Capitulation?

At the current levels, the market is crumbling with an even more dramatic parabolic angle and velocity of movement than that with which it built higher and higher through the mid-1990s. Unsurprising, but the sheer relief of peak to elusive trough is enough to leave me aghast. Co-workers and clients I speak with have the pall of despondency, resignation and brokenness cast over them. Hope ebbs low.

I came across this pile of journalistic garbage from Businessweek the other day. After laughing at it and brutally criticizing it with others, an interesting conversation ensued, regarding something made mention of here-and-there but which isn’t getting much play, if any at the moment.

That’s the idea of capitulation: relinquishment of heretofore tenaciously-held long positions, shaking those who’re on the fence about riding the bear off, and a generally massive wave of liquidation that is event-driven: a major bankruptcy (GM and GE come to mind), a sovereign default (Eastern Europe), or some other devastatingly bearish event.

Nothing technical has stanched the bleeding, and that’s simply because below Dow 7200 there’s is virtually nothing wide enough to land on until 4k. There are points of varying noteworthiness: 6300-6500, 5800, 5275, 5000; but nothing persuasive. Below 610 (and there is a cluster of support 610-680), the S&P offers nothing in terms of support before 475-500.

But 4000 and 475? Not impossible: those levels represent about a 70% decline peak to trough: the Nikkei suffered worse in the nineties, and the Dow suffered far worse in the early thirties. At this point, all that I see averting an irrepressible sell-off is a capitulative market event. The sentiment is there: of that I’m certain. All that is lacking is the token catastrophe that changes the game and raises the volume.

Oddly, that all sounds optimistic.

Hobbling Around Human Financial Markets

One of the unexpectedly happened-upon ancillary benefits to actively trading is remaining in-tune with financial market news.  Not because witnessing “the dissemination of worthwhile information” is a gratifying experience; no, it’s the absurdity of it all.  Not only does one get to read editorial comics satirizing certain people or events, but the plain, cardboard-flavored “straight news” articles starkly describing those same people and events are equally funny; sometimes more so.

Taking in “the big picture” this morning, a few things come to mind: some humorous; some not.

• The United States of America is now at or on the doorstep of a ZIRP monetary regime.  Staggering.  Will the Fed’s quantitative easing measures be sufficient to lift the US out of the liquidity trap to which it has succumbed?  Will other developed economies follow this path?  How about some F-Bills?  I’m aghast.
• It’s (Madoff, $50B, et cetera) everywhere and been squawked about to death.  But really?  ”SEC’s Cox Admits ‘Failures’ over Madoff“; and the subtitle “Chairman of agency launches internal investigation into how the alleged fraud went undetected for at least a decade.”…hmph…heh…Bwahahahaha!  Okay, okay, once you’ve picked yourself up off the floor from that one: how can anyone not shake ttheir head in mockery of the ineptitude and nonfeasance of the SEC? Just shocking.  I know Chris Cox is only one man; but is there anything that he or the SEC has done right this year that hasn’t involved prosecution of comparatively petty and inconsequential violations?
• More from President Bush on the proposed auto bailout.  Remember that quip about “stringing things along” from a couple days ago?  ”The Bush administration said Tuesday it is “considering all options” when it comes to aiding the U.S. auto industry.” (article also from cnnmoney.com here)  A transcript of a Roadrunner and Wile E. Coyote cartoon (who, you’ll recall, doesn’t even speak) would be more intelligible.  ”Considering all options”?  So, have the hardnose pro-bankruptcy Republicans pushed pulling from the TARP out of consideration?  The clock is ticking down rapidly to the end according to GM and Chrysler and Bushco. is hemming and hawing over funding sources because Bush feels “a sense of obligation to my successor to make sure there is a not a huge economic crisis.”  There’s another funny.  Could it be it’s too late for such magnanimity?
• And, not funny (except for those astute analysts who though they would eek out a profit), Morgan Stanley registers a $2.3B loss for Q4.  Not the $3.59B of a year ago, but that’s not the silver lining: that’s one fiscal year elapsed, Q4 2007’s loss was brought about by large MBS writedowns.  Now the firm is underwater just bleeding from the gills.  How the mighty have fallen.

• Lastly, on a retail sales, commercial real estate note, we’ve got The Dead Mall Problem (a title I know they lifted from an old ER episode). Bankruptcies, retail vacancies, mall closures, local economic downturns. Death spiral.  Doesn’t anyone else – maybe – think thinning the menagerie of retailers lodged on every street corner in American suburbia is actually a good thing, long-term?  Kind of like Tyler Durden’s description in Fight Club:

“In the world I see – you are stalking elk through the damp canyon forests around the ruins of Rockefeller Center. You’ll wear leather clothes that will last you the rest of your life. You’ll climb the wrist-thick kudzu vines that wrap the Sears Tower. And when you look down, you’ll see tiny figures pounding corn, laying strips of venison on the empty car pool lane of some abandoned superhighway. ”

 

What, No Sunday Evening Bailout Announcement?

A good day for mucking about with well-established precedent.  And why not?  Things run a little more slowly around the holidays. Mall-going ravenous consumer traffic. Streams of already viscous petroleum, oozing into some unspoiled shallow marine habitat. People who’ve eaten whole fruitcakes.  

You’ll remember every other bailout occurred prior to Thanksgiving/Black Friday.  Coincidence?  I think not.  There’s simply no time to goose Asian markets with a bailout announcement when doorbuster sales necessitate camping out overnight. Confidentiality doesn’t permit poring over GM’s books whilst standing in front of Best Buy, lightly pivoting from one foot to another for hours because caffeine has brought you to a stand-off with incontinence the likes of which you have not grappled with since imbibing 44 oz. of Wild Cherry Pepsi within the first hour of The Return of the King. Or the same scenario, sans the diuretic element; whatever your preference.

Apparently tomorrow is out, as well. Due diligence and all those compulsory obligations of those responsible for the most efficient allocation of taxpayer money cannot be rushed. But did the Bush administration think to develop a contingency plan if Reid and his non-filibuster-blocking Democratic majority could not muster enough bipartisan support?

Evidently not; after all, two weeks is more than sufficient in these circumstances to cobble together a sensible, broadly-supported Plan B, as the dazzlingly adept execution of TARP distribution attests about those at the helm. And things are well in-hand, no doubt; otherwise epsilon semi-moron demagogue Treasury Secretary Paulson would be back in front of Congress panting, smarmy and sweaty-palmed with a shameless oligarchical manifesto two-page document appropriating through crisis-inducing obscurantist rhetoric requesting billions within the week to inaugurate avert the swiftly-approaching financial apocalypse.

So, will equities go down the drain overnight/tomorrow?  The above article and others seem to work on the presupposition that the Bush Administration will act in the next few days; the question turns then from when to what, exactly.  So the implicit tone of advancement toward a resolution will likely perpetuate the hope (it was you wasn’t it, Obambi?) of late last week.

12/15/08: 1915 edit: Now things have shifted, from “not Monday” to “a while”.  How’s that for urgency?  I’m no conspiracy theorist, but are Bush et al. stringing things along?  Speaking of strings, this may just merit more shoe-throwing:

Apparently that bit of Arabic – maybe not the vocabulary, but just the elocution – was mildly upsetting.  But as for Dubya’s reflexes?  That deserves no less fitting a tribute than this (and I really don’t award this lightly):

Nice going; must’ve learned that evading angry bulls in Crawford.

Maybe Obambi didn’t do anything.  Limited omnipotence then, whatever that means.  At least, the apparent triviality with which Perino’s brush-off is conveyed leaves me with diminished expectations.

The Subtle Art of Tapping the TARP

At this point I think there can be no doubt that the Bush administration will split off TARP-allocated funds to aid the Big 3. Whatever the appalling ineptitude of senior management at each company, whatever the taxpayer expense associated (immediate and deferred), whatever the ineffectuality of the amounts being requested, whatever the presence (absence) of a “troubled asset”, whatever the hyperbolizing of their dire situation to exact funding, whatever the resistance of the UAW to meaningful concessions, whatever the real motives of the big players involved, whatever the reasons proferred in favor of and opposition to: it’s all white noise.

Paulson and his cronies will acquiesce in the presence of overwhelming necessity to salve sorely-bruised confidence, avert a credit event (comparatively mild to Lehman, probably), maintain thousand of jobs (at least temporarily) and to avoid the enormously negative derivative impact a BK in one or more of the automakers would produce; on investor sentiment, businesses and their employees up and down associated supply chains and in adjunct industries, and by creation of a competitive vacuum.

“Acquiesce in the presence of overwhelming necessity” is my own prescription. The TARP is not the appropriate source from which to provide capital injections or backstops to auto manufacturers; that is not within it’s objective (whatever that is, exactly); I think few would argue to the contrary (except maybe those holding the keys).

But what then are the alternatives? BK or an alternate source of funding. Since the Senate has put option B out of contention (at least over the short period of time for which it matters, according to GM) and because option A really would wreak devastation that we should be highly apprehensive about, I think there is no alternative.

Throwing good money after bad? Almost undoubtedly: “loaning” GM several billion dollars to survive for the next couple of weeks is like bailing water from the hull of the Titanic. But this is that which lack of vigilance, foresight adaptability and competence on every level hath wrought over many years; and with carte blanche procured all too easily by Paulson, Kashkari and a further unknown quantity of bald financial cosmonauts, at this late stage there is little else to be done.

TLT poses this question quite simply, cutting through the crap to get down to what the only alternatives are. As we’ve seen throughout this year, when everyone is done blathering, the options posed by any fork in the road have been the same at beginning and end, with most of the debate and indecision being simply a product of inefficient bureaucracy.

The coming week should seal whatever deal is negotiated.

GM, Chrysler May Win Reprieve with Access to TARP Aid

Ventilator por el Automaker

It seems with enough whining and miles logged by CEOs driving en route to hearings in hybrid vehicles, House Democrats and the White House were able to reach some consensus on providing aid to the Beg 3.

Nancy Pelosi finally backed off sourcing funding from the $700B bailout, already earmarked for…”improvisational measures” by the Treasury under the adept management of Impresario Kashkari. A compromise followed to pull the funding from the Department of Energy’s $25B loan geared toward increasing fuel efficiency (somehow that ended up designated as the appropriate funding source), with 17 bills (or 1/2 the original revised amount requested) is under consideration to hand out.

Apparently yesterday’s NFP number was the impetus for the new-found resolution. But really, what’s another 250k jobs lost?

So $17B is going to these companies to maintain them on life support until more formal concessions, planning, oversight (Schumer’s “car czar”, for instance), and longer-term sources of funding can be worked out. Is this really “a good beginning”? With all that has preceded this, I can’t help but remain incredulous.