Monday Market Mayhem

Asia is selling off, Europe is selling off and the US is flat at 6am.

So far, so good.  It's a scary world out there and all we have to do is be the least scary place and money will fly in.  The US has been looking scary the past two weeks because Congress was on vacation and the only voice we heard was our President, telling everyone to stay the course.  Now Congress is back and Bush is being sent to Europe so it's time for the Democrats in the Senate and the House to put forward their agenda for solving the financial disaster.

I'm not saying these guys have all the answers but the administration has, so far, proven it has no answers so we'll at least give a chance to the first kid in the class who puts their hand up and at least tries to address the question.  Bush is scheduled to say something at 7am and, as I said on Friday, I am expecting something to happen to boost the markets but I never for a second imagined it would be Bush.  Paulson speaks at 10, but that's likely to be about the financial reforms, not about an actual solution for troubled homeowners.

I think the market is chomping at the bit to respond to some "good" news today as it is the end of the month and plenty of downside money has been made so it may be time for the bulls to polish some apples as they dress their virtual portfolios up to close out the quarter – just throw us a bone, please!

In looking over the Big Chart, I notice we have gone nowhere in the past two weeks but there are some who would call this CONSOLIDATION and consider it a good thing (beats going down):

We pulled off a new green box on the Transports, held the line on the S&P, Bombay fell deep into the red, joining the rest of Asia in the dreaded +25% Terror Zone while the Dax fell into Horror territory at just about 20% off their highs.  The Nasdaq was our strongest performer of last week but that isn't saying much and the SOX continue to exert a drag on the sector but it looks like the Russell will be our leading indicator for the week as it rests right on that 20% line.

What will it take to get the commodity of semiconductors to get treated like every other commodity on this planet and jump 50% for no reason.  They already have an ETF for the Semis but perhaps if we float a rumor that there is a shortage of chips for solar cells, the speculators will rush in and bid up the chip sector.  We need something there because the Nasdaq is just too darn chip heavy to break out while the SOX are down 35% off their highs.  I suppose the good news is we're not down 40% but that's some really pathetic good news! 

Bernanke is meeting with the House Republicans tomorrow at 2pm as he begins 2 days of testimony capped by the Fed Chairs official testimony on our economic outlook.  The FOMC published this summary of the Jan 29-30 testimony so we'll see, just 2 months later, how far Mr. Bernanke has down-shifted his outlook:

The market fell 700 points after Bernanke's end of January testimony and is opening today still down 500 points from our February open.  This time, the cavalry is likely to arrive to stop Ben from having another Alamo moment as Lloyds and RBS both reported that BOE Gov King and the great and powerful EU Boss Jean Claude Trichet are ready to back Bernanke's play with similar liquidity-pumping moves in Europe.

Our economic calendar is also full this week with the Chicago PMI (which SUCKED last month) at 9:45 this morning and tomorrow we will get our April Fool's present from the Auto industry with car and truck sales (or lack thereof) along with Construction Spending and the ISM index, another horror show that indicated contraction at 48.3 last month (10 am).  Wednesday we have the ADP Employment Index which has zero correlation with employment data so I don't know why we bother (last month ADP said -23K jobs, the actual number was -63K) and, of course we get Crude Inventories along with Factory Orders after the bell. 

Thursday we get the ISM Service Index (10 am), which was also contracting at 49 in February and we finish the week with a very potentially scary unemployment bonanza with Nonfarm Payrolls, Unemployment Rate, Hourly Earnings and the Average Workweek numbers for March and it makes me very nervous that Bush is planning on being out of the country for this one as he usually comes on TV and crows about any positive number (even though anything less than 100,000 jobs a month is actually not very strong growth. 

Bush has created just over 3.5M jobs during his 87-month tenure and we've gotten used to the depression-level average of 40,000 jobs a month – he has, in fact, lowered the curve to the point where he can bring home a "C" and we feel like we should send him to Disneyland!  The economy generated 17.6M jobs between Jan '93 and Dec '98, that's excluding the "bubble" growth of his last two years and Reagan cranked out 9.5M jobs in his last 5 years in office (81-86) and even Bush the First squeaked out 2.6M jobs in his 4-year term, 10% more than junior but still pathetic.

Reagan was charged with 2 recessions and had a 10% unemployment rate in 1982 but HE DID SOMETHING! 

The Treasury is looking to do something about overhauling the financial system, an excellent example of closing the barn door after all the horses have fled.  I think it's pointless to discuss this plan as it won't look anything like this once Congress gets a hold of it so we'll just move on.

MRK and SGP are getting slammed pre-market as it turns out their Vytorin drug may be pointless.  This is, of course, fantastic for AZN, who make Crestor, which Vytorin was supposed to challenge.  I'd rather play AZN up than MRK down as they already fell 10% on the news ahead of the open, costing the company $10Bn in market cap and sending the Dow sharply lower.  AZN Oct $40s are the way to go and we can sell some Apr $40s into a nice run-up and roll down if we have to as AZN was an attractive spread anyway.

Oil is still very much a problem at $105 but commodity traders continue to fool themselves with the ridiculous logic that a 25% sell-off in global equities, fears of recession and limited credit somehow translate into record commodity prices – either market investrors or commodity speculators are very, very wrong and there's going to be one hell of a correction this year.

Meanwhile, let's be careful out there!