Tuesday, February 10, 2009

Morning Update/ Market Thread 2/10

Good Morning,

Stocks went down pretty hard yesterday evening as President Obama was speaking. Frankly, I didn’t hear much I liked there. He feels that he must stimulate the economy and he is therefore a part of the problem and will only succeed in making future distortions. He is surrounded with Keynesian economists and they are, sorry to say, incorrect in their thinking. Deficit spending can only go on for so long, and we are at the limits now. For this system to move forward, the debts must be cleared.

Tim Geithner announces the new bank bailout plan at 11 AM Eastern this morning. There is much out about it overnight – it will rely upon private investors to buy up debt with government guarantees. While this MAY help the banks (depending upon what price is paid), it will not get RID of the debt. The people who are underwater will still be underwater and thus there will be no real help for the economy as a whole – it is simply moving the debt around. Now, that said, it is WAY better to have private investors take on that debt than the government. But don’t be fooled – the taxpayer is still on the hook. Thus, it’s a creative way to make people feel better… they are “doing something” but the truth is they are just rearranging the chairs.

It will be interesting to see how they price it and who buys it. If you are a hedge fund or a bond fund, you are probably chomping at the bit to get in on this action. Why? Because you can invest money and have little downside, but potentially some upside… but, and I haven’t heard the details yet, I understand that there will be some sort of down payment required that will not be guaranteed. Again we’ll see.

GM announced that they are cutting 10,000 jobs, while UBS reported a $7 billion loss for the 4th quarter and they are laying off workers as well.

Don’t know what’s going on with the XLF, but it looked like it was reacting positively in front of Geithner’s announcement, but now it’s descending rapidly… that will be one of the keys to watch today.

The Russians are denying the reports that they are wanting to reschedule their debt payments amounting to national default. They are hurting, there is no doubt, that is another interesting story to watch. If they are unable to make payments on time it will ripple quickly around the globe.

There’s a big bond auction again today and bonds are moving up pretty large overnight. Again, watch the results of that it will be telling.

Both the Redbook and ICSC store sales came in slightly better than expected for last week.

Going to be an interesting day, have fun,

Nate