Monday, November 17, 2008

Its going to be a TARP Christmas

Santa is going to have some serious competition this holiday season.

December is here, and it won't just be the children that are making up their Christmas lists and checking them twice. CEO's around the world will be doing the same except they aren't praying to see a chubby guy with a white beard come down their chimney with a bag of goodies.

The CEO's have a different Santa. His name is St. Hank and he uses a bag of money called the TARP to spread joy versus the bag of toys that Santa uses. He is a bald little fellow that used to live in New York City.

Our pigmen's Christmas wishes don't involve a stocking or a gift under a Christmas tree. They would prefer something a little different: A check. These pigmen would have a problem if they were hoping Santa would come because all of these boys and girls have been naughty and not nice. Under Santa's rules, this means you get a lump of coal in your stocking.

However, St. Hank's rules are different given his history of giving. He tends to reward reckless/greedy(naughty) behaviour versus prudent and responsible(nice) behaviour.

There are many CEO's who have made up their lists for St. Hank:

The Mayor of San Jose would love a $14 billion check from St. Hank. There are dozens of others who are hoping for the same. The autos and bond insurers are the ones that first come to mind. Many got their presents early this year. The Hartford, American Express, and the big banks all have been rewarded handsomely for being greedy by St. Hank.

However, St, Hanks Christmas may be over.

St. Hanks Problem

St. Hank is running out of money rapidly, and Bloomberg reported today that the rest of the TARP will be held until Obama gets into office:

"Nov. 17 (Bloomberg) -- The Bush administration told congressional aides it won't ask lawmakers to release $350 billion remaining as part of the $700 billion U.S. financial- rescue package, people familiar with the matter said.

The administration of President George W. Bush ends in less than 10 weeks, and a delay in requesting the cash would leave it to President-elect Barack Obama to tap remaining cash in the bailout money.

The Treasury Department has committed $290 billion, or about 83 percent of the total allocated so far in a program Congress enacted last month to inject capital into a wide spectrum of banks and American International Group Inc. The U.S. invested $125 billion in nine major banks, including Citigroup Inc. and Wells Fargo & Co. and plans to buy an additional $125 billion in preferred shares of smaller lenders."

Final Take:

It looks like St. Nicks wallet is about to run dry for awhile. Folks I make fun of the TARP because its turning into a complete joke. When mayors of cities are asking for $14 billion from the TARP, you know we've got big problems.

The most comical reality of the TARP is its size relative to how big our problems are. I wouldn't be surprised if the TARP has a Napolean complex. This is a $350 billion answer to a multi trillion dollar nightmare when its all said and done. Its becoming more and more obvious by the day that we simply don't have enough money to prevent the collapse of the largest debt bubble in history.

The use of the TARP is constantly changing as the economic "boat" continues to spring new leaks. I have this image in my brain of Hank and Ben running around the deck of this boat pulling their hair out(whats left of it) as they attempt to plug the leaks in order to keep the ship afloat.

Its just a matter of time until they eventually will be forced to "walk away" like a distressed homeowner does. At some point Ben will pull a Roberto Duran and declare "No Mas". Remember folks, when you gotta a $20 bill in your wallet and your kids all ask for $30 at once someone has to be told "no".

The same thing has to happen here(I hope). If it doesn't, we will end up defaulting just like every other country that attempts to spend itself out of a crisis. Need I name the list: Russia 1998, and Argentina to name a few.

You would like to think that we would be intelligent and sophisticated enough to say "no" to our corporate children and take the pain that's needed in order to work ourselves out of this mess. I must admit, as I watch bailout after bailout, I am starting to think we may be stupid enough to become a giant "enabler" to all.

The government must realize that this "bailout" mentality does nothing but fuel more bailout requests. We all know what happens to a rich person who can't say "no" when someone asks them for money. They end up broke. Ask Mike Tyson or the majority of lottery winners how this worked out for them.

The question now becomes is when will the government draw the line and start saying "no". Senator Shelby thinks it should start with the big three auto companies. I doubt it because Obama got a lot of support from unions in the election up in the Midwest. However, I don't rule it out.

Whenever this moment comes, it will be a watershed moment for the markets. The market will immediately realize that every company is on its own. The weak companies will then be murdered by investors as they realize they cannot survive a brutal recession.

This debt bubble will collapse folks. You can count on it. The government will do everything in its power to prevent it, but I don't think they will destroy themselves in the process when they realize they can't stop it.

Bottom Line:

Nothing has changed guys and gals. We had another red day in the markets. We are again threatening the 2002 lows. Worries over a deep recession are beginning to deepen. Buyers will not come back to the market in any volume until they have a better feel for how bad this recession is going to be.

I expect the lows to be tested once again this week. The light volume tells you there is no real conviction from the bulls or the bears. I think the market is in "wait and see" mode. We get inflation numbers tomorrow. The inflation pressures have really weakened, and I would guess the CPI number should reflect this. However, the market is now worried about deflation so if inflation falls off a cliff, the market might actually react negatively. Be careful if you trade the CPI tomorrow.

As for myself, I am in wait and see mode as well. My trading positions haven't changed and I see no catalyst to take the market significantly higher. I also am cautious as we near the lows and come up on the holiday season. This has usually been a generally positive time in the markets.

Lets see what happens as we near the lows again, I need to see more conviction in one direction or the other in order to place some more trades. I will lighten up on some shorts if we get down around 8000. I am still have my eye on DIG. Oil looks to be settling around here.

Stay tuned!


Jeff said...

Wow take a look at Volker's comments in the UK-Telegraph. Things are falling apart:

"By Ambrose Evans-Pritchard

17 Nov 2008

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way."

Avl Guy said...

Jeff, as long as the market behaves like a bi-polar pre-teen with bouncing hormones, it will be poised to rally on news of Obama's Big Bailout/Stimulus (Krugman says go for $600 B). Will it last 24-hours?

I think the WSJ had a guy suggesting that we consumers get $3K each to buy either a new domestic or foreign car; he thinks BIG.
Yet, I see too many debt-drowned households using that $3K to stay afloat, not to incur a brand new fresh car note (and who would give these un-creditworthy folks a decent new car loan anyway?).
So if $3k/per HH could likely fail, what would not fail? Well.....
When Obama/Volker say they're willing to let any & every HH do wholesale bankruptcy filings on ALL categories of mortgage, student loan, and credit card debts (the semi-untouchable debts), then I'll sit up & take notice cuz that means they're serious about accelerating America through this long ‘debt destruction valley’ and out this dark tunnel. Until then...wake me when it's half time...zzzzz....when the score is DebtUnwind/Recession 56.
Obama/Volker 3.

Jeff said...



Funny..the market is acting this way isn't it?

The problem with that kinda stimulus is you kill the senior citizens on fixed income.

Inflation is going to be a nightmare going forward. I would take the 3k and shove it right in the bank.

With the inflation we are going to experience down the road, that 3k may only buy me a loaf of bread!

I agree with you though. All of this bailout crap is getting boring and its not working. MEanwhile the market continues to dwindle away to nothing.

I am going to post something tomorrow that I got from one of my readers thats startling. Make sure you hop on its a must read.

It made me very scared for our future.

Anonymous said...

We are waiting... ;-)

Jeff said...

6:15 ish

Finishing it right now:)

Anonymous said...

Thanks a lot for your blog, Jeff. Simply great. I admire your working spirit. :-)

Jeff said...


Your welcome

I have fun with it. I am glad you are enjoying it.