Shopping Crunch

How the holiday shopping will turn out is certainly a subject of a little more interest this year. A bad start would confirm some of the worst fears of preparatory planning by consumers who are expecting a significant downturn given stock performances to date and the daily serving of economic death march data given out by market news prognosticators. If the news is better than expected, look for the markets to extend gains as manager's pricing increases just in case the bottom action is more than just a bear pause.

Price data crunch still shows positive numbers with a caution being the 24th's major indexes lows being a critical hold for next week.

Pig

The concern over the fairness of distributing bailout funds to various financial entities is being argued daily. Many believe a great blunder was committed when Paulson, Bernancke and Geithner, decided to let Lehman fail. What they really have to be worried about however is not early mistakes, but rather their ability to convince people they now have a grasp on the overall dilemma and can adjust at the right places to bring about broad cures which greatly influence the 80% of the population which drives the economy. It would be a political disaster as well as a economic one if after all that is said and done the banks and insurance companies were cashed up and the rest of the working population was left with a pig.

Bottom Hopes

Construction of the bottom continues today as back filling is the main feature. Several programs run here which indicate momentum, based on Nov 5th and continue to signal an upturn. Though they are not as strong as previous turns, they have had a move in the right direction.

The Treasury and Fed have thrown just about every conceivable trick at the market lately to help the banking and insurance industry from imploding. These creative measures need to work sooner than later.

Money For Nothing Chicks For Free

Markets strong this AM with CITI bailout news and ahead of Obama's announcements regarding his economic team at mid day today. Last week's action saw a confluence of potentially unprecedented governmental future funding dilemmas as the realization of Japan like economic conditions of the 80's and 90's were becoming evident. Realization that overnight rates will probably go to zero after the first of the year with three month T bill rates reaching their lowest level, just above zero, last week. The world does not really want US assets unless they are treasuries. The Fed is in effect flooding the world with dollars and will do so aggressively for the foreseeable future as it aims to liquidfy the transactional financial pipelines. A world where negative interest rates requires you to pay to save and get paid to borrow, especially if you have a supply of treasures, is to say the least a bit upside down.

Hedged Out

Interest rate futures had there single biggest range day since 1987 yesterday as another component on the capitulation check list was marked off. Big 3 negotiations have been kicked down the road but some sort of re-balancing with design performance mandates will be put into place before or shortly after the new administration takes office. Hedge funds, a major contributor to the high days in stocks, are now down to a mere 17% exposure to stocks according to Bloomberg.

Connecting these huge daily trading ranges is the topographical feature of an expanded bottoming process. Filling in the bottom is made more interesting by the lack of any clear vision as to a national recovery plan especially since the Treasury and Fed have been anything but transparent so far to date. The Obama folks as of yet have not tipped their hand in a strategy, probably reasoning there is little to be gained from presenting a plan that they are powerless to enforce.

So by and far the key market participants are adjusting by liquidation and trying to figure out how to get into the G's pants. Insurance companies have developed a plan to buy small banks to enable them to qualify for Tarp or in-kind funds. Hedge funds as mentioned are cashing up by liquidating not only stocks but by eliminating giant positions in commodities which accounted for the vast majority of the idiocy play called developing world demand.

Down As The Absurd

The bulls are bailing. The bears who rode the market down and starting buying in October are bailing. Down as the absurd has finally reached a thunderous capitulation where even the elderly would be run down if they were standing in the exits. The play by play business talk personalities have scripted themselves into a drama which is more thrilling than the clever put downs of the bears they played for years. A new category for the Emmy awards could read, Best Prone to Hyperbole in a Daytime Market Series.

This is not about blaming the messenger. It is about how little knowledge these tv personalities have on a daily basis in identifying and disseminating important business analysis and market behavior. What was wrong with Wall Street was hardly ever an issue during the bull run. What was right about judging risk correctly was mundane. Now the shit is hitting the fan and they are helping to fan it. These shows have always perpetuated the great analytics employed by Wall Street which has always come down to two things; buy it and hold it. Important analytics identifies risk and changes direction enough correctly so that when adverse events do occur, there is plenty of cushion.

Pile

Bond traders are having a time figuring out the plays these days as typical benchmark indicators have become meaningless. Excess reserves held by banks at the Fed are now bigger than the Fed Fund Market. The Fed's own one percent target rate now exceeds the overnight rate, which is less than half of one percent. Money is sitting in piles with no intention of moving.

Like a car pileup in a thick fog, each sector of the economy keeps on plowing into the next as logjams emerge. Real cars at Port of Long Beach are not moving from the offloading lots and stand at a record along with numerous other items looking to be exported.

The question is not whether the US can handle and ultimately solve the crisis now before it. Rather, it is to what degree market adjustments need to ratchet to before values of all kinds are reflected in a volatility judged as normal.

Saving the top of the economy is always the path of choice and least resistance. Preserving wealth and those of influence becomes a reasoning too obvious since wealth is always at the seat of power. If we are in the first of many battles in a war to save institutional businesses and assets at the expense of the greater common wealth, we may face a prolonged economic lethargy supporting a population guided by corporate leaders weaned on supervising service industries where less people do more work producing little of real value.

The Big 3

Detroit finds itself in a bit of bad timing. Given Paulson's poor strategic performance with TARP, the Big 3 find themselves at a place in line while Congress is hearing a growing noise of dissatisfaction from constituents as to the progress on the war against economic disaster.

It is essential to provide relief to the Big 3 during this period of economic upheaval. Republicans in Washington keep using the mismanagement argument to explain their opposition to a bailout. They claim Detroit had years to adjust to the marketplace but merely pursued a strategy of fuel inefficiency and poor quality.

They are absolutely right, but we need to bailout the auto industry. The US cannot afford to continue to allow our manufacturing base to disappear regardless of the current automakers upheavals. The Republicans got the problem right but as usual have missed the complexity of the issue. To allow manufacturer producers as large as auto to sink without understanding the linkage to so many other vital elements of commerce is short sighted. From auto parts which provide for the nations existing auto population, to strategic industrial capabilities for national security, an industry which actually produces something, rather than the ones Paulson is pimping for who simply charge fees for designing financial instruments which do not work, is worth saving. Congress can mandate terms in an agreement this time rather than laying down as it did for Treasury. Bankruptcy will drag on forever and feed upon the uncertainty which is driving the fear in today's markets.

Markets Adjust

The weekend tv programs are dominated by the 24 hour news/talk cycle and the presentation of a continuum of evidence pointing to economic disaster. Job cuts, Big 3 survival, and whackage reports from 401K statements across the US are cutting confidence in asset values of all kinds. Nothing will work talk is increasingly being presented as a portrait of reality as the panic sets a new course. The market's value adjustments which initiated the anxiety, now reflect a lack of confidence produced in a large part by a incompetent government. The lead talking head, Paulson, is clearly not up to crafting a rescue plan beyond rewarding the incompetence of banks and insurance companies.

Victory over the current economic mess will be victory of attrition. Many will suffer and others will strive to recover the financial gains they lost over the last several years for the next ten years. But the equity markets have already begun to adjust to adaptive strategies and will regain footing well before the worst has hit the general public. Investment sores will recover and another absurd investment fad will appear.

Market Searching

So far, at mid session, the indexes today have the same look they have had for what is going on months now. The steady beat of liquidation adjustments continue and even with yesterday's rally, the return of a selling configuration is evident. As mentioned in an early post, stocks such as GE are not exciting, but they represent an attitude about institutional positions and the future of the upside. Those stocks need to see the liquidation slow so that a positive price construct can begin represented by upside price reversals on large volume. Hopefully those days are at hand.

The Fix Is On

Packing a lunch for another trading day in which the bears will try to take advantage of the insecurity created by the constant delivery of bad news about corporate asset mismanagement or more recently, the bungling of TARP strategies. Tell me Paulson does not come out of the same corporate culture of Wall Street, from the great geniuses of Goldman, and collective transaction fee morons who equate insider positions with trading skills.

Paulson and Bernanke cried about the need for rescue funds and the creation of a new vista of transparency. Now, Bloomberg Corp has filed a Freedom of Information action against the Treasury just to get them to reveal what banks and other entities borrowed 2 trillion dollars and what was the collateral. Even Barney Frank is saying it is better for the public not to know about the identities of the parties involved.

Sinking every day without transparency is better than sinking everyday with transparency is an interesting theory but certainly not what we were told was going to happen as the financial cleanup boys screamed for legislation. It is hard for Treasury theorist which are heavily ex Goldman staffed, to really understand anything beyond working "the fix". Their ideas have always been based on taking care a transactional system which greases the insiders at the expense of market. They are fixers alright and the fix is on.

Confidence On The Line

If one looks over the business news lately, the sheets are full of quotes from the all the hedge and used to be investment bank chiefs. The previous Big 5 names still pop up and are always reviewing the current market conditions. Talent is over rated on Wall Street and even in Chicago when you consider guys such Citadel's Griffin, although the Windy City has always had the superior talent pool. Anyway, the view from the top of these organizations is devoid of any insight as to the future of the markets which is not surprising given the discovery that all the great trading income of the last couple of years were from mark ups from products that had no market.

Markets are tired and trying to base but you can simply look to companies such as GE to view the barometric pressure of things. That stock has got to get up and go or simply continue to be a symptom of the general cycle of liquidation adjustments which keep on attacking the market. A failure to hold and a rollover of these markets will lead to the test of the October 02 lows and that would not be pleasant. The new folks going to Washington should watch the price failure line carefully to avoid a deflationary scare which would claim confidence in all sectors.

Courage And Risk

The trading year thus far has experienced enough stress to test the merits of all participants. If you are a buy and hold investor, it has been a disaster. If you are a floor trading bear and you did not make enough to quit, quit because you suck. If you are a floor trading bull and managed to avoid disaster, better days are ahead. Of course, if you are an insurance company or bank and have made some questionable strategic decisions, you are in a bull market for bailouts. You win.

It has always been true that many live much better than their IQ would merit. Bad financial decisions for most have direct results, but the bailout frenzy is questioning all of it. Banks and insurance companies have always been the place for those less courageous careers. They are supposed to be stewards of savings and assets and be thoughtful and prudent. But like so many, they became confident and brave about the future when the fees were piling in from the sub prime dirt, but now they have failed. Courage is easy when you are overpaid and stupid.

Nine out of ten traders do not understand risk so why should a banker or an insurance company be able to figure it out. They have a model to generate fees or premiums based on volume without true risk calculators. The risk test for traders and others are in markets such as these. If your risk strategies did well over the last months, you get the prize.

Adjustments

Indexes unable to defend against position adjustments yesterday. This will continue for some period of time as the markets will have to balance liquidation selling against positional pricing as some raise cash and others place bets. When hand exchanges or position swaps are taking place, often times strong rallies and breaks have a big bark but no bite. The overall picture is still one of forming a bottom.

Quiet But Up

Indexes continuing to build a base off of the October 10th and 27th lows. Volume is light and the volatility has been substantially lower in the last five trading sessions. This is not what the technical bulls would like but it beats death dives every other day. Pricing is a large component along with lack of any real liquidation. Selling is in on the horizon however as there are legions waiting to sell decent gains.

November Markets

November begins with plenty of data including Friday's jobs number. Some of the volatility is leaking out of the market but everyone will be ill at ease for some period of time. Bears will be looking to take out the October 02 lows of 7197 in the DJIA and 767 in the SP500 this month, while the bulls will claim the bear is dead and build on the almost 50% retracement of the 1982 to 2007 bull run. Whichever camp one adheres to, all would agree severe damage had been done to the general investment environment. Runs to the upside will appear but the participants will increasingly be professional without a great deal of help from traditional buyside public enthusiasts. Markets often turn on the greatest marginal advantage and a cautious market will be a thinner market.