Friday, December 19, 2008

Auto Bailout Fails to Ignite Stocks

Good Afternoon Folks!

I am going to be a little brief today due to some holiday plans. The bulls charged this morning taking stocks up 200 points as they cheered the auto bailout. Unfortunately, stocks couldn't hold onto the gains as continued worries around the recession took the DOW into negative territory by the close.

I thought the price action was interesting today. There is a huge tug of war going on between the bulls and the bears right now. Rallies are almost always sold into as traders take profits. On red days, we seem to see a lot fewer sellers. The volatility has really dropped off this week. The VIX dropped down to 45 today.

I think the lack of direction in the markets combined with horrific economic data has made many traders afraid to hit the buy button. The economic numbers really are frightening folks. Oil plummeted yet again today down into the $33 range! Staggering isn't it. Those $4/gallon gas days are becoming a distant memory aren't they?

This dramatic drop in oil is a big concern from an economic standpoint. Its a great barometer to measure how things are doing in the economy. I say this because oil is used everywhere folks: Auto's, manufacturing, airlines, transports. When there is absolutely no demand for oil it tells you something: Nothing is being made, driven or moved!

Auto Bailout

Here is the auto bailout story for those of you who missed it.

"Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC will get $13.4 billion in emergency government loans in exchange for substantially restructuring their businesses, President George W. Bush announced.

Another $4 billion will be available to GM in February provided Congress releases the second half of the $700 billion Troubled Asset Relief Program fund originally set up to bail out financial institutions. The automakers have until March 31 to meet the conditions of the loans, including demonstrating they have a plan to become profitable, or be forced to repay."

Quick Take:

I am sure many of you are shocked that our government would bailout an industry. HA! YEAH RIGHT! It seems to be the only governmental response to any failure in the economy. Who needs bankruptcy's when you have Uncle Sam's wallet in your back pocket?

The one piece of language that I thought was interesting in the bailout was the fact that they need to have a plan for profitability by March of next year. HA! Good Luck With That! There is no demand or credit to buy auto's right now. Even if someone wanted to buy a car, it would be very difficult to get financing for it. The only business plan for profitability for these clowns that I see would be to shut down the BIG THREE for 5 years until the credit markets come back!

Gary Shilling's Prediction: 600 on the S&P 500 in 2009

I strongly advise that everyone takes a look at Gary Shilling's thoughts for next year. There is also a video interview with Gary on the page in the upper left hand corner.

Mr. Shilling has been spot on throughout this downturn and I think his call for next year is spot on. Make sure you listen to his thoughts on China at the end of the video. Folks, China scares the daylights out of me. Without us consuming I don't see how they can keep their economy together.

The potential for political instability and risk for an uprising that takes down their government is very high in my opinion. The export numbers out of China have fallen off a cliff, and the factories over there are closing up faster than investment banks on Wall St. If this occurs, they will lose the rising middle class that has fueled a lot of their growth.

Keep an eye on the Far East.

Bottom Line:

It was a surprisingly quiet day. I have done no trading the past couple days. I am content to stay mildly short. I may put on a few small speculative long trades on next week. The volumes should be low due to the holiday, and the bias tends to be bullish.

The bulls also got the auto bailout, so there are really no big shoes that could drop over the short term(Watch, now that I said that we will end up with a panic next week:))

If things are calm like they ended today, I think we might see some green days as Christmas approaches.

Stay Tuned!

17 comments:

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donald said...

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

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jeff said...

Hi Betty

I am glad you are enjoying the blog.

Thanks for the feedback. Comments are always welcome.

John Maynes said...

At least we know why SRS tanked again yesterday:
Congress Will Set Conditions for $350 Billion in Rescue Funds

Jeff, are you still holding SRS?

teddy bear said...

Commercial Real Estate 5 times bigger than Subprime(?)

http://tinyurl.com/4fa9ts

New Wave Of Mortgage Rate Adjustments
http://tinyurl.com/66u37r

60 minutes
http://pl.youtube.com/watch?v=iUuROWEMjm0

... and well known picture with mortgage rate resets distribution (in years 2007-2016)

http://tinyurl.com/45dsux

;)

teddy bear said...

something about Madoff-ucker :D

do we really need more regulations?

let's talk about SEC(s) :D
http://tinyurl.com/3rl3bu

they had a lot of time to stop this Ponzi Scheme

but ... on the other hand, our governments create much more bigger financial pyramids, even bigger than those in Egypt (e.g. pension funds, social security, medicare, medicaid, ubiquitous bureacracy, bailouts etc.) :D

jeff said...

"even bigger than those in Egypt"

Good one Teddy

That Madoff

It appears that all of Wall St was one giant Ponzi scheme!

If there is anyone on this planet that deserves to do from crime its this character.

When he goes to prison I hope he becomes some angry lifer's girlfriend and repeatedly has to satisfy him.

jeff said...

Typo

To DIE for crime

Jeff said...

John

Nice catch. The bailout news is what keeps pressuring SRS.

I am still holding. Thats the great thing about ETF's: You aren't forced to cover!

I just read an article about how Circuit City cancelled their auction to sell off their 150 stores they are trying to get rid of because there were so few bids.

I haven't added anymore ye but I plan too.

Fighting the Fed is a tough battle, but SRS appears to be a coiled spring that will explode upward when this all starts to unwind.

Like I said earlier, the rocket that will takes this higher takes place after the X-mas slaughter when many retailers go BK.

Until this happens, many traders will continue to trade on the bailouts and attempt to take stocks higher.

Growler said...
This comment has been removed by the author.
Growler said...
This comment has been removed by the author.
Growler said...

Hey Guys,

Re: SRS.

I'm getting out. I was going to Short IRY (see chart) the ETF Index that tracks SRS but I recently took a look at the chart. Both trendlines have been broken and volume is expanding to the upside.

When this guy get's toppy, I'll re-enter. Otherwise, it looks like some pain ahead.

http://www.screencast.com/users/BalaB/folders/Default/media/eeb59fb7-b7a7-4c95-a1d2-9e3d76d4dcdb

Jeff said...

Growler

Don't blame you.

The TA isn't pretty but I am confident this will come back.

I have often sold these and kicked myself because they have comeback. I am getting punished on this one so far, but I just don't see commercial holding up much longer.

The volatility can make you sick though!

I plan on buying some calls to hedge myself on Monday in case the market moves higher.

I have a few names. I will try and get them up today.

John Maynes said...

Jeff, you are a nice guy again. Feels good. :-)

John Maynes said...

More unusual measures taken by the FED:
Hedge funds gain access to $200bn Fed aid

Growler said...

Don't get me wrong, I'm leaning towards the market rolling over and soon (see oil's weakness and dollar's strength via deflation). But, the only rationale I can give to the bulls side is possibly with BB driving down long term rates, it could potentially (I stress potentially) stop the foreclosure & lack luster sales bleeding.

These days I don't give much credence in TA. IMO, Price and Vol are king (aside from maybe a Fibo line here and there).

Either way, I hope whoever is in SRS, you knock it out of the park!

Jeff said...

Growler

Just threw up a post around the bailouts and SRS.

The Fed has lost its mind!