rally. Short-covering is not good for investors (regardless of your bullish or bearish stance) because it injects some volatility and knee jerk movement – catching some out and I have seen long holders see it top out only to watch it retrace. Just like a rubber band – it can snap. Yesterday’s pop in OTM put volatility was the first indication of the panic the started to surface at the close in 15 minutes of aftermarket futures options trading. Watch out for hyper-moves (in both directions).
The 1,000 foot view continues to show a huge gulf of separation between the economic reality on the ground and the market euphoria of heading higher. It was only two weeks ago that the media was talking about the failed economic stimulus and a second was needed, foreclosures and delinquencies were up, jobless claims continue to increase, and the green shoots were turning into weeds. (Notice how the “Green shoot” talk faded as nothing was coming up daisies?)
Then going into expiration week and earnings season we have a pop (gap) fueled by short covering that continues for 2 weeks. Everyone forgot about the economy, talked about earnings surprises, and pointed to them and said “There! There is the proof and good news!” – only a few asked, but everyone lowered expectations to super sucky levels – anyone should have been able to beat those expectations. They the talking heads start reviewing – wait it’s cost cutting, banks still have huge loan losses and mark-to-mark losses (sure Goldman traded for record profits – but their code is stolen and there is some skeptical business practices being suggested). Now two bell weathers, Microsoft and Amazon go further to indicate that sales have slumped and consumer delinquency is on the rise.
At the end of the day we can’t forget about the most import part of our economy, it is WE – we the PEOPLE. Our economy WILL recover – when the housing prices hit bottom, foreclosures stop, consumers deleverage, job losses stop and new jobs are created. But until that happens anything else is just “green shoot” optimism and a failure to look at the reality.
As they say in WAR (and McNamara admitted he got it wrong – sitting behind a desk and looking at numbers) – unless you are on the ground you really don’t have a clue as to what is going on.

7/23/09 (eBay great business, Ford survives!)


A mixed day after a long consecutive rally, the INDU and SPX gave up ground – yet the NDX finished higher (due to Apple’s stellar performance). An interesting statistic I heard this morning on Bloomberg is that this has been the longest consecutive rally in the NASDAQ in 12 years (yesterday was day 11).

Another interesting point made this morning on CNBC was that while earnings have been beating estimates, they have significantly fell short on a year-over-year gain and only a very few (so far) have shown an increase in revenue. Certainly (as they pointed out) that earnings forecast for 2009 have been lowered significantly that it would be hard NOT to beat, but the revenue short-fall story is a longer term issue. Making up for a couple of quarters from cost cutting and lay-offs to keep that margin gap wide and in the black is important, but how many quarters coupled with a drop in revenue can one continue to see growth. Interesting questions.

eBay – I just love this company….

There was really only one company out of the entire era that I fell in love with, it was eBay. Not only as a user, but more importantly from a business model. Just think – they don’t have inventory, they don’t ship anything, they have no sales people, they are simply a facilitating service. It was brilliant – simply bringing the world’s garage sale to the internet with the additional attraction of an auction. It was simple and yet eloquent. I could not see any downside to the business model (except technology – but they have that in the bag). Latter on they acquired PayPal – talk about a synergistic purchase.

Now the recession and global slowdown is in full swing and guess what – people need money – so why not sell you stuff on eBay? I would think eBay has a two-sided recession equation – those that need money selling their stuff and those needing something but looking for a bargain.
I could never figure out why it sold off into the 20s, oh yeah – I forgot – the market is about PERCEPTION, certainly NOT reality. While few companies actually reflect reality (Apple for instance) – many are just not sexy enough. eBay’s only fault is that they are not sexy – it’s just an online garage sale, that’s too bad – because it is a company with a solid business model and I can’t think of another company on the entire planet that has the ease of margin controls (No R&D, No manufacturing, No Sales, No Shipping, No products, No commodity exposure, etc.)
Of course eBay tops estimates and rather than go through all the silly numbers – note this – it is a solid company and the stock is up in the pre-market. I think they are a recession stock for sure.

Ford - the lone survivor

I have always been a Ford fan, not that I own one – but hey I am from Michigan and I also love the great story of the GT-40 going to Le Mans and kicking Ferrari’s butt (I have met Dan Gurney and have a picture of him and his GT-40 that he won in – great American story). Ask yourself, what kind of engine are you going to drop in that Cobra 427 (yeah – a Ford Roush Crate for sure). But beyond that – they suffered and made bad decisions and had their beef with the UAW. Unlike the rest of the U.S. automotive industry they got serious and quick – cost cutting, getting their game on, and looking to get out from under this recession.

They have a very long road ahead and are STILL losing billions of dollars, the outlook on sales doesn’t look that bright either. Now they have competition with GM (Government Motors) and Obama’s subsidy programs and incentives to buy government cars. That being said I think they will eventually rise as the others continue to suffer.

Is it a buy at this price? Ouch – I really don’t know. The stock is up in the pre-market, but future revenue for some time is looking bleak. If it was a buy it is a serious long-long-long term hold. The business model still needs lots of work and they could face problems down the road. It was nice to hear that they didn’t do as bad as people thought, but I don’t think I will be buying any stock in the near future.
Ford is up in the pre-market.

CIT – just might not make it….

CIT has been a secondary story in the news and if you are not following the financial news you might not even know about it. It is not a household name, but in the business world it is crucial to 100s of thousands of small to mid-size companies. The company was facing bankruptcy (and still is), the government is not giving them a hand-out or bail-out (for whatever reason – not a sexy company, didn’t donate to the right party, none of their board members have connections, who knows) – certainly if it was Goldman, JPM, Citi, or B of A they would get a hand out, not that I am in favor of that – but find it interesting that if one was really concerned about small to mid-size businesses in this country that one would help out in some capacity.

Microsoft pulled out of CIT (as a credit facilitator to their client business) and other bond holders have been looking to raise $3 billion fast to keep it from collapsing, but that may not be enough. It looks like bankruptcy is in the cards – most likely Chapter 11 – the problem is what kind of fall out will that have with businesses? I have read several stories (Bloomberg, Economist, etc.) mostly interviews with CEO’s of these mid-size companies and many just might not make it – since they rely on everything from client credit facilities to short-term non-equity loans to facilitate inventory, payroll, import/export, to many special financing needs of a small business. Other’s like Wells Fargo who is picking up some of the business is not familiar or has the capabilities to facilitate all these companies loan structures. CIT seems to be a one of a kind bank that has been servicing this sector for decades.
Only 3 options.

1. Other banks pick-up the slack and facilitate these special loans (which doesn’t seem to be happening or very slowly)
2. CIT gets some kind of bailout (which doesn’t seem likely)
3. CIT files for chapter 11 or 12 – many small-to-mid size companies struggle or close shop – which seems like what is happening.

It is an interesting story to watch and could have rather large repercussions with 100s of thousands of small companies.

Futures Pre-market

The futures are up small – mostly right around fair value. Earnings looking good for the most part – but guidance and revenue is shaky at best. For now expect a flat to slightly higher opening.

Support / Resistance

The breakout seems to be struggling a little.

INDU 8500 / 9000 (Are first pull back after the mighty run – a couple more earnings of Dow Jones’ components and then it will be over – buy the rumor and sell the news? It looks like it is giving up a little bit. That doesn’t mean we can’t go higher for the rest of the year, but a retracement is likely – don’t be surprise to get back to 8500 in the near term.)

NDX 1500 / 1575? (I thought we would of seen a little hold out at 1550, but Apple single handedly drove the index up. eBay is looking strong in the morning – which is helping futures up a little – but it is certainly no Apple or overweight at that level. Keep an eye on the 1550 level.)

SPX 950 (Sure we are still slightly above it – but two days of struggle at that level is not confirmation of the broader breakout – yet. Watch the close.)

RUT 500 / 540 (We were up a couple of points – but the steam seems to have run out for now – we need a good boost in the broader market – which doesn’t seem to be happening – yet.)

Gold is back above 950 (As the dollar weakens and if it continues to weaken we could see a sharp pop to 1000 )

Silver is back close to 14 after it’s slight pull back.

Oil is back up above 60, in fact back up above 65.

Dollar continues to slip.


I listen to Bernanke yesterday take a beat down in the questioning, he certainly doesn’t want Congress to take a look at his books or poke around too much. From a 500 billion balance sheet to over 2 trillion in months and suggestions by Bloomberg that off-balance sheets could show another 9 trillion. Additionally – special lending facilities at the Discount Window have made now failed loans to many companies (AIG, Lehman, Bear Stearns, CIT, etc.) that will never be paid back. Bernanke’s time is coming and I think in January that Mr. Summers will be filling his shoes. Summers is a very close advisor of Obama’s and has (in my mind) be stroking him for that position. That is not something that would necessarily be good for this nation – Executive Branch, Congress, Senate, and the FED all in one party hands – with all the special interest groups in line. There is more here than meets the eye – maybe it is best we really don’t know about the trillions of dollars of printed money. Bernanke said he has some tools to reel in all that printed money, I don’t think he has a tool big enough. Are we getting to a tipping point?

Earnings look good, if one only measures from estimates and doesn’t bother to look at revenue or year-over-year. Sure there are some excellent stories out there (Apple, eBay, Coke, CAT, etc.) but these are few that have a top-to-bottom story that supports the numbers. Goldman is living off trading as they (as well as other banks) continue to lose on the loan side and mark-to-mark billions more in losses. I think 3rd and 4th quarter will show that the 2nd quarter was about cost cutting to hit those black margin numbers and meet (or beat) estimates, can they continue to cut in the 3rd or 4th and will consumers spending pick up to take up the slack – those are the key questions.

7/22/09 (Apple rallies, Morgan Stanley misses!)


The market made another spurt to the upside into the close to close positive across the board, except the RUT which again closed down. The rush into the close was helped by speculation that Apple’s earnings would beat and they did sending the stock higher in the aftermarket. However, we continue to see some over weights driving the market higher and good gapping moves – which until yesterday was pulling up the broader market. The SPX closed just above that resistance of 950, but is looking lower in the pre-market (futures lower) – but the RUT continues to lose traction. This morning Morgan Stanley made announcement to “Sell into the rally!” - stating that while the economy may be recovering we are not out of the woods yet. An Economist article also looked into the Goldman earnings vs. the rest of the banking sector and they concluded that the Goldman record breaking earnings are driven by trading, which even in the boom years wasn’t that big of a profit center, was it a one trick pony. The bigger concern was that without the trading revenue the big stain on Goldman’s leger is the $1.4 billion mark-to-market losses, which doesn’t bode well for other banks.

Apple – the love affair

Apple as measured strictly as a retailer is awesome – the amount of product they move vs. retail square footage is incredible. Looking at them from a technology company, they are not creating anything new – but bringing existing technology together to create innovative technology. Their design, marketing, and innovation is legendary.

Even in a struggling company Apple blew out (as expected) earnings. Sure they are conservative in their forecast – which gives them room to surprise. However, they too are having to adjust to economic conditions – they have cut prices, which has helped moved inventory (iPhone 3g was cut to $99 as the new iPhone 3gs came out – same with the Mac) – this helped accelerate sales and even with a tighter margin, if they can move more products to make up for the cost cutting that means more revenue. They sold 2.6 million Macs (well above the 2.4 million expected).
So things are looking good – but Apple did indicate a struggle domestically as price cutting can only move so many products. It is the domestic side of the business that doesn’t reflect a forecast of the continued expected growth the Apple is use to. But there is a SERIOUS bright spot, Apple has been working to sell the iPhone in China - there are some issues that need to be worked through. However, if Apple can have the kind of success in China we could expect to see Apple continue higher. The China Apple invasion looks to happen in 2010 – which might not help the 3rd and 4th quarter.

Several firms have upgraded Apple to “buy” and raised their price targets – however we may see a slight pull back in the 3rd and 4th quarter if domestic sales continue to slog, until the China pipeline comes on line. Expect a little volatility in here, the news is out, Apple is up in the pre-market. Apple could retrace down to the 145 level before heading higher, while stock is up in the pre-market we could see some profit taking.

Over-all, I am a believer in Apple and if they invade China that could be their “Ace in the hole” as domestic revenue continues to struggle. China will be a formula of margins – sure they can move lots of inventory, but it is finding the sweet spot in price to move the product to generate the best margins. I am sure the bean counters are figuring that out now. For now, Apple’s current formula is cut prices enough to ramp sales to keep margins moving higher – but with anything else that is a fine balancing act.

Bullish Apple long-term, but expect near-term volatility. A lot is riding on expanding into China.

Apple up $5 in the pre-market.

Morgan Stanley Reports a loss (worse than expected)

While Goldman was a rock star, JP Morgan did ok, the rest of the banking sector is really not looking that great. It really comes down to the story we have been hearing over the last year – the debt ratio and mark-to-mark losses. Even Goldman had a whopper of $1.4 billion (but traded massively to make up for that) – unfortunately other banks are not heavy into trading or didn’t do nearly as well as Goldman.

Interesting that all the firms are selling their own stocks after the rally to raise money, Morgan sold enough shares to raise $6.9 billion (that helped to pay back the government TARP loan and dividends) as well as taking control of Citigroups’s Smith Barney brokerage unit.

Morgan also came out with a call to “sell into the rally” – maybe after reviewing their own balance sheet and seeing other banks balance sheets they realize the banking sector is not out of the woods yet.

Wells also came out with earnings – better than expected but with debt exposure and write-offs.

Both stocks are down in the pre-market.

Futures Pre-market

After seeing one of the largest weekly rallies (over 7 straight days) and after the most anticipated earnings (Apple) the market seems to be giving up a little in the pre-market. Morgan Stanley recommending to “sell into the rally as cyclical growth risks have diminished but not disappeared” is sending the futures lower. Europe was also lower. The spread is in and Apple is doing a good job keeping the narrower based indices from falling too much. Expect a lower opening.

Support / Resistance

Break-out are retracement? While the INDU and NDX seem to have broken-out, the SPX and RUT still struggle.

INDU 8500 / 9000 (We are just shy of 9000 is that the turning point? Futures are down about 50 points this morning – but that could change.)

NDX 1500 / 1550 (We closed just above the 1550 mark and futures are pointing to a lower opening. Apple is up 5 points which is about 10 points in the NDX, so take Apple out of the NDX and the futures would be down even further. Apple could keep the index from falling too much and even bring it back to even. But can one company hold up the entire index?)

SPX 950 (We closed just above it as we rallied into the close, but futures a lower opening. 950 seems to be a resistance level, can we head higher or is that the near-term high?)

RUT 500 / 540 (The RUT closed lower on the day and while it has made a decent run from the lows – it is not seeing the breakout that we are seeing with the narrow based indices. The broader market is just not heading higher like Apple!)


We have made a rapid move up (between 7 to 10% depending on the index) in just over a week – a couple of indices have appeared to break out (INDU and NDX), but the broader indices (while getting back to resistance levels) are struggling. Is this a short-term top, Morgan Stanley seems to think so. The earnings reports are mixed, CAT, Apple, Coke, and a few others have a great story to tell – while banks and retailers continue to struggle. The stronger companies are not relying on domestic sales alone – but are looking to make significant inroads into the emerging markets. Apple also came out with another round of great earnings (no big surprise I guess) – but has rallied into earnings rather strongly. It looks like we are getting into a near-term top, unless the broader market can move higher and break out – supporting the overweight’s.

The economic outlook – as far as jobs, debt, and financing has not turned around. Job losses continue, banks continue to write down losses, and credit is not available. CIT story is typical of the economic wows and is looking like the short-term loan may not be enough to save it.

3rd and 4th quarter – as far as domestic retailers is probably not going to be great. Granted that expectations are low. Yahoo reported earnings – but their story was like others in the Advertising sector- the first cost cutting is marketing dollars and Yahoo, Google, and others are suffering. That clearly tells me that companies are not fat with cash and are focusing on beating estimates via cost cutting methods as the revenues being reported continue to come in lower (for the most part). How much more can companies cut costs to meet projections?

Be skeptical about the 3rd and 4th quarter, look for companies with overseas sales (international), hedge those long deltas when stocks gap up, and keep a watchful eye on those companies that have rallied significantly without the earnings to back them up.

It will probably be more sector driven going into the 3rd quarter – rather than broad market rallies.

7/21/09 (CAT the Dow Jones rock star!)


Pushing higher on good news, optimism, and short covering. It is certainly a mixed rally and that means there are some good bullish plays, some that need to be hedged, and some to avoid. What really makes this rally a mixed message is that oil and commodities are rallying strong and foreign currencies are climbing strongly against the dollar (as it becomes weaker). We are also seeing interest rates move higher as money flows out of bonds sending them lower. So where is the smart play? In equities it is a case-by-case sector or issue – that’s for sure. Reading the fine print hasn’t been more important. Just because you beat estimates is not always a sign of positive growth, one must remember that companies in 2009 had significantly lowered their guidance to very conservative levels, so beating an estimate was no big hurdle. On the other hand several companies have VERY good story to tell in this economic down turn. One thing is for sure – there is a huge difference between the market and economic conditions – which continues to widen.

CAT – the Dow Jones rock star.

I had mentioned in the past on several occasions that CAT has been a recession survivor. It has a awesome international presence, which made up for a lack of domestic sales. It is interesting to note that they had called the recession months before it happened and have been fairly accurate with their corporate forecasts. If there was one Dow component to be long CAT would be it. They are a big player in China’s massive infrastructure rebuild as well as many emerging markets – that will most certainly pick up the slack for any domestic short falls.

Well – their earnings were a big surprise and reported profits that exceeded estimates. The CEO (Jim Owens) is a straight shooter and made some interesting observations. His company is seeing strong demands abroad and especially in China where the stimulus is going right to the bottom line (building 1,000s of miles of roads, building, sea ports, damns, etc.), however on the domestic front it has slowed and it seems to remain slow. He notices that while world credit markets have eased, they are seeing problems on the domestic front as payment delinquencies have increased. He expects that 3rd and 4th quarter to be mixed and thus while they have raised the full-year forecast to $1.15 to $2.25 (a VERY wide estimate) – it accounts for the HUGE uncertainty in the 3rd and 4th quarter.

He has taken command of his company as he had pushed the U.S. government for favorable tax and trade policies that help boost sales and he also cut more than 24,000 jobs. Realizing that international sales is the strong option he needed to make sure that they could see strong profits without government entanglements.

The company has a great story and domestically it will most likely stay in this country. Building their equipment is a lot more demanding than the typical auto assembly lines. Most equipment is hand built and most employees are truly engineers or mechanics. Relocating a company like that is not even in the cards – so the company will continue to push the government for favorable tax, trade, and domestic issues.

All in all – CAT is a great American story and a recession survivalist. The wide forecast (1.15 to 2.25) for the year (remember that is only the next two quarters) means that even the CEO (and company) is still very unsure about the domestic front and IF we will see a bottom to this domestic recession. However, abroad – sales and business is going very well. Domestic revenue was down and doesn’t look to improve. The one other variable is the possibility of a dividend cut, which will most likely be determined by the earnings in the 3rd quarter and if the 2.25 is still a realistic view of the full-year returns.

As I mentioned before – it is time to start putting companies into two categories (strong international and domestic only). CAT falls in the Strong International – and should see profits as the emerging markets recover, while the West continues to suffer.

CAT up strong in the pre-market up $4 - sending the INDU futures up hard.

COKE – another great story

COKE is it! Coke has been kicking Pepsi’s ass in the international market, mainly in China. Coke has realized that not everyone loves their core fizzy bubbly drink and has quickly moved into none carbonated products including water. Earlier Coke made a huge move in China to acquire their largest juice producer – but China blocked that (it is still up in the air and could happen). However, Coke is expanding their own line there and has made significant ground, leaving Pepsi to figure it out.

Coke had a fairly good story, but revenue was down and lower than expected – even though they did beat estimates. The question is Coke still a value play at these levels? I think it might be a little difficult to see a big rally from these levels – it has made a great run and unlike CAT didn’t see any big retracements coming out of the hole in March.
Coke is slightly down in the pre-market, still a great story with growth internationally.

Other earnings…

Merck’s earnings decline, but the good news is that revenue increased. That is an important driver that most companies are falling flat on. While earnings did decline the profits fell less than expected and as they set to buy rival Schering-Plough the pipeline is probably going to be good going forward. There is domestic concern with drug makers play a key role in healthcare reform and that could inject some volatility in the futures. Merck is up in the pre-market

Regional banks – if you are watching these earnings as they come out daily it is sickening. They continue to hemorrhage money, continue to see losses, continue to have increasing delinquencies, and FDIC continues to close more regional’s. The regional banking sector looks ugly.

Airlines – they did look to do well as fuel prices fell, but as the prices begin to climb again and people have less to spend for travel things don’t look so bright. Could web based communications like “Go-to-Meeting” really be an airline competitor? Maybe if companies continue to trim costs. As Warren Buffet learned the hard way – airlines are a sector to stay away from – margins are rail thin and that is if it can get into the black.

Futures Pre-market

The INDU futures are getting a surge from CAT and up about 50, the rest are flat to slightly up and closer to fair value. No overweight drivers in the other issues. Expect a stronger to mix opening.

Support / Resistance

Break-out is here, but mixed for sure. Keep an eye for quick sector retracements and over weights being a driver.

INDU 8750 (We are getting a good rally in the INDU and CAT is charging it ahead in the pre-market. Expect it to be higher today. – 8750 is support.)

NDX 1500 / 1550 (A few stocks have been the huge driver in this index – AAPL being one of them. Some are getting a little long in the tooth and if we strip out the over-weights in this index it is in the 1510-1515 range. Watch those over-weights they continue to drive it, but if any of them turn around they could pull this back down to or through the 1500 range fast.)

SPX 950 (Unlike the INDU or NDX – both are narrower based and have some key drivers, the SPX has just gotten to its resistance and has not broken through yet. That leaves me skeptical about the INDU and NDX as a couple of key components drive them up. Unless SPX can get the significant break-through, I wonder how strong the NDX and INDU really are. Keep an eye on the SPX strength – let it be the confirmer.)

RUT 540 (Like the SPX the RUT has not confirmed a break-out yet. Unless we can see the broader indices make the same break-out that the NDX and INDU have – this might just be a breakout of a few over-weight rock stars that have left the broader market behind and we could get a contraction in the spread.)

The spread contraction is coming, either the broader market rallies (RUT and SPX) to meet the breakout of the narrower based indices, or the narrower based indices (INDU and NDX) come off a little to meet the broader market indices. Right now the story seems to be a few rock stars.


Earnings surprise, sure – there is some good stories in there. CAT being the rock star of the day, but they remain very skeptical of the domestic economic situation and are concerned about their increase in delinquencies – hence the very wide range of guidance for the year. Regional banks look bad and don’t look to improve any time soon. Drug makers have some good news lately, some mergers, and some better revenue, but are facing some volatility as to the healthcare plan and what role will they play.

The reoccurring story is lower revenue and profits really made by increasing margins, which has meant more layoffs and cost cutting. Fat companies are thinning down to keep profits inline, but revenue shrinks and you can only cut so much. The 3rd and 4th quarter doesn’t seem to be looking great on the domestic front if any companies are relying on domestic sales. That is why it is time to make sure you have some international exposure companies in your portfolio.

Expectations for “Back to School” sales are looking negative and holiday sales following close behind with the job losses this country has suffered is not looking better. It will be companies like CAT and COKE that we will rely on to keep the market up.

Meanwhile, gold, silver, oil, and other commodities rally and the dollar falls. Interest rates are going up as bond’s fall and that also spells more difficulty for mortgages and lenders as rates go up and also means that Bernanke is going to have to buy MORE treasuries if we see too much of a pop in rates it could mean the Bernanke has lost control and we could see a bigger exodus of foreign treasury holders. He should be addressing those questions today. Listen up.

7/20/09 (CIT a stay in execution, Bernanke shadow!)


Last week saw a huge move to the upside in the indices, interesting enough what help precipitate the move was a huge amount of force short-covering. Short interest had reached levels as high as they were in February before the market sold off to their mid-March lows according to Bloomberg. It was the Wednesday gap up that fueled the covering right into Friday. While the two broader indices (RUT and SPX) gave up steam on Friday and closed lower, the INDU and NDX had a few issues that pushed them higher.
Expiration was not the typical pin-to-strike expectation as the weekly move blew through several strikes – making Friday more volatile. Talking with one market maker – he said he was glad to close out those short OTM call options earlier in the week.

CIT a stay in execution…

CIT was on the fast track to bankruptcy – even the Federal Government, FDIC, and other regulators were giving them a pass. The problem (which is still prevalent) is the 100s of thousands of companies that rely on CIT. There is news this morning on Bloomberg that bond holders may come to the rescue as early as this morning with $3 billion short-term financing. If that doesn’t come to pass – by Friday they will be bankrupt.
There was some concern this morning on Bloomberg and CNBC that even with the $3 billion it might not eliminate the bankruptcy, but just push it out a few months (I guess on hope that the economy will turn around and these companies can pay back the debt). However, sometimes it is NOT the rate of return that bondholders have their eye on. CIT is the “go to” bank and financial institution for 100s of thousands of businesses (including Eddie Bauer, Dunkin Donutes, etc.) these companies need and rely on the CIT relationship. Bondholders might be looking at this as a back-door opportunity for equity or pre-purchase in case of a bankruptcy. CIT has a viable business and this might be a time to get it on the cheap. There is a wildcard, the government – who could step in last minute and screw the bondholders (like it did on GM and Chrysler). Sure they don’t show interest in it today – but with enough companies complaining to their Congressman about future job losses, they could be the wild card.
For now CIT is on life support – or so it seems.


Bernanke plays second fiddle

With all eyes on earnings and the recent sharp rally last week – not a peep about Bernanke’s semiannual economic report to Congress tomorrow. If we take our eyes off the earnings train for just a second – what we really need to hear from Bernanke is several items.

1. Does he have an “EFFECTIVE” plan to buy in all the resent cash he created (trillions) – to avoid inflation?

2. Congress has been talking about a second stimulus, but Bernanke has been warning Congress about spending and they need to curtail it – will he BEND and pony up some more printed money if Congress decides to push forth another stimulus?

3. Citi and Bank of America had mentioned SERIOUS concerns about 2010 and possibly into 2011 and more loan liabilities (delinquency) CEO Ken Lewis expects losses to mount and the banks have been hording capital to pay down future losses. 5 more banks have been shut down by the FDIC taking the total this year over 50. Other regional banks continue to suffer draw downs. True Goldman and JPM have large trading desks that can soak up the loan losses, but the majority of banks don’t have that option. Questions: What is the current Discount Window liability? Is it increasing? Will the Fed make additional credit available to these banks? Does Bernanke believe that Citi, B of A, and others will require more loans?

4. CIT is not getting any help from the government, if they go into bankruptcy, will the FED step in and support their services to aid the 100s of thousands of small-mid size companies that rely on CIT? Does he believe that CIT’s failure could cause a domino effect of companies that are unable to get credit?

5. Unemployment? It looks like we will hit 10%, if we include “disgruntle workers” and part-time we are closer to 18% - many say that jobs are a lagging indicator – but in some respects it is a leading indicator.

6. Recession and Recovery, certainly we are getting closer to the bottom in the recession – but the important question is the recovery and when he believes he will see signs of a recovery and not just a recession bottom.

Bernanke is also NOT part of the clique and rumors abound that Summers has his eye on Bernanke’s job. Bernanke has been outspoken (as much as he can be) about the Congressional spending and also the mounting debt the Fed is taking on by purchasing Treasuries, but at the same time he has to do it with a smile, sell some confidence, and give people faith. Since it is faith that backs the dollar. I have a sneaking suspicion that Bernanke will not last out Obama’s term.

I know you maybe be more interested in earnings – but take a listen to Bernanke’s report and if any reasonable answers are giving, that assumes that Congress can ask reasonable questions.

Futures Pre-open

We are getting a rise in futures in the pre-market, following Friday’s gain. Europe and Asia were also up (Tokyo was closed due to Holiday). Spread is in and expect a slightly higher opening.

Support / Resistance

INDU 8750 (We that is the resistance number, we closed just shy of that on Friday and futures look to be poking their head above it at the opening. Watch the close to see if we close strong and above it.)

NDX 1500??? (We are above it and it sure looks like a break-out (even if it was just a 3-day move up) – watch the close today. It look like we were getting a little bit of a break-out in June as we flirted with the 1500-1510 area only to retrace. There are a few volatile issues – APPLE was the big driver – but that is also getting a little long in the tooth.)

SPX 950 (We closed lower on Friday (slightly) but it did lose some ground. Futures are pointing to a higher opening – but we are still 10 points shy of 950. Watch the close – we could visit it intraday – the question is do we close above it?)

RUT 535 (RUT closed down over .5% after the big rally – the broader base market – while higher is showing that it is sectors and issues that are giving this rally the break-out legs and not the market as a whole. The futures are pointing higher – but the RUT needs to show some strength to confirm the narrower based indices.)


I heard over the weekend on Bloomberg an analyst calling this the last minute rally before the “going back to school blues”. He said that retail numbers and expected revenue could be down more than 50% and with current estimates on summer holiday vacation revenue looking significantly lower – he expects a sell-off to hit late 3rd quarter to 4th quarter. The revisit of the consumer concern (regardless of the market) will come back to be measured in the GDP (2/3rds based on consumers) and that could be a wake-up call.
The bright spot? China and emerging markets – Hilary Clinton is visiting India which is expanding and could generate big revenues for U.S. firms. China is also seeing their stimulus hit the bottom line. Maybe it will be emerging markets, China, Brazil, and others that pull us up this time. The problem is interesting – while U.S. firms may generate huge profits from expanding sales overseas, these U.S. firms also do most of their manufacturing, production, and services over-seas. How does that translate to jobs in this country? That is a tricky question. We could see a huge divide between international firms and domestic firms. We could start seeing portfolios and funds divided into this category (if there are not already) – but it is something to look at.

7/17/09 (Bank of America and Citi earnings!?)


Yesterday seemed flat and then late in the day Nouriel Roubini restated that he believed that the recession would end this year, ever since the economist had correctly called the “Credit Crisis” – he has become one of the most influential economists. He had mentioned a few months back that he had become more careful with his words because he didn’t want to influence the market, too late. We are the start of earnings season and some of the banks have top estimates (of course that was JPM and Goldman) – however Bank of America came out this morning and while it looks slightly better – they still have some problems. Google’s earnings after the close showed a drop in ad revenue. While Roubini is probably right that we will be putting in the bottom this year, he has also stated the longer term problem is the recovery.
The bombing in Jakarta has not caused too much jitters in the financial markets – but it a cause of concern as that region has been relatively stable for the last few years. Asian markets didn’t see too much volatility. My thoughts go out to the victims.
Bank of America and Citigroup Earnings

While Goldman and JPM looked great – mainly from the trading desk (their loan side still has problems), Citigroup and Bank of America do not have the horsepower on the trading desk to make up a big enough difference. Bank of America is setting aside more money for losses and the CEO (Ken Lewis) predicted a weak economy will persist into 2010. Net income fell 5.5%. Bank of America is also in a scuffle with regulators over the Merrill Lynch acquisition (finger pointing game continues). Additionally their acquisition of Countrywide has put serious stress on the balance sheet.

Citigroup has similar problems, but instead of acquiring a brokerage firm (like Bank of America) they sold their control of Smith Barney helping bringing in much needed cash. Additionally their consumer and commercial loan losses continue to mount. Without the massive trading desk that can make-up losses on the loan side – it’s going to be tight. Profit generated from unloading their control of Smith Barney is a onetime pop, but the company still needs to manage the debt on the balance sheet and reduce cost.

Bank of America (BAC) is down slightly in the pre-market.
Citigroup ( C ) is flat to slightly up.

Housing Starts

There is still mixed messages in the housing market and it is hard to determine if we have bottomed or not. Foreclosures continue to increase, mortgage rates are increasing putting pressure on lending, and delinquencies (more than 90 days late) are increasing in the residential and commercial markets. However, the Housing Starts reported this morning reports a positive sign as it increased 3.6% and brought the annual rate up to 582,00 (the highest level since last November). Certainly it is still low compared to what it had been over the last several years, but it is a sign that some construction is breaking ground. But in reality is it really the EXISTING home sales that really drive the market and that remains negative.

Still the data is mixed and it will probably remain too hard to tell if the housing market has bottom or not.

Futures Pre-market

The futures are down in the pre-market. But are seeing some volatility. The spread is small – with fair value a few points above. Expect a weak opening.

Support / Resistance

Possible Break-out?

INDU 8500 / 8750 (It has been a fast rally week from the support to resistance in a short time – over 7%. 8750 is a key area to watch, a break out could mean the first visit to 9000 this year.)

NDX 1450 / 1500 (The 1500 area was resistance and we saw a jump going into the close that looks like a break out. If we can remain above the 1500 line a move towards 1600 is in the cards. If we close at 1500 or below, the late session break-out could of just been a head fake.)

SPX 880 / 950 (Unlike the NDX the SPX is still short of that 950 area – if the NDX stays above 1500 and SPX breaks 950 we could be looking at a breakout.)

RUT 500 / 535 (Like the SPX the RUT has still short of the breakout area. Keep an eye to see if we can get one.)

Gold 900 / 950 (It seems like gold is just holding between 900 and 950 – it would seem like it is waiting to see how the dollar pans out.)

Silver 12 / 14 (Similar - but more volatile than gold – Silver seems to be in the range as well.)

OIL 60 + (Oil saw a big move down, but is now rallying back.)


We have had a solid rally back to resistance, the earnings seem to be great on the surface (beating estimates) – but the story seems to be the same, consumer and commercial loan losses continue to mount. Goldman and JPM were saved from their trade desks, but BofA, GE, and C are suffering from debt. The CIT story could be a large blow for small to medium size businesses and clearly shows that there is still serious problems with credit.
The housing market also seems to be finding some solid ground, but the foreclosure and delinquency rate still increases. It may see a bottom this year.

Nourirl Roubini (Dr. Doom) has not wavered from his view that it would be the end of this year that would possibly be the bottom of the recession, but he does also continue to convey concern about the recovery going forward.

At the end of the day it is the consumer the drives the wheel of the economy and that is what we really need to see change – jobs, income, credit availability before we can see the revenue increase on the business side. We are still in the mode of watching companies beat estimates on lower revenues because they have cut costs – but that can only last so long. Revenues have to eventually pick up – when we see that happen – the recovery will be in play.

7/16/09 (JPM Profits rise, CIT bankrupt?)


Sorry about missing yesterday – (out of the office in the morning) – go figure, I am out of the office and the market goes into hyper rally. INTC sure boosted the optimism and while revenue’s are looking flat for the most part the margins were improved. The question going forward is that you can improve margins only so much before revenue needs to catch up. There was some serious short-covering going on as well as short-interest had built up to the largest amount since February, getting caught out help great the rally. We did reach some of those resistance levels as well, which could mean some resistance after the run. Lastly implied volatility (as per measured by the VIX) didn’t fall, but actually went up (25.89) – indicating there is still downside concern.

JPM – profits rise

JPM follows Goldman on larger than expected profits, while not at the level of Goldman (which broke records), it was higher than expected. Like Goldman, JPM is on the fast track repaying the TARP – because they don’t want to be handcuffed to government rules on hiring and compensation (as well as other TARP coupled rules).
However, not all that is shiny is gold, the credit card division lost money ($675 million) and expected to continue to lose money. Additionally the mortgage side of the business (including commercial) is also showing an increase in delinquency. Like Goldman the money was made on the trading, investment, under-writing side of the business – while the loan side continues to suffer.
CEO Dimon had indicated that they believe the consumer will continue to have difficulties and the consumer credit risk side of the business will continue to suffer.

CIT – bankruptcy as early as Friday?

The CIT story is getting worse and it doesn’t look like the government will be stepping in to save (or help) them – thus a bankruptcy is in the cards as soon as this Friday. What does that mean? On CNBC, CEO White, of Summer Classics a mid-size business, who is close to the CIT problem, indicates that it could create a systemic risk across the small to mid-size business arena. The problem is that all these businesses rely on CIT to handle all kinds of credit lines and with over 300,000 companies tied into CIT there is no way they can quickly move over to a new lending institution. There additionally are questions about the move – do the other lending institutions have the systems in place for the various financial credit facilities (export/import, restocking, pay-roll, etc.), additionally if they can handle that kind of lending – the question is will they. We must remember that companies that use CIT (rely on them) receive credit after transactions – which is the revenue used to run the business.
This could be a larger problem that could create a domino effect. While I don’t think Mr. White articulated the problem well – is point is clear:

Futures Pre-market

We are seeing slippage after the huge run yesterday, which isn’t to surprising – we could have a slight retracement. Expect a lower opening.

Support / Resistance

This week got us back up to those resistance levels and just like support that we had recently been at – the question is do we break out or retreat?

INDU 8500 / 8750 (We blew through 8500 yesterday, but could see a revisit to 8500. Futures are looking a little weak at this point – I think it will really be earning’s perception.)

NDX 1450 / 1500 (We gapped up and ran back to 1500 – an area previously visited in early June. We are seeing the futures pull off in the morning. 1500 is resistance test area.)

SPX 900 / 950 (The SPX didn’t get back up to the 950 area and is showing a little weakness in the futures.)

RUT 500 / 535 (Seems like we are mid-range below the previous high and 500 support, similar to the SPX)

Money Flow

Seem like money poured out of treasuries and into everything else.

Commodities, Gold, Silver, etc – all rallied.
Currencies rallied against the dollar.
Bond yields went up as investors excited.

Yesterday seemed more about money flow than sector driven.

I would reason the following:
Equities rallied, which was helped fueled by shorts – sending it up fast and hard.
Commodities rallied, which was fueled by a drop in the dollar against foreign currencies.
Bond prices fell (yields went up) as investors exited for either equity euphoria or fundamental commodity bets on weaker dollar.


The investment banks are showing strong gains in this economy, interestingly enough it is their trading desks that are the profit centers, while the credit and loan sectors continue to lose money. It does seem at odds, but as long as their trading desks can continue to generate those kind of profits to off-set the consumer and commercial loan losses then they stand to do well. The problem is that we can’t measure economic recovery by the earnings results of the likes of Goldman and JPM. Clearly – the consumer side continues to lose them money (credit cards losses, commercial/residential mortgage delinquencies on the rise, commercial loan losses) – that side of the business is the REAL economy. The current trend could be investment banks make billions on trading and transaction business (more than making up the losses), but the economy continues to falter.
The CIT story seems to be a problem, the government doesn’t seem to care to help them (which I can’t figure out – since they helped all these other failed banks and companies, including GMAC, GM, etc.) Not that I am for bailing out everyone and anyone – but CIT is the leading lender to 100s of thousands of small to mid-size companies, which a failure by them could send a shockwave across the small to mid-size business community. I guess the small and mid-size businesses didn’t donate to the Democrat party, like the UAW or Goldman Sachs.

7/14/09 (Goldman Trades for Profit, CIT concerns!)


A rocket move off the support level, lead by the upgrade on Goldman going into earnings this morning. The CIT news (as serious as it is) was overshadowed by new found optimism. Goldman stock took off after Meredith Whitney gave it a “Buy” rating yesterday, it had been in a tight 135 to 150 range and ran from 140 to 150 yesterday after her recommendation.
Earnings is in full swing and while revenues maybe down sharply, cost cutting may have helped margins. That will be the key, but the guidance (if the companies even give it now days) will probably be lower revenue warnings. Between JNJ and Goldman earnings we should see some volatility today.

JNJ profits decline

Johnson & Johnson saw profits decline 3.6%, in part from increase in generic drug competition. JNJ also took advantage of the weak economic conditions facing competitors and bought Cougar Biotechnology as well as taking a large stake in √Član Corp – which expands their future pipeline. However, that means in the short-term capital outlay (whether it is cash or stock). The investment/acquisition decisions is to help reduce the decline in their existing pipeline (primarily Topamx and Risperdal) which are facing strong generic competition.
Net income dropped to 3.21 billion (down from 3.33 billion). While a decline in profits, they still beat estimates by 3 cents - $1.15 per share (vs. expected 1.12 per share). Sale have declined from 15.2 billion from 16.5 billion – but management efforts help keep margins wider than expected, helping them beat estimates.
Stock is up .75 cents in the pre-market, but volume is light and that could change.

Goldman beats !

Whitney made a “buy” recommendation yesterday, sending the stock up almost 10 points. But the stock is near its recent high range at 150, which could be a resistance point. Earnings come out in the pre-market and expectations were for another massive profit, ironically after they have been the recipients of many benefits (including the TARP, record borrowing from the Discount Window, backdoor payments via AIG bailout, reporting advantage when they changed their standings to become a bank, and that doesn’t include the $5 billion dollar investment from Buffet), and while I have a clearing relationship with Goldman it does leave a little bit of a bad taste in your mouth that the company is reporting record profits in this economy (with huge government borrowing).
Goldman has recently been in an awkward situation as their “trading program” had been stolen and there was statements made that those in possession of such a program “could” manipulate the market. I asked myself isn’t that a self admital that your software CAN “manipulate “ the market? Goldman has more people working in their programming and technology department, than any other department in their firm (according to Bloomberg this morning) – additionally a look at the revenue shows that the trading desk is the largest profit center. There has also been some skeptical stories (emails) that have circled that concludes that their “trading program” may have front-running algorithms, but that is not proven (but wouldn’t be surprising – based on the kind of profits they are reporting).
Goldman beat estimates with record earnings over $4 per share, but the stock is seeing some pressure on some rather large volume in the pre-market and is currently down about $1 dollar (but with volatility) this of course could change in a second. Of course 150 was a resistance level and reports have indicated an increase in insider selling. However, the pre-market is not necessarily indicative of how the market will react after the opening when the retail world joins the fray. However it is seeing negative pressure.
Expect some pressure around the 150 area, but if it can break through with any strength we could see it rip to the upside. 150 will be the pivot point.

CIT concern has reached Congress

Talk is starting about a bailout of CIT as 100s of thousands of companies rely on their financial arm. Most of their debt is rated junk, FDIC will not back their debt, and they haven’t been made the “team” like other banks. Right now they are on the edge and something quickly needs to be decided – or we could see some negative pressure on small to mid-size businesses throughout the country. Keep an eye on this as it could have economic fallout if something is not done.

More news at Bloomberg:

Futures Pre-market

Futures had seen a good pop going into the JNJ and Goldman earnings, but are now coming off their highs – still up on the day. If they can hold here expect a slightly higher market, but they seem to be weakening.

Support / Resistance

INDU 8000 (8250) 8500 (Sure it is a wide range, but it is also earnings season. I wouldn’t get long or short at the 8250 range as it could be a serious pivot point, we busted through it yesterday and could stay above it, but visiting that level intra-day is a real possibility.)

NDX 1400 (1450) 1500 (We are right in the middle – nice pop off the lows – but can we continue up to 1500?)

SPX 900! (As I mentioned 900 was key – we got there, just there – but we need to stay above it now. Visiting 900 doesn’t mean a turn around, closing above it on strength will help confirm. I still have a feeling that 880 will be revisited.)

RUT 500 (We didn’t get to 500, but made a good run, watch the close.)


Inflation concerns continue to mount and while eyes are on PPI and CPI as more government data is released, the other factor is watching those treasury auctions and interest rates. It seemed that we were seeing some strength return to bonds until yesterday’s equity move as money rushed out of bonds and back into equities. The 10 year was close to 3.25, but then quickly popped and is looking above 3.40 this morning (for now). Second stimulus talk is making the rounds in Congress, CIT is starting to get Congressional and media coverage (a serious concern), and we are still not seeing recovery traction yet.
Jimmy Rogers the other day on Bloomberg was becoming more concern with the dollar as rates go up and Bernanke can’t seem to stop it, the Fed is buying more and more treasuries, there is over another $1 trillion in treasuries to be sold. He stated unless something can be done quickly it is quite possible to see a serious currency crisis by year end. Interestingly and ironic that we see states fail, California is tapped out and giving out IOUs and can’t get a loan (or credit) to save themselves, other states are following suit. While we seem to be concerned about the states, no one seems to be concerned about the Federal government. The only difference between the states and Federal government, is that the Fed can PRINT money and the states can’t. The question is can we inflate (print) our way out of this without the loss in faith in our currency. We are riding on faith at this point. Let’s hope that Obama, Geithner, and Bernanke can continue to sell it.

7/13/09 (Goldman Buy? CIT stumbles.)


We had a fairly mixed week as we flirted with support levels. False starts higher or lower – only to see an intraday change that reversed course. Earnings kicked off with Alcoa – which was mixed, great growth in China and slow growth domestically gave them good long-term stability news and short-term domestic concerns, which may seem to be the case going forward with other companies. Earning season will be about those that have an international presence and on the right side of the trade (import vs. export) combined with dollar strength. I would expect to see lower revenues this earning season and lower guidance, but on the good side I expect to see better margins as companies are better prepared and thus some should beat expectations (which had been significantly lower) – which could buoy stocks and/or sectors.

Goldman – a buy recommendation?

Meredith Whitney (a well respected analyst) raised Goldman to a “BUY” before the earnings announcement – which sent the stock higher in the pre-market (up over 6 points currently). Goldman is expected to report larger than expected profits tomorrow when it reports earnings. It should also set the stage for the other investment firms (sorry I mean to say banks). It does look a little toppy up at 150 – it’s previous high in May and has been in a 140 to 150 range since. Expect some volatility tomorrow and a possible breakout of 150 or 140, the buy rating this morning is sending it back to that 150 range pretty quickly.

CIT facing a stumbling block

The next possible big failure is on the horizon and concern is escalating. Thousands of businesses rely on CIT financing – from operating capital, payrolls, to export/import financing – they have their hand in many financial programs. However, CIT (like other banks) have suffered significantly during the credit crisis (as it too is over leveraged). Unfortunately, unlike the others, CIT has not be able to convince government agencies (including the FDIC) to back their debt and according to Bloomberg a failure at CIT could create problems for 760 manufacturing clients and over 300,000 retailers.
CIT has been meeting with federal regulators, but so far it has not resolved anything. Fitch (credit agency) has indicated that CIT may default in several months (April) as their credit line comes due. A default would create ripple effects across the manufacturing and retail sector, the problem is that the thousands of commercial customers do not have an alternative. Credit is already hard to get from other institutions, additionally CIT offers a variety of financial products for commercial lenders that is just not available elsewhere.
This is an important story to follow, but I suspect a bailout will most likely be in the works. Sock broke down below $2 last week and looking lower in the pre-market (1.30).

Futures Pre-market

The futures are getting a good pop, following Europe and the Goldman upgrade. Expect a higher opening.

Support / Resistance

We have been bouncing on support – keep an eye to see if we can rally off.

INDU 8000 / 8250 – 8500 (A strong rally and getting above 8250 is in the cards – but it will be the volatility of earnings that will determine that.)

NDX 1400 / 1425 – 1450 (Futures are showing a 1425 opening and a close above 1425 would be a positive sign that we might of put in a short-term support.)

SPX 880 (We kept locking in on that number day after day it seemed last week. Futures are pointing to a higher opening and making sure we stay above it is important.)

RUT 475 / 500 (We are looking at a mid 480 opening off the lows. A move above 500 could bring back some optimism.)


It looked like we were seeing some run to treasury bonds as equities started to look week last week, the bonds were rallying and yields were coming off and we say the 10-year get down to almost 3.25% this morning. But after the Goldman news and new found optimism with earnings – we are starting to see the yield begin to rally as money knee jerks back out into equity (futures – in the pre-market). Of course Bernanke would like to see rates down, but that is going to be hard unless we can get some serious interest and it looks like about another 1.5 trillion needs to be issued this year. Jimmy Rogers is concern with dollar risk and believe a crisis could mount as early as year end. Keep an eye on commodity prices, treasury auctions, interest rates – which all will be a tell tale sign.

7/10/09 (Government Motors, Recession Fades?)


Weak legs yesterday, after Alcoa and other (seemingly) good news and a good opening rally in the market it fell flat to close unchanged on the day. It seems that we are sitting in this bottom support range and that this 3 month rally has lost some of its seam. One would think that GM coming out of bankruptcy today would create a little optimism that maybe some of the bottom has been realized (especially in the auto sector). All that maybe true and a bottom has been put in, but it is now all talk about the recovery and how fast will it happen.

GM – now Government Motors

GM comes out of bankruptcy today – in probably one of the fastest (and amazing) bankruptcies in the history of the world. Of course the government had cut deals with all the creditors, UAW, and paid out billions into GM before bankruptcy. Then it was ram-rodded through the court system – as the government wanted it FAST and without issue. I am personally surprised how fast it happened, but what are we left with?
The U.S. government (tax payer) – now owns 60% (over $50 billion in debt) in GM. There is talk about an IPO next year so the government (or tax payer) can get their money back, but I am VERY skeptical that an IPO of GM next year would even yield 25% of the $50 billion. The sad reality is that our investment in GM is going to be a net loss to the tax payer. Sure the government could hold onto the company for the next several years (hoping) that it would increase in value enough to get a return. But now we are just betting on GM’s future success.

They are not going to be profitable on day one and analyst have said it will take about a year before it returns to profitably (if it can that quickly) – that means more money will probably be “loaned” to the new GM to keep it going. All eyes should be on its burn rate – which will determine how successful they will be in the short run.

The other big problem, other than trucks – they really don’t have any new products or alternative fuel vehicles that will be coming to the market soon. Can they create competitive cars? They lost some of their better selling brands (via sales during bankruptcy).

Only time will tell – but at least the big headache of bankruptcy is over. Let’s hope they can pay back the government.

Forecast – recession fades?

Economist survey expect a increase in consumer spending starting in 2010. Certainly the job losses are contracting (but still high), if the percentage contraction continues we should be in the 200 to 300 thousand by year end, while that does increase the net on unemployment to the high 9s or 10s – it also indicates that it should be topping out. The auto sector seems to have found a bottom – as far as contracting – with the bankruptcies – there is expected to be some more layoffs at GM (about 4,500) but that should be the last large cut. The housing market seems to be starting to stabilize, we will most likely seem home values to continue to contract – but more slowly and while foreclosures continue they (like the unemployment numbers) will begin to contract. While I agree that all these do show a coming end to a recession (no doubt it has to end), the recovery becomes the big question.
The economic survey indicates that consumer spending is expected to expand in 2010 as stabilization is reached. But the recovery will not be robust, but rather lackluster. New job creation will be few going forward as companies look to run leaner companies. It really comes down to access to credit – if companies can’t borrow – they can’t hire and that seems to be the choke point. It is the chicken and the egg problem, when does the company grow? Do they borrow and expand to create capacity to meet future demand? OR Do they wait until demand increases until they decided to expand? Certainly the access to debt will be a vital variable to the equation. If they don’t have access to the credit they need, they might not have the ability to grow until revenues help load the coffers.
It is now about measuring the recovery and not the recession.

Futures Pre-market

The futures are looking a little weak in the pre-market, not necessarily news driven – but following Europe’s decline. Expect a lower opening.

Support / Resistance

The market stopped it’s recent slide, but is hasn’t bounced off the bottom yet. Futures are looking slightly lower – but it will be the close going into the weekend that will create the perception that the short-term bottom is in or not.

INDU 8000 – 8250 range (This seems more like a wide support area than anything else. Unless we can get above 8250 with a little strength – this area remains rather weak with bottom support at 8000.)

NDX 1400 / 1450 (We have had a few monster moves with some issues in this index that has created some volatility and driven it down. Are the bottoms in on those big issues. Watch that 1400 area.)

SPX 880 / 900 (Again a couple of days in a row at the 880 area as if it is a support being put in. Watch the close – 880 or above to confirm.)

RUT 475 / 500 (The RUT seems weak and has room down to 470 without really breaking, but it didn’t show even the weak strength of the other indices yesterday. Watch that 475 area. A close at 480 or higher is better.)

Gold 900 (We have seen gold and silver come off in this rally – some would say profit taking. 900 is a supporting area and 850 is an accumulation area.

Silver 12 (Like gold, silver has come off. 12 is a support area and an area to accumulate.)

Oil 60 (Oil has come off fairly hard and broke down through 60 and their seems to be some big volume being put in. 60 range would seem a support – keep an eye on the close.)


The market has come off a little from its recent high and the rally legs have seem to weaken. It is almost as if we are in a pause area – waiting for some “Green Shoots” to flower, to be able to point at something and say SEE! But so far the signs are rather vague and recoveries are being pushed out into 2010 as 2009 seems to be about finding a bottom. As the “green shoot” talk fades the talk of another big stimulus is starting to make the rounds. Obama must continue to push the optimism and hope as the pitchman, while Congress, Fed, and Treasury need to get on the ball and focus on legislation that doesn’t create more debt and spurs economic recovery. Ideology seems to be clouding judgment as dollar risk, inflation risk, and economic risk is pushed to the back burner. Unfortunately the foreign central banks we rely on are less concerned about ideology and more concerned with dollar and inflation risk. We need to make sure any policies we pass carefully consider the economic impact, because while we might be saving some trees we could economic collapse our fiat currency system. Balance is key at this crucial time and I am afraid leaders like Pelosi and Frank are not concerned with debt, let’s hope the Senate has better foresight.

7/9/09 (Private/Public Investment, Jobless Claims)


Alcoa’s earnings beat estimates, while still suffering losses – those losses were less than expected. The positive news on the horizon is the China stimulus and growth. China has been stockpiling commodities that is both utilized material in their expansion and a holding inflation hedge. Alcoa (largest aluminum producer) is seeing increased demand overseas. China reported a massive increase in auto sales as their stimulus is going right to the bottom line as the consumers and nation has little if any debt. Alcoa is seeing some gains in the pre-market. Much needed news for long equity holders as we are at key support levels.

Government Private/Public investment partnership…

The new Government Private/Public investment program that was design to buy off the toxic assets from banks (mortgage back securities) got underway yesterday, but without PIMCO (Pacific Investment Management Co) – the world’s largest bond manager. PIMCO removed it’s application at the last minute citing uncertainties about the design and structure.
Concerns are now circulating why the largest participator of the purposed program made a last minute withdrawal. One analyst stated on Bloomberg that the complexity of the program make the risk and returns less clear. Certainly after the TARP and rule changes for those that participated in TARP, along with the GM and Chrysler Bankruptcy/Bailout where bond holders were seriously short-changed as the government man-handled the operation from start-to-finish that challenged bankruptcy laws – would certainly create concern for any private entity moving into another co-operation with the government on debt programs.
If the government can change the rules last minute – who’s to say it won’t happen again. Certainly if Bill Gross (PIMCO) can see clarity in the program – that means there are probably more questions and possible more risk than initially meets the eye. On the other hand, PIMCO might of seen what they had the opportunity to buy in this program and it could just be that it is so toxic that it is worthless at any price. At his point it remains unclear, but certainly doesn’t spell confidence in the program or the government’s ability to manage the program.

Initial Jobless Claims fall

The initial jobless claims fall to the lowest level since January, below forecasts. Initial weekly claims fell by 52,000 to 565,000. While 565,000 is certainly very high, the contraction from the 600,000s is a sign that lay-offs are easing. Of course there is some volatility in these numbers as from week-to-week the automotive sector is dumping jobs in blocks which creates volatility to the weekly numbers. It is probably better to measure a month-over-month instead of weekly – which can inject market volatility as well.

Futures Pre-open

Alcoa and China growth with lower weekly jobless claims is sending futures higher in the pre-market. Expect a higher opening.

Support / Resistance

After a significant sell off after the last few days we are seeing a brief bit of good news that might hold these indices at support in the short-term, but that is not to say they will hold – be prepared in case they don’t.

INDU 8000 / 8250 (8250 is a important support area that we remain below and hover above the 8000 level as we intra-day try to make a visit. The news this morning is injecting a positive futures rally that could translate into a pop – but at 8250 we could see resistance.)

NDX 1400 (We dipped below it throughout the day yesterday – we could get back to 1450 – but expect some difficulty up there.)

SPX 880 / 900 (We closed almost right at that level – futures are pointing higher – but getting back to 900 is needed to see any hope of getting off this support area – watch that 880 level.)

RUT 475 / 500 (Above the 475 level but the broader market was down almost 1% on the day as the narrower indices rallied to finish positive. It doesn’t spell strength yet.)

VIX 30? (I don’t normally include the VIX – but the action was interesting as it over-extended intra-day and then pulled back hard into the close. It could be a short-term topping area as we could see it get below 30 in the near term. However, longer-term I think we can see the VIX revisit the 40 level this year.)


Talk is kicking up about the need of a second stimulus, VP Biden blundered yesterday saying that the recession was far worse than they initially thought, of course Obama quickly corrected and said that they would not of done anything differently and that there is still money working through the system. The reality is that we (main street) knew it is (was) worse and the government was either living in fantasyland or didn’t want to face the stark reality. Now the question is do we get another stimulus? There is the need to get credit and spending flowing as well as jobs, but also more national debt which means more taxes. Politicians are caught between a rock and a hard place, as all the bailouts, TARP, and spending has not seen any results and the fear of more taxes is creating skepticism from the voters as Congress approval ratings continue to fall. Additionally another big spending program could create a larger exodus of the foreign central banks that we rely on to buy our debt. This story as it unfolds doesn’t have a good ending, either more stimulus (which means more taxes, more national debt, weaker dollar, and more pressure for China and Russia to move to a foreign currency) or not another stimulus (which means a more difficult time for consumers, lower job growth, and a weaker economy).

Keep an eye on this as it unfolds.