Since last week I have been concerned about today.
Of course my major concern was that we would get a run-up on the bailout talks and Geithner's TARP II plan (Ha!) and all that exuberance would seem irrational in the face of the data that comes out this morning as well as the earnings reports we were concerned about. On the data front we have Jobless Claims (another 600,000 lost), Retail Sales (or lack thereof) and Business Inventories (a GDP component so down is bad). More important than the headline inventories is the inventory to sales ratio which shot up from 1.23 last May to 1.41 last month – 20% less sales, 20% more stuff sitting on the shelves, 20% less turnover – that is retail pain and it's the worst since post 9/11.
On the earnings front, we've been watching ATVI who beat as we expected but lowered guidance, ACL who had a nice beat, BWLD who we bet on yesterday and came through with flying colors, CMG also a beat, CLB beat, DFG came in line, INSP missed by a mile, ICO with a terrible miss and that's a bad indicator, LVS missed about as expected, NTAP was in-line, PCAR missed but no surprise, , TEX beat thank goodness, AET beat as expected and guided in-line, BWA still waiting, CACH waiting for bad news, CHLN waiting, KO should be decent and we got 'em, ECA missed as expected, FCL should be bad, CLI with a surprising beat and they may be a buy after the CC, MAR with the expected miss, MLM waiting, NRG with a big beat, ZEUS waiting for hopefully good news, PTEN with a surprising beat, PGN waiting, RSH hopefully not a disaster, ULBI with a big miss, VIA.B with a little miss, WMI should be solid (get it?).
So, as of 7:30, not all that bad on the earnings front and we know unemployment will suck and we know retail sales will be down but not the -2.7% reading we got in December and, although I expect an additional rise in the inventory/sales ratio, I think we should be topping out there so the question now becomes: Of course today's data is bad but is it down 400 points since Monday bad? Let's remember that even the business inventories are coming off fake comps from the Bush stimulus last year so of course we are not going to look as good when the government isn't handing out free money.
Speaking for free money – Congress seems to have decided that $819Bn is out of the question but $789.5Bn is "just right" and that's the porridge that will be served up to the President later today and could be signed into law as early as tomorrow. Don't be fooled, the plan may be only a down payment on the Obama administration's effort to turn around an economy that has shed 3.6 million jobs since December 2006. The president has framed the deal as the first leg of an economic program aimed also at unclogging credit markets, lifting the housing market and tightening regulation of the financial and banking sector.
About $282 billion of the bill, or 35%, is dedicated to tax cuts, split roughly evenly between incentives for businesses and individuals. The rest is spending, including expanded unemployment benefits, food stamps and construction of highways and bridges, water-treatment facilities and high-speed Internet service, among other things. The package includes a provision requiring materials purchased with funds from the bill to be U.S. made but the measure was softened from the original versions, and now includes a requirement that the provision be implemented consistent with U.S. international trade obligations. "It's a good plan, but I don't think it's good enough," said Mark Zandi, chief economist at Moody's Economy.com, who crafted the economic models used by the White House and congressional Democrats to project the economic boost of the plan. "Three million additional jobs are doable and likely; four million I think will be a stretch."
David Fry has saved me the trouble of posting my outrage at the idiocy of our Congresspeople as they wasted a day when they had gathered 6 of the top financial CEOs on the planet along with the entire Finance Committee and, rather than discuss ideas for boosting the economy and coming up with plans to actually help people, they asked them how they flew to the meeting and what they got paid last year and how much their office furniture cost. Not also – THAT'S ALL THEY TALKED ABOUT! I do not think it occurred to a single Congressperson to ask these people to help us draft a spending program that would actually work. Shame, shame, shame on Congress, they are an embarrassment… Here's the British version. Here's Hugh Hendry making sensible observations.
825 was our watch level on the S&P in yesterday's morning post (815 is our line in the sand) and we still need to hold it today along with the other levels I cited: Dow 7,800, Nas 1,460, NYSE 5,100, Russell 437 and SOX 203 – all are likely to be tested in a morning spike down. The Dow is 1% above the 45% off the top line that we discussed in Monday's Big Chart Review, so let's take that one VERY seriously. It's 8:30 now and Retail Sales are in and they are UP 1% (but December is now adjusted down to -3%), that should keep us off of yesterday's lows by the close. Gasoline sales were up 2.6% indicating a little demand coming back (and we saw that in yesterday's inventories) and that should keep oil will test our $35 target low and that's a good chance to sell USO March $23 puts naked for $1.25. Let's keep in mind that "experts" were expecting a 0.8% decline in retail sales and these are the people employed by the funds that are placing their bets based on their "expert" forecasts.
The 1.0% increase snapped a string of declines that had started last July (again, pumped up by the Bush stimulus). The last time sales had gone up was June, recording a 0.1% increase. Year over year, sales were 9.7% below January 2008, which was a month after the recession started. Again, that is 9.7% below the time when we thought everything was fine. Not 50% lower or 40% lower or 30% lower. We have 10% less commerce and 10% of the people lost their jobs – we are nearing equilibrium, not plunging to our doom but that won't matter until people stop acting out of fear. Sales last month climbed 1.6% at clothing stores; 2.6% at electronic stores; 0.8% at eating and drinking places; 1.1% at general merchandise stores; 2.1% at food and beverage stores; and 2.7% at mail order and Internet retailers. Health and personal care store sales were flat. Demand remained weak among housing-related retailers.
The Nikkei was off 3% and the Hang Seng lost 2.3% while the Shanghai lost just 0.6%. "Investors feel the $789 billion rescue plan can't help the U.S. economic recovery in a hurry. The problem is that the recession there appears to be deepening," said Castor Pang, strategist at Sun Hung Kai Financial. Exporters declined in Japan on a mild rise in the yen since Tuesday but shipbuilding stocks went limit up (10%) in China after the Xinhua news agency reported the State Council had passed a plan to boost credit facilities for export ship orders (good for DRYS). Pioneer added to Japans job losses, announcing 10,000 cuts.
Europe is not in a much better mood, down over 1% across the board ahead of our open. The CEO of Swiss Re, who Buffett just put $2.6Bn into, resigned as "falling investor confidence left him no choice." EU earnings have been terrible but the ECB and the BOE are poised to coordinate their own stimulus in conjunction with ours (if it ever gets done). The Bank of England indicated it is on the verge of increasing the U.K. money supply, while European Central Bank policy makers suggested they are likely to cut their key rate to a record low in March. Sweden's Riksbank cut its key rate a full percentage point to a record low of 1% and said it may cut again later this year.
So very scary today. We have done less bottom fishing than we wanted to as the bottom doesn't seem all that secure (and congrats to Matt for calling it and earning his colored box in member chat!). I said yesterday, if we blow these levels we have to get shorter and we already set up our latest DIA hedge in yesterday's post so let's keep in mind the Mattress Play strategy in case we do break lower. It's going to be tough going bullish into the 3-day weekend but I will be looking for good deals on our Buy list today, probably just to sell naked puts against as a (hopefully) cheap entry.
