FRI. SEP. 26- Deal.....Or No Deal?
If you'd have ask any free market protagonist approximately one month ago what any of them thought of the government interfering in any regard with the markets, they’d have all glared at you. But the outlook of many people on finance has changed in the last month. Last week, the entire system was in danger of collapsing. That is said without exaggeration. Let's say that Citicorp has $10 billion in deposits and $9.97 billion in loans and a few people want to take money out. Usually, they borrow overnight at a small rate of interest from another bank; billions of dollars normally exchange hands. There was zero activity on last Wednesday night. Furthermore, there was a run on money market funds so $1 that was worth at least $1 plus interest annually was now worth 97 cents. For instance, let's say you had money in your 401k, but it was all in cash. Or in your IRA- all cash. Your money is swept into money market funds and you get a tiny rate of interest. For the first time in history, you could lose money by staying in cash. Companies like State Street, Bank of New York, Morgan Stanley, and Goldman Sachs were in imminent danger of failure because they had no access to the capital markets. Therefore, whatever government plan that is implemented cannot be done piecemeal. What they want to do is to clear off the banks’ books. Basically, the government (meaning the taxpayers) become full to the boat long American real estate and mortgage bonds. BUT- this allows the banks to ostensibly start with a clean slate and begin loaning money out anew. It's like the system gets a new 'day one' to begin (theoretically) doing their stuff properly. And once confidence is restored, people will begin buying real estate not wanting to miss the boat, real estate begins re-inflating, the stock market goes up, and the government suddenly makes a profit on this bet. But to do this requires more capital than any private corporation can possibly raise. Will it work? Who knows. What is to stop banks from doing the same crud all over again knowing that they will get bailed out if they are wrong? But, if nothing is done, we'll be in a situation worse than the Great Depression because the entire banking system will collapse as nobody will loan anybody anything while everyone withdraws what they have from the banks. Industries like the chicken industry- look at Pilgrim's Pride- (PPC) announced layoffs due to increased cost of capital...and now they are in verge of default since nobody will give them any more money- it is dominoes. Investment banking already has collapsed. So, again, will the government make money on the MBS's? If everything works as it should, it'll be the greatest investment in the history of the world because investments they will pay pennies on the dollar for will be worth several times that in several years as things recover...indeed, look at FNM/FRE already as they have more than quintupled from their lows. The problem is one of psychology; people have to feel safe again...but once they do, greed takes over as fear is removed. But again, this will take more money to jump-start than anyone can fathom so no corporation can willingly step up to do it. For day traders, it has a direct impact on the stock market obviously in the next few days. It is highly likely that if there is an ‘installment-based’ plan, the market’s gains will quickly evaporate; action is needed now seems to be the market’s mantra. However, if the market gets what it wants and the whole system is unclogged, it could be the beginning of a very nice bull run. There is arguably no bigger turning point for the markets in several generations than what happens with this deal.
Overnight, stocks were hit in Europe and then hammered in Europe as the deal talks collapsed. The markets in the U.S. will likely open strongly to the downside and then trade based on rumors of “will they- won’t they” re the deal.
Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified
Good-
A.CN- good earnings
FINL- good earnings
OI- closed very strong; may be A-B-A2 to upside
JPM- buying WM…should get huge deposit base; will likely be viewed as positive for JPM…if JPM opens down with market, buy JPM thru unch
Bad-
RIMM- warned for next quarter; much of tech will be down in sympathy. If deal announced before open re government and the techs open higher, short big cap tech like AAPL as they are all trading down before-hours; do not confuse the macro with the micro so to speak.
NPSP- announced discontinuation of development of a drug
WB- closed on its low; if negative, will be buy thru unch if market peaks up on deal rumors
TDC- weak yesterday ; looking to short thru yesterday’s low
Earnings:
AM .09/481M .64/502M 1.43/1.84B 1.71/1.84B
GY .15/201M .16/206M .48/778M .69/794M
JBL .31/3.24B .36/3.44B 1.13/12.75B 1.40/13.66B
KBH -1.20/725M -.85/925M -.38/3.07B -.55/2.37B
Not a ton out there…it will likely be as it was yesterday…lots of rapid-fire range-based trading in small size for bigger profits…for instance, if JPm opens at 45 and falls to 44 in three minutes, but the market begins rallying, it is likely a buy at 44.05 for a pop towards 44.50 rapidly with a 44 out. That type of action. That is the environment we are in and everything, once again, hinges on the deal.
Good luck today.
www.protradingnetwork.com
posted by Erik Kolodny @ 7:38 AM
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