5/15/09 (CPI, GM 11th hour, Jack speaks out!)

Traders,

A mixed market with a slight rebound after the sell-off. Tech. Analyst talk is that the SPX did NOT break that 20 day avg, but it did get close – and a test of those levels are still in the cards. RUT and NDX did not get back above it, despite the rally. It would seem the talk of “green shoots” is starting to turn to “weeds” on Bloomberg and CNBC, even the Economist is printing articles that said it is prudent to remain cautious.

I think that it is prudent to remain optimistic that the economy’s fall has slowed – but optimism needs to be combined with reality and caution. My concern is not that we will find a bottom or when or how far down it will be – we certainly will get to the bottom – probably sooner, rather than later. My concern is when will we see a recovery and the more I read and hear – the more I have a sinking feeling that it is certainly not going to happen in 2009, less of a chance in 2010, and we might be lucky to see it in 2011. That is NOT to say that the market and economy will continue to go down, but rather we will see a longer road of stagflation – and possibly follow in the footprints of Japan – the lost decade.

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Consumer Price Index (CPI)

Inflation, on the consumer side, according to the CPI was unchanged, but the core was up .3%. However, last report it was down and while it did come in line with expectations, it was the higher end – as many of those deflationist thought it would continue to contract.

I am becoming more convinced that we may be seeing the bottom in the deflation arena and that we will start seeing (like with the PPI) and increase in inflation at the consumer level.

Why? Well – we certainly will have a contraction of the CPI has existing inventory is moved out at a significant discount. We saw that with autos, electronics, and higher price ticket items. Certainly in homes and rent. But here is the tricky point, many only want to measure inflation from one variable – prices increase or decrease on a fixed value. However, the hidden volatility in the CPI is the strength or weakness of the currency as well as the amount of money that is pushed into the system (via printing of money).

The horizon at best if uncertain. On one hand – we are certainly printing tons of money and the risk of the dollar weakening is increasing – both spell inflation. On the other hand – consumer credit and income – which determines buying power is getting wiped out. It is almost like we will have inflation and deflation at the same time – or something new. Whatever the case – I certainly think the dollar will eventually be under serious strain.

For now – inflation seems to be in check and deflation is not getting worse – but at some point that will change and I am afraid it will change quickly.
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GM – is it the end?

GM insiders have been selling shares as June 1st deadline approaches, the probability of bankruptcy is increasing as the minutes tick by. The big news – and another job drain on the economy – is GM’s announcement of terminating over 1,000 U.S. dealerships – that means more job losses across the country and confirms that GM does not expect that auto sales will be increasing any time soon, regardless of how they spin it.

Tic-Toc….

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TARP – join the club

The latest group to join the government bailout group are the insurers, Prudential, Harford, Allstate, Lincoln Nation, and more are now approved and will soon be receiving billions in bailout money. Interesting that the banks are wishing they didn’t head down that path and make that deal – now the government forbids some of the banks from repaying. The government is putting pressure on B of A to fire the CEO and starting to set more policies at these banks that have received TARP funds.

Jack Welsh this morning on CNBC was shaking his head – and is very concerned that the government is getting into too deep and it could remain permanent. He made the interesting point – once the government does something and says it is ONLY temporarily, is it ever? One would think other companies would learn from the banks lesson, but as Jack pointed out – the ONLY reason you would ever get involved in the TARP is because you REALLY need the money and that means the company’s balance sheet has some serious problems.

Listen to Jack’s concerns: http://www.cnbc.com/id/15840232?video=1124823872&play=1

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Futures Pre-market

The futures are weak in the pre-market, but the CPI data gave a boost off their lows. The spreads are narrowing and if they continue to contract – expect a mix to weak opening.

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Support / Resistance

INDU 8000 (8250) 8500 (We got a little rally off that 8250 pivot point – but we can revisit that 8250 level – it is still a pivot / short-term support area. Watch the close.)

NDX 1300 (1350) 1400 (We closed up above the pivot point – the futures are pointing to opening RIGHT on that number. Which way do we go?)

SPX 900! (We closed below it – but we are right there – it is a pivot point – watch the close.)

RUT 475 (We got hammered in the RUT 4% the other day compared to the other indices and we didn’t get that big of a bounce, we are below the 500 level and futures are pointing to that 475 level.)

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Gold 900+ (We are above 900 – but to see some carry through we need to get through 950)

Silver 13+ (We are at 14 – and have made a good run – does it have legs?)

Oil 55+ (We are still above 55, had a good run to 60. Oil is coming off a little from the CPI data – but is still above 55)

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Conclusion

Jack Welch is right this morning on CNBC – some of these policies are going to serious curtail growth and some of the knee jerk and ideological policies coming from the administration is very short-sighted. Sure it may save a company via a bailout or solve some short-term problems – but it certainly is not building a foundation for this country to grow.

Ron Paul was on Joe Scarborough this morning – mentioning his concern as well – note, Joe read Ron Paul addressing Congress in 2003 – predicting the housing bubble, the collapse of Freddie and Fannie. Joe made an interesting observation, why do Congressional members say they DIDN’T see this coming, why did Bernanke say he didn’t see it coming? How come Ron was able to see it and not them? Ron’s answer – if you believe in something like Keynesian economics – you don’t want to see the truth or the math. Faith is certainly stronger than math. Ron when on to make another interesting observation – if these SAME people didn’t see the WORST financial crisis coming are we to believe them that we are now seeing a bottom, “green shoots”, and we should be back to a 3+ % GDP growth by the end of the year?

These are both smart people – we should take pause and listen to their concerns.


Jack Welch – CNBC this morning: http://www.cnbc.com/id/15840232?video=1124823872&play=1

I wish I could find the Ron Paul clip this morning…