The new budget is here!
I am so excited – it's always exciting to set a record and this budget is expected to show a $1.7Tn deficit, $15,000 per US household so make sure you look under your couch for some loose change – every bit helps. Not much helped yesterday as we had another roller coaster session in the markets, heading down 200, then up 250, then down 150 into the close, yet somehow the VIX closes lower! I suppose it was a normal "Which Way Wednesday" and our pre-markets look just as volatile. We were 60/40 bullish (full covered on our long DIA puts) into the close but added some SKF calls at the lows, just in case we were wrong. Overall, we finished right around our watch levels, as I said to members – better than nothing but not something yet.
I got a little nervous as the Russell was rejected at our 411 target, which chased us out of our very successful day trades on IWM and FAS right at the high of the day. At 3:37 I called an end to our FAS trade that began at 10:21 saying: "FAS crazy high now, no way do I blow this overnight so trailing stop into the close based on .15 on XLF (now $8.33)." You can see on the chart that 3:38 was the EXACT moment that FAS started falling. Did we do that? We did a little more bottom fishing early in the morning, adding WFR and MSFT at the day's low and hedging CY and HCBK in the afternoon, both of which had good finishes.
Since the pre-markets are looking up at the moment (7:30), we'll look at some upside targets (downside watch levels remain the same) for today: Dow 7,400, S&P 780, Nasdaq 1,450, NYSE 4,850, Russell 415. Those are our minimum levels to call today a "success." If we can ignore the President telling us that every American family needs to borrow another $15,000 (pushing us over that magic $100,000 per family mark) in order to pay this year's bills – then I'm pretty sure we can breeze past the rest of the bad news.
Speaking of bad news: GM posted a $9.6Bn loss in Q4, that's a loss of $66,000 per US worker they employ (144,000) in 3 months. Please remind me again why it is better to save them? This isn't a one-quarter thing either, GM lost $30.9Bn in 2008, that's $215,000 per worker. I'm pretty sure if we just gave each GM employee $100,000 a year and told them to go to the mall, that would be better for the economy than having them show up at the assembly line building cars that lose over $15,000 per car. That's right, I am NOT joking. GM sold 128,198 cars in January so I'm GIVING them 2M a year at a $30Bn loss. Do you know how to make GM stop losing money? MAKE THEM STOP MAKING CARS!!! Mercy, please, I'm begging you, mercy – we can't take anymore…
We got some details last night of the "stress test" that would be applied to banks before we give them money anyway. The WSJ has a good article about the danger of creating "Zombie Banks," speaking of which, C looks like they will end up being "just" 40% owned by the Nation – not nationalized at all! Aren't semantics wonderful? Last night Tim Geithner said: "Nationalization is the wrong strategy for the country and I don’t think it’s the necessary strategy."
Profit taking on banks led the Asian markets lower with the Shanghia falling to the 5% rule and the Hang Seng giving up a point, finishing down 100 on a day when they fell 350 points from open to low. The Nikkei held flat as the dollar neared 100 yen, boosting exporters. A lot of the China chaos was also caused by intervention in the auto sector as the official Shanghai Securities News said China, planning to restructure the sector, had chosen four auto-making groups to lead large-scale mergers and four other groups to pursue regional mergers. "The market may continue to see a tug-of-war between foreigners selling and public funds buying," said Tachibana Securities operating officer Kenichi Hirano.
Europe is up about 2% at 8:30 as RBS gained as much as 30% after reporting a $34Bn loss. I said to members this morning that, by that logic, AIG should be heading up 50% so we'll keep an eye on them too! What got Europe excited is a restructuring of RBS assets that will take $341Bn off the books – effectively creating a "bad bank" full of toxic assets while leaving the "other" RBS to get on with its business. Under its deal with the government, RBS will pay a fee of £6.5 billion to participate in the insurance plan. The bank will absorb the first £20 billion in losses on the £300 billion asset pool before the insurance kicks in, and will be responsible for 10% of subsequent losses. RBS will pay the insurance fee, and raise another £13 billion in fresh capital, by issuing special so-called "B" shares to the government. The deal allows the bank to raise another £6 billion by issuing more such shares. If the bank's share price reaches 65 pence, the shares would automatically convert into common shares.
This has kept our pre-market strong (9am) despite the 667,000 additional people who lost their jobs last week. That brings our total unemployed (counting only those eligible for claims, about 1/3) to 5.1M, the most EVER. That continuing claims figure is up 40% since last year – that's a pretty good idea of how hard it is to find work. The Unemployment Rate stands at 7.6%, a 16-year high and the Fed projects 8.8% later this year so there is nothing too shocking here other than the sheer numbers. What is shocking is the drop of 5.2% in Durable Goods for January, twice as bad as expected by our usually spot-on "experts." Even worse, last month was revised 50% lower, from down 3% to down 4.6%. These are month-to-month figures, by the way – for the year durable goods orders are 26.4% lower.
Inventories also fell (which is good later but bad now) and all this will have a negative impact on the GDP. Tomorrow we get the Q4 GDP figures (preliminary), which should be showing us a 5% drop, coming off our 3.8% drop in Q3. Also tomorrow we get the Chicago PMI, likely to be the same disaster that the NY, PA and VA PMIs were and at 10 we see Michigan's consumer sentiment, which will be interesting from the land of the multi-billion dollar losses.
Nonetheless, the markets are up nicely this morning but we'll be keeping tight stops on the DIA covers and rolling up our longer puts – just in case! GMs rotten numbers didn't hurt F that badly so we can get back into that trade with a stop at $2 but it's going to be all about our levels today and can we break them and hold them. AMT had good earnings, BYD was in-line, CTB not surprisingly had a rotten quarter but are interesting down here, FAF made a proift, FTO had a big miss, HUN was a big miss but they are forgiven, IRM held on – which is a good sign, Cramer pump victim LAMR was LAME but are getting interesting down here, LTD beat, LINE missed, NDAQ beat by a mile (good for our NYX?), OCR beat, RDC beat nicely, SWY missed by a bit and may be a nice hedged entry at $20, SHLD beat awful expectations by 10% and should get a pop for that, and SONS missed by a mile but is trading up. All in all, a mixed bag of earnings but I think we may have simply hit the point of seller fatigue and we may be ready to rally.
Let's watch our levels and ride the ride!
