6/18/09 (Horse Trading Begins...)

Traders,

Seems like a holding pattern around the support area as the indices closed mixed. Obama introduced his new financial reform plan, including a new regulatory arm as well as increasing powers of the Federal Reserve. There are also some rumblings that Summers’ has his eye on Bernanke’s seat, much of that has come from the idea of giving the Federal Reserve more sweeping powers. Some say that Summers’ has Obama’s ear and that some of the suggestions about the expanding role of the Federal Reserve is not coming from Bernanke, but rather Summers’. Those crazy political games – who knows – but there will be some shake up.

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We wait for debate….

It is almost like the market is paused waiting to hear the back-to-back testimony of Geitner at the Senate banking committee and then latter in the afternoon at the House financial committee. We heard Obama’s plan and have a general idea – but there is many questions, but it seems to be a big reform. We certainly need reform – the question what is the right reform. We a new possible regulatory agency (or several), including a possible merger of one or two, add in flipping powers from one agency to another and finally bringing the Treasury and Fed into the mix – it is going to be a massive land grab for power. Who gets what power and what authority? Who reports to who? Who is going to run the new agencies? It is going to get messy and crazy.
It felt like Obama dropped the green flag yesterday, today is about getting information and figuring out who is on what side, and then the massive horse trading begins. Certainly election of 2010 is going to play into this as politicians need to be on the winning ticket and they need to figure out which side the winning ticket is.

Obama remains hugely popular, but ironically Congress’s popularity continues to fall. They are both the same party and one would think they would be more harmonious. Even among the democrats there is some blue dog vs. bigger government types are fighting it out.

Jack Welch today on CNBC said that everyone needs to take a breath. The new Congress and Administration has been in office not even 6 months and they have a trillion plus controversial Healthcare proposal on the table, Cap and Trade energy plan, and now a massive sweeping reform of the entire financial industry. If they don’t focus on one – everything could unravel. Top that off we are certainly not seeing a recovery any time soon and still have a very fragile market. Maybe taking a breath and tackling one at a time would be best.

Regardless – the debates begin today – tune into Geithner this morning and afternoon. It may give us an idea of who and what is in the mix in this horse trading extravaganza. I know the market will be listening and we could get some intraday knee jerks up or down based on the tone and if any clearer picture of this plan emerges.

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Initial Jobless Claims…

Initial weekly claims rose by 3,000 to 608,000 in-line with forecast. The net collecting unemployment insurance fell 148,000 to 6.69 million (the most since November). Economist on Bloomberg radio pointed out that it is hard to say how much of the 148,000 fell off because time ran out vs. how many actually found new jobs. He surmised that it was the “disgruntled” category, only because we continue to see the weekly claims continue to rise – indicating that people are continuing to be laid off.
The futures did get a little pop off the net number falling, but I think the market remains paused at the support and wait to hear more about this financial reform today.

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Futures Pre-market

The futures had been down all morning, but did get a little pop on the jobless numbers – small and it looks like we will see a flat to slightly mixed opening.

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Support / Resistance

The market was mixed yesterday and RIGHT at those support numbers. Today we may get some confidence or see it erode as Geithner testifies – expect a little volatility.

INDU 8500 / 8750 (We closed just below – the support, but I am still counting it at 8500)

NDX 1450 / 1500 (I think 1450 is more of a pivot point, rather than support – but call it short-term support for today.)

SPX 900 / 950 (10 points above the 900 support and futures look flat at the opening.)

RUT 500 / 540 (We are just above 500 at 507 – futures are showing a slightly lower opening, but still above 500.)

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Conclusion

I believe that Obama is well intention and sees many things that are broken and need fixing. He is right and both Republicans, Democrats, and Independents agree. The question is not if they are broken, but how to correctly fix it. The GOP has offered their own Healthcare plan, but Obama refuses to even look at it. The GOP just introduced their Financial Plan – but the Democrats criticize it without reviewing it. The Democrats are no different than the Republicans when they were in office. Obama might SAY he is willing to listen, but the reality (as we are witnessing it) is that he has an agenda and big plans and is pushing them forward. The problem is not Obama, as any president will have their ideas and plans, the problem is that one party controls Congress, Senate, and the Executive branch. That means they don’t have to listen, the Republicans might as well not even bother showing up, because any ideas or proposals will not even be considered. We saw the same thing in Bush’s first term – he never reached across the aisle, because he didn’t need to. Now Obama doesn’t need to either.

That should be alarming to anyone, regardless of party. We need some balance, regardless if you agree or disagree with one party or another. It is the purpose of why we have 3 branches and that power is divided. While this is not a political newsletter, it is now politics that are playing a crucial role in the markets. We need to pay attention what is happening in Wall Street – because it is becoming more involved with Wall Street.