What started out as a huge bull run today floundered big time by the end of the day which is a sign of something big to come, in my opinion. At first I actually thought that the Fed might tighten by .25%, why not rates are at .13% at it would merely be a ceremonial move, but most thought I was nuts as it was a black swan event. Not only that, but any rate increase would mean the Fed would actually be interested in defending the dollar and we know that will never happen. However, I was wrong, but I knew one thing was going to happen, the market was not going to like what it heard no matter what.
I was not 100% sure I was going to be right so it is not as if I doubled down or anything, but initially I was right and the market sank. That turned and reversed course, for whatever reason, only to have the most spectacular close in a long time and a close that should make anyone long a little nervous. To have a reversal of that magnitude on news that would keep the reflation trade going is not good news. In fact, the dollar sank and stocks reversed this also happened yesterday as well. Yesterday the dollar had some strength, somewhat at least, but stocks reversed higher by the end of the day, for the most part.
First, I believe we are at the point were too much of a good thing is just that. We all like candy, but if you eat too much you are going to get sick and I think this is the markets issue with just stupid low interest rates and reckless monetary policy. I also believe we are diverging from the weak dollar, strong stock trade which is really all the bulls had, besides mildly better economic data, anemic data at best. This could prove disastrous for the markets as it will end the carry trade, possibly, simply because of this divergence.
Second, the transports had zero follow through today which is not good. Sure, the index was saved by Mr. Buffet’s bold buying spree yesterday, but Con-Way quickly brought reality back to that index, the economy stinks. The theory is as goes the transports goes the rest of the markets and guess what happened today? The transports spent most of the day negative and the markets followed by the end of the day. Tech stocks are also struggling as the NASDAQ closed negative, that was the bulls leadership, but Cisco released good earnings, I am sure most of the positive growth was from Asia, but somehow that is a US green shoot.
Third, the technicals look pretty terrible, to me at least, with the S&P 500 rejected at 1061, multiple times, it eventually rejected 1052 and even 1047. That is not good news at all for the bulls, baring any really good news of course, as it looks like the S&P 500 will test 1021 soon, but only time will tell. Of course, the NASDAQ looks terrible as do the transports, so pick your poison as to what will weigh down the market. What really caught my eye today was Goldman, it got clobbered today which caused further bleeding in the financials, SKF did very well actually. I am not sure what caused them to decline almost 2 points, but that is another leader gone, for now.
The market looks and is acting toppy and failed to hold a rally on, presumably, good news. If that is not a warning sign than I do not know what is, but it could reverse with a good initial claims report tomorrow, doubtful though. I also fully expect the employment report, depending what kind of magic the BLS works into it, will be higher than expected, perhaps +210K for October with a revision up for September, which is far above estimates. Watch for Goldman’s last minute employment revision tomorrow, they blew it with the GDP, but they are great with the employment report. If they up their estimates, I would run for the hills because that will push the market lower, in my opinion.
The bottom line is that today was as bearish as you can get there is no other way to describe it. That was a huge reversal in 22 minutes I might add which is reminiscent of how things traded last year, but I guess last year never happened. Perhaps it was the FHA news in the WSJ that has people concerned or the fact the WFC is turning a ton of upside down loans into interest only loans for 10 years, smart move guys! Who knows what the reason is, but the one thing that is for sure is that this reversal plays into the bears favor and, although it was a whacky call, I was kind of right, even though I had no real conviction.
Disclaimer: I own various puts on the S&P 500, SDS and SKF.
According to Business Week, Goldman Sachs requested and received the swine flu vaccine while the regular people riot over it in the streets. According to the story, Goldman, Citi and other TBTF organizations are receiving the vaccine before others. Not to worry because they plan to abide by the CDC rules of pregnant women, children and those with serious health conditions, you know a typical Goldman trader, will only receive the vaccine.
How can this be you ask? Well, don’t ask me, ask the government who is in charge of distribution for the vaccine. However, it seems clear that Washington is more aligned with Wall Street than Main Street as Goldman requested, and we assume received, 5,300 doses of the vaccine that people must wait in lines for if they are not part of the elite inside.
Here is what the story says:
According to the city, Goldman has requested 5,300 doses. Only the company’s two Manhattan locations are eligible to receive the vaccine because Goldman’s other regional offices lack on-site health units, the spokesperson said. So far, only the 85 Broad St. location has received vaccine. The spokeswoman said the company knows of no employee who has fallen ill with swine flu, “but obviously you have to be prepared.”
Like many large employers, Goldman Sachs has been preparing to deal with swine flu for months. “In addition to the internal planning effort, we have been actively engaged with key firms in our supply chain, industry peers, regulators and exchanges, and local health authorities to ensure mutual support and coordination of efforts,” the company said in a public statement on May 6.
“It’s not that they received it over someone else, it’s that they placed an order…This is not out of the ordinary,” says Scaperotti of the city’s health office. “A lot of businesses hold vaccination programs for their employees. These locations are important vehicles for vaccinating people.”
They placed an order, right. So did thousands of doctors who do not have the vaccine, but they are not Goldman or Citi of course, so who cares. Just how many under 6 year old children work at Goldman exactly? I am sure there are pregnant women, but 5,300? Right, sure. Let’s face it, the American people come last in line versus TBTF or high donors to Congressional candidates. This story is absurd to say the least.
Hey Lloyd, this does not look good for you guys. I mean, how ridiculous can a company look after being bailed out, denying they needed it, paying record bonuses and then screaming racism at the criticism. What are you going to claim the reason for this backlash? Swine Flu Vaccine jealousy? Perhaps, but you see, when you are a regular person who has to wait in line versus a firm who gets everything handed to them, well maybe you could understand why we do not like you.
You must think I got killed today with my short positions? Yes, but not really. Most of my puts were bought at much higher levels and I have a lot of time on my side. I did, however, get clobbered on an intraday bet on a turn around. I know, it was a 3.5% GDP print, am I nuts? Nope, because I looked at the numbers and did not like what I saw, did you look at the report or wait for Steve Leisman to read the selected items for you?
Yes, it is a very boring read, most important documents are, but that means you should really read it. The vast majority of the “growth” was government spending or incentive that is not good. Consider this, Cash for clunkers, the $4,500 credit, costs us $23,000 by the time we actually pay for it, nice. How about the $8,000 tax credit? That costs us $40,000 by the time we pay for it. By the way, when I say “we” pay for it I mean the taxpayer, you and I, because the government is broke and issuing debt to pay for all of this junk. Better yet, most of the mortgages written are FHA so it is a double whammy when those mortgages default, fantastic!
I know, don’t let the facts get in the way of a great story. How about that initial jobless claims report this AM? Wait, you did not hear about that because of the 3.5% GDP print? Funny, because the number was another 530K, that is not the sign of a healthy economy and the whole employment is a lagging indicator is a bunch of bull. Let me ask you this, what got us here, mortgage defaults right? They defaulted because they couldn’t afford the payments on the house, regardless of why, but now that problem is worse because folks are unemployed. This was a credit collapse, not an inventory recession, that is a huge difference, I know Michelle on CNBC doesn’t get it, I expect that from her, but not from you, you know better.
Dig deeper in the report, near the bottom and you will see data that is not friendly to the bull’s case. Did you here this at any point today:
“Disposable personal income decreased $20.4 billion (0.7 percent)in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent)in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.”
I did not think so, but that is bad, bad news. If disposable income is declining how will people buy their iPods and iPhones let alone buy those expensive Christmas gifts. Disposable income means excess spending which drives growth and if that is gone then the companies that will do well are those that sell toothpaste and toilet paper. The economy is turning to a needs based economy instead of a wants based economy, which is fine and where we should have been 8 years ago.
Then we have things like this that are in the final parts of the report:
“Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.
Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second. The quarterly pattern of taxes reflected a much smaller decrease in federal
withheld income taxes in the third quarter, based on the quarterly pattern of wages and salaries and a leveling off of the effects on withholding rates from the Making Work Pay Credit provision of the American Recovery and Reinvestment Act of 2009.”
Personally, I do not see much of anything good here, do you? Income decreased which shows layoffs and people making less money, that’s great, I guess because stocks went up 200 points today. As a sign of a strong labor market, which will surely show monthly job losses of 200+ next Thursday, taxes increased a tiny little bit. This is the bulls signal for a recovery, right here, a $4.5B tax withholding increase in the 3Q09 preliminary GDP report. Let us not forget that GM and Chrysler brought back tons of workers, just in time for cash for clunkers, which probably is why this number went up.
Now, I also hear a lot about software and things of that nature were all positive and that had nothing to do with stimulus, wanna bet? My daughter, in 4th grade, has 6, count them, 6 new laptops in her class, in every class in her school. My kindergartner has 4 computers in her class, 4. All brand new IBM’s, sorry, Lenovo’s and all complements of President Obama. So, do you really want to tell me that all those numbers were not government induced because I am pretty sure they were.
I will not even comment on the Goldman last minute revision of their GDP estimate yesterday, but wow, I would love to see their long positions at the close yesterday. We also need to remember a couple of things. First, this is a preliminary number and will be revised, probably down. Second, the 4Q09 number will not be as good as you think because all the Beige Books so far look pretty bad, but the ISM on Monday, I think its Monday at least, will confirm this. Finally, valuation, the market is in the nose bleed section and it doesn’t matter if you believe me or not, but for the love of Pete do your homework before committing money to this thing.
Take notice of this downward revision, Goldman has a direct line to, well, the government. The last 2 employment reports that were released Goldman revised their numbers the day before and were within 5% of the actual number, go figure.
Goldman revised its 3Q09 GDP figure from 3% to 2.7%, which is in line with what I was thinking, not that my thoughts really matter, but still. This is a negative impact number on the markets and a sell sign as equities have a 3.5%+ GDP figure priced in. Take notice and take warning, buying on the dips could be considered suicidal at this stage of the game.
It’s funny how New York politics work especially since we have so many investment firms and layers located in New York City. We also have a very powerful senator, Charles ‘Chuck’ Schumer who is, huh hum, for the people and recently put the kibosh on flash trading. However, it would be nice if he voted less frequently for the big Wall Street firms and took far less money from them and their M&A lawyer friends. The same goes for his new partner in crime Kristen Gillibrand who replaced Hillary Clinton.
Both of these senators have taken large amounts of money from people who work in the investment community and who work for the large M&A firms out of New York City. Now, I get how politics work, but give the rhetoric they both have been giving about reforming the system and the fact that Schumer already has some $14 million in the bank you would think he would turn away some money from investment firms that he is supposed to be against. You would definitely think Gillibrand would turn away money from folks or PAC’s that represent Citi Group or Goldman Sachs as they represent the armpit of American finance at the moment, but nope that is not the case at all.
I guess they will continue their dog and pony show in front of the cameras about how they love the people and are doing all they can in Washington while at the same time taking money from Wall Street all but assuring that when they need another bailout they will surely get Schumer and Gillibrand’s vote, again. These two have got to go for the simple fact that Schumer has been in Washington for too long and, in my opinion, does not represent the people any longer and is way too self serving. Gillibrand is showing lack of common sense by accepting money from questionable sources, in my opinion, and voting to keep funding for ACORN even though employees were anxious to help with an under age prostitution ring.
Here is the breakdown of contributions.
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