Friday, December 12, 2008

Sticksave Friday!

Wow

What a day. What a comeback in the stock market! This morning the market stared into the abyss. Futures came close to reaching lock limit down as the market prepared for a major plunge following the senate's rejection of the automotive bailout last night.

Adding to the fear this morning was the imminent bankruptcy of the huge commercial company(REIT) GGP which owns more than 200 commercial properties throughout the US. To top things off, famed Wall Streeter Bernard Madoff was charged with securities fraud after they broke up a $50 billion ponzi scheme that cost investors and hedge funds billions. The $17 billion in assets that Madoff supposedly had under management is totally unaccounted for. Its gone, all gone.

So why were we up today?

The stock market was able to pull a rabbit out of the hat. First, the Treasury announced that they would potentially finance the auto bailout:

"Dec. 12 (Bloomberg) -- General Motors Corp. and Chrysler LLC, draining cash as sales slump, won a reprieve to stay alive until January as the Bush administration said it might finance an industry rescue with funds set aside for banks.

The White House’s reversal on tapping the Troubled Asset Relief Program for short-term aid came a day after the Senate rejected a short-term loan package for GM and Cerberus Capital Management LP’s Chrysler, pushing the companies toward a bankruptcy they were working to avoid."

Quick Take:

This is not a done deal folks. The TARP was not created to save auto companies. Word in Washington is they want to see the numbers before coughing up the cash. Stay tuned. Nevertheless, the market liked the news.

GGP Sticksave

GGP was able to put together some last minute financing that allowed them to avoid going bankrupt:

"DOW JONES NEWSWIRESGeneral Growth Properties Inc. (GGP) refinanced almost $900 million in debt, though the moves are unrelated to the major debt deadline the struggling real estate investment trust faces Friday.

The company completed $896 million of mortgage loans used to retire a $58 million bond that matured Thursday and refinance $814 million in mortgage loans maturing next year.General Growth said the loans are separate from the $900 million in debt backed by two of its malls in Las Vegas that is facing a Friday deadline. It said it was continuing discussions with its lenders on those two loans and there was no assurance it would get further extensions."

Quick Take:

My take here is the banks are doing everything possible to avoid foreclosing on GGP. I am sure they absolutely dread the thought of owning 200 shopping malls. This company looks like a "dead man walking". At some point they will be toast IMO. Their stock sits at around a buck. Take a look at SRS folks. It pulled back into 70's and could even drop a little lower from here if the banks show a lot of leniency towards GGP. This could be interpeted as good news for other REIT's that are in trouble.

GGP could go tits up at any minute folks so expect SRS to be very volatile. Obviously the GGP news also supported stocks today.

Retail Sales

Stocks were further strengthened by better than expected retail numbers:

"Dec. 12 (Bloomberg) -- U.S. retail sales fell in November for a record fifth consecutive month, led by slumps at auto dealers and service stations that overshadowed gains at electronic and department stores.

The 1.8 percent decrease was smaller than forecast and extended the longest string of declines since records began in 1992, the Commerce Department said today in Washington. Sales at service stations dropped by a record 15 percent as fuel costs plummeted."

Quick Take:

This is bullish? That was the spin on bubblevision today. The market liked it.

Bottom Line:

The market dodged a major bullet folks. Technology got a nice bump after Rep. Pelosi announced that part of the stimulus package next year will include an increase in computer spending.

When its all said and done, we saw a bunch of window dressing and sticksaves today. None of the above catalysts solve any of our problems in our economy. The series of moves you saw today only delay the eventual pain that must be taken. Its time for the financial crack addicts to go to rehab!

Despite all of the interventions and sticksaves today the market still only managed less than a 1% gain on the DOW. Not foreclosing on a dead company like GGP is not a positive. Its time for the corporate zombie's to be stripped, broken up, and sold. We can't prop up these insolvent companies forever! The banks should force them into BK and put their properties up for auction. They will get bids.

Start taking the hits pigmen!

Just write off the losses and move on for crying out loud!

Argggg

Don't even get me started when it comes to the automotive TARP bailout. I am against all bailouts, but I gotta admit it bothers me that Paulson didn't fork over a measly $15 billion to save 3 million jobs.

How does this bastard have the nerve to say no to the automakers for $15 billion after just throwing $700 billion to his banking buddies? The arrogance here just astonishes me! God forbid this guy tries to do something that helps the average blue collar worker.

How does this guy sleep at night?

This bailout is all about politics in my opinion. We just watched a high stakes game of political chicken. The senate wanted to take a stand against the bailouts and said no guessing that Paulson would swoop in and use the TARP.

Lets see if Paulson and Bush cave and give them the money. Its an interesting political game to watch. If Paulson says no he better not travel to Detroit anytime soon! In fact, Detroit may come to him!

Trades:

I did nothing and held into the close. We could see a bounce next week after seeing such a strong comeback today. The fact the market moved higher on such horrific news must be respected.

I am looking at a few commodity stocks on the long side to hedge out my shorts but I didn't pull the trigger. I am kicking myself this morning because I almost went long via SSO after the drop at the open assuming the Treasury would announce that they had a deal on the auto bailout. That would have been a nice trade. Oh well, there will be other entries.

Bank earnings come out next week so it should be a wild ride. Morgan and Goldman should have a few skeletons in the closet that they will be forced to expose. Lets see how the market reacts.

If the market holds through the bank earnings news next week, a change is strategy may be required. I will put any trades in the comments section on Monday. I want to see the news flow over the weekend.

Stay Tuned!

4 comments:

John Maynes said...

Jeff, so you didn't trade/sell your SRSes today?

Jeff said...

John

Nope. I held onto it. I just accept the fact that its volatile.

I will be holding onto that longer term. I will buy more if it gets into the 60's.

Commercial real estate is going to blow up and I am willing to take short term pain in order to catch the move down.

The hard thing with volatile inverses like SRS is they move up so quickly. You miss most of the move if you try and chase it after it spikes. Its also brutally volatile on pullbacks.

SRS was at 295 so I think my entry point is decent at $85 considering all of the bad news that will come out of retail after the holidays.

I expect dozens of BK's right after X-mas. Commercial will be feeling a ton of pain as vacancies rise.

I am scaling into this one.

I will dump FAZ next week. I wanted to stay in there ahead of Morgan/Goldman earnings.

Minton Mckarkquey said...

Don't even get me started when it comes to the automotive TARP bailout. I am against all bailouts, but I gotta admit it bothers me that Paulson didn't fork over a measly $15 billion to save 3 million jobs.
---
I couldn't agree more - I'm against the bailouts too but this seems a bargain compared to the hundreds of billions thrown at Wall St companies (so AIG can have some weekends away in California spas).

It's actually heartbreaking to see people on production lines in the smaller companies that feed the big three. At this rate, everyone needs to leave Detroit and we'll just turn it into a lake or something.

I think you're right about post-Xmas BKs too - a significant amount of retail is holding on for a shot in the arm that's not going to happen this Christmas.

As I keep telling the family, it's going to be a lean, lean holiday this year.

Jeff said...

Minton

Great points.

Its going to be a Grinchmas among my family this year.

We all have agreed times are tough and there is no need to go crazy.

I would much rather see jobs saved in a bailout versus throwing money into the giant black hole of Wall St.

AIG is a joke. They are nothing but a leech that sucks the blood out of the taxpayers.

Lets hope the government starts focusing on creating jobs vs. bailing out a bunch of bankers!