Good evening folks!
Ahhhh....Today is one of those days where you just shake your head. The market rallied hard today in spite of a terrible jobs report and horrifying earnings from GM.
The economy lost 240,000 jobs as the unemployment rate rose to 6.5% from 6.1% the previous month. Here is the jobs report:
"Nov. 7 (Bloomberg) -- The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.
The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September. Revisions to the previous month added 125,000 more to the jobless lines than previously reported."
Quick Take:
What was more horrifying here was the revision to September's report. The number was revised up to 284,000 from 159,000. I gotta be honest, these revisions really piss me off. How are we supposed to believe any of the government data after you see these type of ridiculous revisions?
How did they miss 125,000 job losses in September? Did everyone in the labor department suddenly have a brain fart all at once when they were compiling Septembers data? Gee folks, Do you think we might see a revision to this months data? Whats the real job loss number number for this month 400,000?
Transparency in all areas of the market needs to come back immediately or there will be no investors left to buy stocks in this manipulated cesspool.
GM
I don't know where to start with this trainwreck. Here is the news:
"Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.
The largest U.S. automaker reported a $4.2 billion third- quarter operating loss today and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.
$73 Billion in Losses
Today's outlook was the bleakest yet from the automaker, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.
A U.S. rescue package for GM, Ford and Chrysler is likely before President George W. Bush leaves office in January, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor."
My Take:
This story is unbelievable to me. How in the hell does any company lose $73 billion in 4 years? Even worse, why in the hell is the government even contemplating trying to save a company that's lost $73 billion in 4 years?
We might as well bring Enron back from the dead if we are going to bailout this monstrosity. Hell lets bring MCI-Worldcom back from the dead while were at it. Unlock Bernie Ebbers jail cell and hire him back as CEO! He would fit perfectly into this toxic fraud filled environment that now dominates Wall St.
While were at it, lets unlock former Tyco CEO Dennis Kozlowski's jail cell too. I am sure we can find him a job on the street. He would be a great investment bank CEO. Lets bring Lehman back from the dead and make Dennis CEO. It would be the perfect fit! Can you imagine what type of toxic CDO's this guy could put together? He might be able to take it to 100-1 leverage.
In my opinion, all of the pigmen on the street deserve longer jail terms than the CEO's I mentioned above.
I guess companies aren't allowed to fail anymore. Watching company after company run to the government looking for their TARP handout is almost comical to watch. The TARP(housing bailout) is down to about $400 billion. Yet Wall St thinks its an endless pile of gold that can save their companies. What fools!
When will they all realize this is a $400 billion answer to a $1.5-2 trillion problem. The math doesn't work folks. Many are going to go home empty handed and will be forced to close up shop.
Bottom Line:
What can I say folks, there is no way to analyze this insanity. The buzz on the street was before the jobs report, there was a whisper number going around the trading floors that the jobs number might be 300,000. A 240k print was considered a relief to the street and the buying then ensued.
You would expect that a logical trader in a strong fundementally sound market would sell equities after seeing a month where we lost 240,000 jobs followed by a huge upward jump in September revisions. Not these knuckleheads. Buy buy buy, stocks are cheap is the only thing they know how to do. They will live and then die with this mentality.
There is going to be a come to Jesus moment here folks. The economy appears to have run right into a wall. When will this reality hit the street? Its difficult to tell. We all know how stubborn the bulls can be. They have always been able to "keep the music going" for a lot longer than I anticipated.
One day traders are going to wake up and realize that earnings are falling off a cliff and they will run for their lives. Until this happens, we have not seen the bottom. You gotta remember that "buying the dips" has worked for over 20 years. This psychological habit is one that will be very hard to break.
One thing I do know for sure, the "buy the dips" habit will be broken during this downturn. When no one wants stocks is the time that we all need to be buying them. This is a consumer led recession, and most traders on the floor have never seen one. IMO, they don't know how to react to what is happening. If you listen to CNBC for a full day you will quickly realize that most of them don't have a clue. The good ones like Art Cashin were scratching their heads today as they watched traders buy the jobs number.
These short term bounces do nothing but extend the pain. If these horrific earnings reports continue, we should see a short term capitulation very soon IMO. We have retail earnings next week. I am sure they will be great! Yeah, right.
From a trading perspective I held onto all of my positions. Stocks are not a buy when company after company continues to come out to lower guidance. Stay focused on the fundementals and continueto ignore all of the "bubble" noise on CNBC.
Remember:
Buying a frog and hoping it turns into a prince is not a very intelligent way to invest. The sooner the bulls realize this and let the market find a bottom, the better it will be for all involved.
6 comments:
Hey Jeff.
Your prior blog post touched on why banks are not lending.
As a former lender, let me note:
We're a nation with rising unemployment and so much bubble-supported surplus labor that we can’t see the surplus forest for the surplus trees. Who are the qualified individual borrowers, how do they document it, with what metrics, and what is the personal collateral that is not deflating weekly in value?
In a nation with an over-built environment and excess production, retail, service and healthcare capacity, where each sector's assets are deflating in value weekly, what are the creditworthy projects?
The biz media started this nonsense of attempting to address lending without seeing all aspects of lending thru the lens of creditworthiness.
To paraphrase: "It's The (un)creditworthiness, Guys"
and “Show Me The Creditworthy Projects”. Yes, there are some good projects to lend on out there but not on the scale to justify an uptick in lending big enough to budge GDP.
Avl
Well said.
Its great to hear it from a lender's perspective. Thanks for the insight.
I guess the lending won't resume until the system is cleansed of easy money.
You gotta wonder how far down asset prices end up when this is all said and done.
Imagine where the prices will be when the banks can only lend at 10-1 leverage versus 40-1. The builders are going to have heart attack once this reality sets in.
I love how CNBC continues to pump how low the LIBOR spreads have gotten. It doesn't mean jack if no one wants to lend and the banks refuse to borrow!
Gotta love the spin.
check out this peter schiff video: some great points in part 2and part 4.
He's great...he really has a handle on where things are going now...
consumer credit is going bye-bye... the market froze.
http://www.youtube.com/watch?v=9U0pHu42xm8
JD
Thanks for the video!
I love Peter but his decoupling theory is starting to look foolish.
We are fu**ed but the world is more fu**ed!
The world currencies are as screwed as we are. The world economy is collapsing. I don't see how he thinks the inflation happens anytime soon.
I see pure deflation on all assets short term. Where is the money going to come from to cause inflation? We had unions to spike inflation in the 70's. I don't see where the money comes from to cause inflation when wages and jobs are declining.
Everything else he says makes total sense to me!
Jeff, u hit the nail on the head again: what does happen to a $14.5 Trillion (and dropping) economy when lending contracts to a target of 10:1 leverage?
Surely it does not expand the economy.
So who will blink first: A. the folks demanding tighter lending regulations & standards; or B. the folks bleeding from unemployment, insolvancies, bankruptcies, and screaming for loosening of lending standards?
In the interim while the USA debates, GM/Ford/Housing/Retail all shrink or die.
avl
Group A will win in the long run. The Fed will try to keep lending loose over the next year as we transition into the new low budget economy.
The Fannie/Freddie nationalization kinda tipped their hand as to what they are thinking in my opinion.
The lending rules in this current agreement end at the end of 2009. Congress will then have to revisit this nightmare and they will have to make tough decisions on how they lend going forward.
I kinda feel like everyone is in denial at this point.
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