Monday, November 2, 2009

Morning Update/ Market Thread 11/2

Good Morning,

Equity futures are higher before the open, here’s the overnight action:

While the dollar is slightly lower, it’s most recent move is sharply upwards, the same action is occurring in bonds. Oil, which was up a fair amount has rolled over pretty hard prior to the open, but how about gold, it is just chugging right along, now over the $1,050 mark that represented the first layer of resistance ($1,070 is next resistance level).

Three reports come out after the bell at 10AM, the Manufacturing ISM, Construction spending, and Pending Home Sales. The real important stuff happens later in the week, with the FOMC meeting, the employment situation, and consumer credit.

CIT filed for bankruptcy reorganization yesterday, making it the 5th largest company in America ever to do so. And the headline reads???

CIT’s Bankruptcy May Help Bondholders and Erase Taxpayer Stake

Nov. 2 (Bloomberg) -- CIT Group Inc.’s decision to seek court protection probably will keep money flowing to bondholders and 1 million customers of the 101-year-old commercial lender. Shareholders and taxpayers won’t be as fortunate.

CIT’s Chapter 11 bankruptcy may give bondholders new notes at 70 cents on the dollar plus new common stock, and Chief Executive Officer Jeffrey Peek said clients will be able to get funds. Common stock owners could be mostly wiped out, and the U.S. Treasury Department said it won’t recoup much, if any, of the $2.33 billion of taxpayer money that went into CIT, the largest firm to go bankrupt after getting a federal bailout.

“It doesn’t look too good for the government preferred or any preferred holders,” Brian Charles, a debt analyst at New York-based brokerage RW Pressprich & Co., said yesterday. “It’s unlikely common shareholders realize any value.”

CIT failed to win a second government bailout in July or persuade bondholders to swap $30 billion in debt to prevent a bankruptcy filing this month. The New York-based lender posted more than $5 billion in losses in the last nine quarters. The filing is the fifth-largest U.S. bankruptcy by assets.

None of CIT’s operating subsidiaries, including Utah-based CIT Bank, were included in the filing, CIT said in a statement.

That’s right, the taxpayer is out $2.3 billion, a gift to criminals that has already been eaten. Karl Icahn will feast on the leftovers. Note that none of the subsidiaries were included in the filing. Suspicious Nate wonders what assets were transferred to those companies in the past few months – if I were a shareholder who is being wiped out, I’d want to know. Doh! I am a stakeholder and so are you.

Once again, at a very minimum, the government is guilty of malfeasance in not taking a priority stake PRIOR to, and as a condition of, giving them any of OUR money. Americans should be furious over this.

Look for the reorganized CIT to accomplish less risky lending? We’ll see, but I don’t see how their failure will lead to an increase of credit to small and medium businesses, their primary customers.

Ford claims to have earned nearly a billion dollars in the 3rd quarter, of course helped tremendously by good old cash for clunkers. Their release was very cheery, so cheery that something doesn’t smell right there. I just spent about 30 minutes pouring over their Q3 financial statements and do see a couple of areas of concern.

First of all I want to note that financial statements these days are written as if they are coming from the marketing department and not the accounting department. That’s a trend that needs to end. Ford FAILED TO PROVIDE GUIDANCE FOR 2010, that’s next year, but they HYPE that they will be profitable in 2011! Okaaaay.

"Special items" and games that are played with "operating earnings" is another area of these reports where companies are being more and more, shall we say, creative. Not saying that as a Ford specific comment, but as a comment in general.

While I really like Alan Mulally and Ford has managed to outmaneuver GM and Chrysler by staying out of the public coffers and further away from derivative products, they have been burning CASH like crazy and are basing future projections on the government clunkers cash rich 3rd quarter. We’ll see, but I just don’t think it’s sustainable. Their products, in fact most cars and trucks in general, are IN A PRICE BUBBLE. With non-securitized and normal financing, the consumer cannot afford the price tags that have come to the automobile industry. More correction is in store for the auto industry.

Please refer to my weekend post for the technical landscape. SPX 1,041 is the pivot currently in play, 1,061 is the next higher and 1,018 the next lower. A bounce in this area is likely following Friday's 95% down day and the associated short term oversold oscillators. Also keep in mind that in some of the indices higher has not been completely eliminated and that if we have indeed begun wave C down that wave 2 bounces are usually very strong.

Cash - what deleveraging businesses need and what they are burning for…

Blue Oyster Cult – Burning for You: