Wow, what a ride. A friend of mine said that he received a call from the Consumer Confidence board to participate in the poll. He said they had some qualifier questions before he could take the poll:
First did he have a job? YES
Second did he ever work in the real estate or the mortgage business? NO
Lastly does he live in Detroit, work or has family members that work in the auto sector, or a member of the UAW? NO!
Great he qualified for the poll. Ok that was a joke – but I found it rather shocking that the poll of 5,000 people should show such optimism. We started to think back to that JP Morgan story and the shoeshine boy – was this a similar sign?
When I read the headline on Bloomberg, the two following headlines read “New Normal of 2% GDP growth and Unemployment greater than 8%” and “Home Prices in 20 U.S. Cities Fall more than Forecast”. He said – do you think they were selective of who they polled or is optimistic euphoria trumping economic reality? I said – faith is strong in this nation. It’s not that I am pessimistic, it just that reality and perception continues to show a widening disconnect. GM is about to file bankruptcy, credit card default is on the rise, jobless claims are expected to surpass 9%, and revenue is down. After looking at the PE ratio of the SP 500 – it is rather toppy.
So I come full circle, is this a sign like that JP Morgan and the shoeshine boy? Who is left to be optimistic (or buy) when the shoeshine boy is at the bottom rung. I think I need to swing by the coffee shop and ask the barista what his view of the economic conditions are – if he is very bullish, maybe it is time to get short.
Additionally there was some massive intraday short-covering on the number in the futures market. Which trickled over into the baskets. The volume spike and the arb widening looked as if someone got caught out – you don’t see those kind of prints unless something else was going on.
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GM – First nail in the coffin!
Of course GM failed to get 90% of the bond holders to swap out their debt for a 10% stake in the new company (as the government gets 50% and the UAW gets 40% and billions). Of course if you were a bond holder you would not take that deal – especially if you have the position hedged with credit-default swaps. It is a little irritating that the Obama had called these bond holders “speculators” and inferred to them as the bad guys. These bond holders include pension funds, mutual funds, banks, individual investors, and others. They had LENT GM money and expected to get it paid back. Why should they get only 10% when the government (who came late to the show) and the UAW get the other 90% plus billions? So this was the first nail in the coffin on the way to bankruptcy. The executives had already sold almost 100% of their holdings earlier (around $2 dollars) – they KNEW that the bond holders would NEVER agree to such a ridiculous offer.
It is almost 100% certain that GM will file bankruptcy on Monday – what will save them? Certainly not bond holders or anyone else, but there IS a wild card, the Government. The administration has extended the deadlines for GM time and time again. They have given them billions, more billions, and more billions (just recently). The Government COULD say for the good of the country (and UAW) that they will give them ANOTHER deadline and MORE money. That is the wild card – if we take the government out of the deck – bankruptcy is 100% certain. That is probably the only reason the stock is trading above $1 – it’s that unknown government wild card.
Stay away – there could be psychological fall out on Monday when (IF) they file.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aqtJh9SdO52s&refer=home
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Futures pre-market
We are seeing a little volatility in the morning in the futures – waiting for some home sale data. Expect a mix opening.
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Support / Resistance
Yesterday we were testing short-term supports and then the consumer confidence number drove the market higher to those resistances.
INDU 8250 / 8500 (We were just at 8250 and now up at 8500 – do we break through?)
NDX 1350 / 1425-1450 (Again a pop back to those resistance levels)
SPX 881 / 925 (Again a similar action.)
RUT 475 / 500 (Another pop to resistance)
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Gold 950 – we up there do we hold.
Silver 14+ - has been making a bigger run than gold.
OIL 60+ - seems more of a dollar factor than anything else.
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Conclusion
Action yesterday was as if the sellers stepped away and some big prints were unusual that help spur some short covering. Too much too fast? Could be – the rest of the world did not have that kind of reaction and the news (other than the consumer confidence) was not positive. So to put all this on just the consumer confidence in the face of all the other news yesterday was strange at best.
I remain skeptical – watch those resistance levels.
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