Posts Tagged ‘GM’

Have you heard of CIT Group?  CIT is a company that lends money to about 1 million small and medium size businesses and has about 40 billion dollars in debt. They are a pretty big player in the lending business, a company mired in debt, a company on the verge of collapse. 

In the event they fail, there could be some pretty significant repercussions throughout the financial system.  Of course, they are not on the same scale as the Lehman Brothers. However, with a financial system on shaky ground, who knows what would result in the collapse of a large lender.  So, a company in trouble should be no big deal.  After all, President Obama is in the bail-out business and hasn’t had a good bail-out in a while now. 

No, not this time.  Poor little CIT doesn’t meet the too big to fail test.  President Obama stated that it had set “high standards” for granting aid to companies and leaving private investors as the one alternative to avoid collapse.  Wait a minute, excuse me while I settle down from that good laugh I had while writing. 

Since when does this administration have standards?  They still think that GM is a good business model.  So will CIT go into bankruptcy if Big Brother doesn’t lend them a hand?  Of course not, because Big Brother is going to lend them a hand.  The secret is that they are going to do it behind closed doors.  Yes, this is what is happening to our taxpayer dollars.  Roughly 7 of their big bondholders are in talks to cough up 3 billion or so to place another band-aid on the festering wound. 

Where do you think that these bondholders get their money?  With the banking system pretty much nationalized, the money easily funnels from the Government through these banks to these troubled companies.  Obama can keep his “high standards” and no problems to deal with in the financial sector.  They have been running the same system with AIG since that major entity was nationalized.

Price Levels

Let’s take a look at price levels. Last week I warned that things were looking bleak for the market.  As soon as I wrote the warning and hit send, the market turned around and put in a big week.  So does that mean we are out of the woods in the near-term?  Well, last week was the one week out of the month that we have options expiration.  Options expiration can be a real dramatic week either positively or negatively.  It is misleading to see the results of options expiration as what is really occurring with the market.

The next significant price level we are looking at is 956.  The S&P 500 has entered into a price level “zone” (over 940) and now we will really see what this market is made of.  Any strength carrying the S&P 500 over 956 could indicate that we are heading towards 1000.

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News that came out over the weekend underscores why you cannot trust anything that comes from companies or the Government.  Wasn’t it just a few weeks ago that everyone was getting giddy over GM’s then-CEO Rick Wagoner’s comments about not needing any money from the Government and that everything is going just fine? 

In a recent client newsletter, I wrote the following:

Then GM made a bold announcement that they didn’t need any taxpayer money.  The market loved that news.  I think that they should have added one little tagline to that statement…”at least not this week.” 

Can you imagine the conversation between Tim Geithner and GM’s CEO Rick Wagner?  Hey Rick, how are you doing on funds this week?  Tim, we are looking good.  Taxpayer money is holding up.  Check back with me next week.  After all, we have some big corporate events and parties that need funding.

The audacity of a CEO making a statement like that when there is no way that everything was OK.  Well, big brother has spoken.

Then there is this string of “encouraging” economic news over the past few weeks. Economic numbers have surprisingly come out better than expected.  How could that be when Rome appears to be burning?  Well, thanks to the economic funny number crunching group, good economic numbers can be manufactured at the drop of a hat.  Barron’s Alan Abelson wrote this over the weekend:

The misleading figures cut across a wide swath of the economy, encompassing housing, manufacturing, employment — you name it. The leading agent of deception, unintentional or otherwise, has been that old sly villain, seasonal adjustment. As it turns out, the seasons don’t need adjustment as much as the adjustors need seasoning.

As Merrill Lynch’s David Rosenberg (who, incidentally, is planning to do a bit of adjusting himself and moving back to his native Canada; our loss, Canada’s gain) points out in a recent commentary, the official keepers of the books have been unusually aggressive in constructing seasonal adjustments for February’s economic data.

To illustrate, the seasonal adjustment for new-home sales was the strongest since 1982; for durable-goods orders, the strongest since they were first released in 1992; the retail-sales figures for February were flat (or, as David says, flattering) after such adjustment, but unadjusted fell 3%, the biggest drop on record. He also notes dryly that the 40,000 raw non-seasonally adjusted housing-start total for February “all of a sudden becomes a headline-adjusted annual rate figure of 583,000.”

Which makes David think that come the inevitably sharp downward revisions of such distorted data, first-quarter real GDP is likely to suffer a 7.2% drop. Which, together with the 6.3% skid in the fourth quarter of 2008, would be the worst back-to-back contraction in the economy in 50 years.”

This is why Wall Street has been bullish in recent weeks.  I think that this underscores that this bear market is far from over and Wall Street/Government (the irony is that they might be one in the same before it is all over with) want you to think everything is just OK.

So, how long will this stock market rally last?

I have been getting questions about this recent bear market rally and how long I think that it will last.  Let’s take a look at what happened in 2000.  The best bear market rally was 21%.  There was another that was 18%.  Basically, those were the two biggest bear market rallies from the bear market.  It is way too tough to speculate number of days.  This bear market is much different and more like the 1929 bear market.  I would rather focus on total gain of the bear market rally rather than how long it has lasted.  The reality is that this bear market rally could already be over. 

Thus far, we had a 24% bear market rally that lasted from November 20, 2008 to January 6, 2009.  The current bear market rally has gone up as much as 23% before last Friday. This GM news is very significant.  There had to come a time where the Government allowed for nature to take its course. Unfortunately, they have waited too long to allow the process to occur.

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