Tuesday, December 30, 2008

GMAC Bailout Saves the Day!

Ben Bernanke's bailout binge(how do you like that tongue twister?) continued today as the Treasury committed $6 billion to GMAC which will enable them to reorganize into a bank holding company.

Here is the how the deal was done:

"Dec. 30 (Bloomberg) -- The U.S. Treasury committed $6 billion to support GMAC LLC, the financing arm of General Motors Corp., widening the government’s effort to keep the largest U.S. automaker out of bankruptcy.
The Treasury will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the lender’s reorganization as a bank holding company, according to a statement issued yesterday. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC
.
The fresh capital will enable GMAC to expand lending to car buyers and help save GM. The automaker’s U.S. sales plunged 22 percent this year through November after GMAC ran short on cash and limited loans to people with only the best credit. The Treasury stepped in after Congress failed to pass an auto- industry bailout earlier this month.

“The relationship with GM is probably a key reason it’s being bailed out,” said Thomas Atteberry, who helps manage $3.5 billion in fixed-income assets at First Pacific Advisors in Los Angeles. “Philosophically, I’m not very happy about the fact that the government has to save an auto-finance company because management ran it into the ground.”

In a statement, GMAC said it “intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles.” The lender financed about 35 percent of GM’s retail customers last year.

GMAC will modify its credit criteria for auto loans to include customers with a credit bureau score of 621 or above, relaxing a 700 minimum score put in place two months ago, the company said in a statement today. GMAC said it still doesn’t plan to finance higher risk transactions for buyers with credit scores of 620 or less."

My Take:

This bailout shouldn't be a surprise. God forbid anyone is allowed to fail!

What angers me here is how GMAC reacted after getting the money. They immediately announced that they will be lowering their loan qualification standards and start lending to borrowers with credit scores of 620.

Ughhh.......

Great idea guys! Lets make more bad loans! That's exactly what we need right now!

Perhaps we can now start a car bubble. Maybe I will go out and buy 10 cars and start trying to flip them for a profit. I can become a car speculator! Buy now at zero rates or be priced out forever!

I think the governments new goal should be to increase car ownership to 100% in this country!

Ok.... Sarcasm off.

Seriously though, the loose money/easy lending is what got us into this mess. Doing more of the same does not fix the problem. You don't give an addict another giant shot of heroine when you are trying to get him to stop. What really pisses me off here is they creating this lending sham with my taxpayer dollars.

I get so furious over this stuff. When are we going to put a stop to all of this? One day the credit markets are going to blow up because every country in the world is going to realize we are nothing but a bunch of debtors with an economy that doesn't have the ability to ever pay back the money.

This is all going to end very badly folks. Mark my words.

Bottom Line:

The stock market of course loved the news today. All of the major indices ended up around 2%.

Meanwhile, the economic news was horrendous.

Consumer confidence hit its lowest level ever:

"Dec. 30 (Bloomberg) -- Confidence among U.S. consumers unexpectedly dropped in December to a record on growing anxiety over the lack of jobs, raising the risk that spending will keep weakening into the new year.

The Conference Board’s index of consumer confidence fell to 38, the lowest level since records began in 1967, from 44.7 in November, the New York-based private research group said today. Another report showed declines in property values accelerated."

The Case Shiller Housing Index also came out today and was hideous:

"Dec. 30 (Bloomberg) -- Home prices in 20 major U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.

The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in the year through September. The gauge has fallen every month since January 2007. Year-over-year records began in 2001."

Alright, so let me get this straight:

- Confidence is at an all time low.

- Housing is now down 18% and dropping at the fastest rate in history.

Isn't it amazing how the bubbleheads can take stocks higher after hearing such news? The new spin by these ass clowns is this: "Investors will be forced out of treasuries and into the market because they won't accept a zero return on their money".

Funny, if this is the case bubbleheads, why were treasuries were selling like hotcakes again today? We had another auction today that was immediately gobbled up at practically no yield. Perhaps the smart money would prefer to preserve capital at zero yield versus losing another 20-30% by putting it into equities that are filled with companies with earnings that are plummeting. The stock market isn't going anywhere long term until we can get a better idea of how bad this downturn will be. The "bubbleheads" stupidity is beyond belief.

That being said, trading at this point is very dangerous. The market is once again ignoring the news. I am worried we could rally for a little while here.

I always get very nervous on the short side when the market ignores bad news. Here are a few reasons why I think we could see a rally:

- The risk of additional blowups in the near future(within a few weeks) seems very low.

- The Fed in the short term simply refuses to let anyone fail.

- We have a president who will do everything in his power to get out of the White House without any major blowups.

- The S&P closed at 890 which is a break above the 50 day moving average. This is bullish from a TA perspective. If the S&P holds above 890 tomorrow morning look out. Stocks could move higher.

This makes the short side risky. I sold my QID PUTS at a nice profit today. I bought some (SSO) calls today to hedge out my shorts. I may hang on to these for awhile. I am also playing fairly small and keeping a lot of cash on the sidelines.

The next major market mover is Obama. The market wants to know what his agenda is for the country going forward. We will see a little volatility in between as we start hearing about how dismal the 4th quarter was. I am guessing that this is pretty much a "given" in the eyes of the market so it might be somewhat ignored unless the data is way worse than expected which is possible.

Be careful here folks. Its going to be all about Obama over the next few weeks.

Once we get past the inauguration, hold on tight because its going to get ugly.

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