Say Goodbye to GM
Llewellyn H. Rockwell, Jr. thinks that Detroit’s struggle to land a bailout may be the beginning of a new political trend:
“The government looks poised for a fantastic gridlock that will let the liquidation take place so that we can move toward a good recovery.”
I’ve been hearing people say that if GM goes, the entire auto industry goes with it. Could that possibly be true? Will every single auto plant and parts plant in the country shut down? Will Toyota close up shop and go back to Japan? Will Tesla stop making their electric super car? Is it really impossible to reduce excess capacity without the world ending? Is our choice really between too many auto makers or none at all? This strikes me as a bit of an exaggeration.
I think a fall of something huge is the rise of other smaller companies which will focus on energy efficient vehicles like solar, electric, etc.
they’re making a big threat that if they fail things fail.
Oh well things will fail either way. so fail now before noone gives a crap about you anyway.
Futures are flat again. Given tomorrow is Black Friday, it shouldn’t be too hard to manipulate the futures to give off the impression that this rally is for real. I do see that most overseas markets are up. That might mean the US has more to rally. I know the Canadian exchange was up today too.
We’ll have to watch things closely indeed to make sure that we don’t become trapped shorts.
Japanese Housing starts y/y 19.8% consensus was 29.3%.
yeah screw futures i really have more cash to get more etfs short.
I consider this a perfect short setup so far. There’s just enough optimism to allow the funds to sustain the rally and get a positive month end, yet enough bad real news to pull the market down — not just lower than the peak of a five-day rally, but to new cataclysmic capitulation lows below 700.
If it goes the way we think it will, it may still take a week or so to reach new lows, grinding out the remaining optimism in investors, repeatedly disappointing the anxious, hammering the hopeful, crushing the credulous.
Fool’s Friday will be the last gasp of the faithful, rolling out their carpets to worship the new highs.
Anyone trading Rydex funds note there’s only one pricing, at 12:45pm EST, 15min before the early market closing.
About China – they seem to be stuck at the supply side but there’s the problem, not the solution
http://mpettis.com/2008/11/will-the-interest-rate-cut-by-the-pboc-make-things-better-or-worse/
Comment #2 sums it up – I heard this before about two different industries so I give credit to it. Why believe this time a state-manipulated economy will work?
On the Auto Industry that’s a disaster in denial for three decades and some of us have been so saying. The problem is that it’s not clean to let ‘em go thru BK – even Wilbur Ross, THE workout artist, is afraid of it. That’s because with supplier networks, dealers and brand images at risk the consequences of a fullup BK would be many job losses, pain and unrecoverable brand positions. The TOY, Hondas, et.al. will replace some but not all of that.
What’s really needed IMHO is an oxymoronic solution – a gov’t financed LBO workout by new management and somebody we trust. Bottomline there ain’t any easy, straight-forward answers here. Not to mention the politics and the risks to the larger economy in a very fragile ecology. The most startling thing is Pelosi and Co. sending the Busted3 back to the think room to come up with something semi-rational. Now THAT’s startling.
The “new” auto industry of the South represents the future and the marketplace for the past decade has voted for them.
The Big 3 benefited greatly from the tax change that allowed many work-a-bees to buy trucks. Somehow in all the noise, this fact has been forgotten.
Five Honda Accords later, I wonder why anyone would buy a Chevrolet. And all of my five Honda were made in the U.S.A. American workers can build good cars and the new Southern auto industry proves that.
The sooner Congress says no, the faster the Big 3 will resize themselves to the realities of the marketplace. I wonder if horse shoe makers asked for a bailout when automobiles started to affect their formerly successful industry?
Boat52 – your post is priceless.
The thing that broke the next of big3 was their lobbying success in DC and the refusal of the US govt to raise taxes on petrol. Even today new cars sold in the US have half the mpg of cars in Europe. The “new” auto industry produces cars for export, eg SUVs but again there is not so much overlap with car demand ROW. Overcapacities in the industry are insane and the most sensible approach is global load balancing like Toyota is doing right now (but they get downgraded…). Growth in automotive is in less developed countries and demand is highest for cheap and realtively simple cars. German automotive is heading the detroit way. Overly focused on making driving 120+ mph child’s play on autobahns build to German specs but lost Eastern Europe to the Korean and Japanese because of the cost base and inadequate products.
The fate of British Leyland is the historic example for the big3.
Boat52, Yerk: nicely told and put. Entirely agreed. We still have the fundamental dilemma. Strategic intent is nice and policy behind it nicer. But how to make the down-sizing work – where’s the financing to come from ? How re-structure ? How to minimize the enormous collateral damages ?
This matters for us unless we want to return to earlier themes of food, water, ammo and suchlike in our caves.
Suggestions ?
Added more shorts this morning. Will add more DXD and SDS if market climbs.
I think for the Big 3 survive, Yerk is absolutely correct in that the focus of these companies needs to be on foreign growth. eg. a $7000 car that can be sold to developing countries. The Big 3 currently are stagnant and haven’t caught up with the changing times. They exist only to build cars for North Americans, but even they don’t want their cars anymore.
It is just so evident when traveling overseas where you rarely see any Big 3 cars on the road on the streets of Europe and Asia. In contrast, you can spot many other brands of European and Japanese cars on the street everywhere.. just not from the Big 3. I think I might have seen 1 Ford Taurus in Hong Kong when I was there many many years ago. I think that was when it was the best selling car in the country.. but again, that was a long long time ago.
The Big 3 need to downsize and also radically change their philosophy that they need to be competitive. They are bogged down by lack of innovation, crushing union salaries and in general, overpriced sub-par products.
The only way to survive is be innovative and competitive again, but is it possible to teach a tame duck to be wild again? Is it possible for an old dog to learn tricks that it has never been able to learn in it’s lifetime?
The automakers have been on life support for decades. If we had honest politicians at the helm, these three elephants would have been put to rest a long time ago but no one wants it to happen on their watch. The UAW boss here in Canada has said the union will not take a cut in pay or benefits but is willing to offer “productivity improvements” instead because according to them, even if they were to cut wages, it would not make a large enough dent in the losses. Anyway, that is nonsense since it is known the average/hour cost of the three US makers is higher than Honda or Toyota. While the Austrian side that i lean toward in my economic thinking wants to do the right thing by putting them into BK and downsize them, i do think the government should provide some sort of tie over and re-training for those affected. I have noticed in some newspapers the formerly big three have taken out ads containing MIS – information on why they need our taxpaying money. It is an outrage that we even need to think of a bailout for a poorly managed, overpaid, and mediocre set of firms. If I were PM/President, I would put them into BK and inject any money after:
1) A cut in wages and benefits to bring them in line with the rest of the industry or even somewhat below (30 % ?).
2) Closing of most SUV plants. Re-tooling or bulding of new advanced plants for hybrid and electric production.
3) Firing of all senior managers and a reduction in pay for the new ones. Base salaries would be lowered to reflect a more realistic environment. Any performance pay would be tied to any real profits made.
4) Aggressive investment in R&D for next generation “green” products with concrete plans for production as soon as possible.
5) Cancellation of any CDS contracts, and wiping out of all equity holders.
Unemployment benefits extension and re-training grants could be considered for all unemployed workers, not only automotive. I do think there is a role here for government to help those impacted (all workers in all industries) by extending benefits and making anyone using them re-train or look for a new job for a reasonable period of time. We could not simply put these companies into BK and let people with families lose their jobs and end up homeless. The social problems would be enormous. I think a plan more or less in line with this would help protect taxpayers and minimize the human impact.
Matt, good technical observations. I am betting we will have a pullback soon but that this rally may carry up to 900-917 with a slight chance of getting up to 975 over the next few weeks. I am still expecting new lows in Q1 09 and think we can tag 600 on the SP500. On a longer term basis, do you have any thoughts on possible targets ?
JO
Ruble Collapse…
http://www.bloomberg.com/apps/news?pid=20601087&sid=a42O8WVeLoL8&refer=home
K, Ukraine next.
let’s get this party started.
Hey K, JG.. SRS looking pretty good today
btw.. JO.. that was a good summary, but I don’t think the Big 3 can even go green properly. Have you seen the $40K price tag that they want to slap onto the new volt they are designing? Doesn’t make any financial sense whatsoever.
charlie did you have guts to get some 3x shorts?
i will either be cheering or kicking my own arse one day soon LOL
I tried BGZ a bit, but got creamed on that earlier in the week. WAS WAY TOO EARLY.. in my entry.. Will probably get some FAZ at the end of the day though if things look ok.
Does anyone know what time the markets close today?
2 i believe.
Charlie — markets close at 1pm EST, just a couple more hours.
Dollar is up sharply. We may still get a small end-of-day surge, or just stay flat.
Is it me.. or does this market look like it is consolidating for a push even higher?
I think it closes in 2 hours 10 min
my bad
screw today people are fearful yet ppt and end of month bulls are trying to keep it up. once the majority return monday they will make goood kachingos shorting me thinks. I won’t watch market today. lol
The fact that the market is only down slightly with the dollar surging again gives a headwind to the bulls.
Charlie, rather than consolidating we may just be pinned today. We’ve gone up more in the past four days than at any time since the Great Depression; that’s already a good run.
The dollar is sharply up, not a sign of a market ready to push higher.
Crimson, I hadn’t seen your comment — right, that’s a possible take. It would be great if we could get a little gravity-defying moonshot on light volume.
Hey Kailash, Crimson,
you guys may be right and that we’ll paint cyber monday red.. I also noticed the yield on the 10 year note is still falling today. Possible sign of the direction of where the markets will go.
Oil tankers being leased out to store oil! Have no link.
Closing in on 900. What a beauty to watch.
Sit tight folks, we’re going down!
CNBC is reporting that China is exporting gasoline, though I can’t find a news story on the web about it.
I just added to my BGZ position and bought some FAZ since it is on sale.
@ K I got a little TZA in premarket. I paid too much but it was a small buy and I wanted to ensure I got some today
I just bought some more TZA.
The point of all this marking-up is that the big funds are trying to coax in a wave of retail money over the weekend. October’s attempt was a total failure, and I don’t think this attempt will fare much better.
Greetings all. Charlie, I just saw your note. Yep, I picked up more SRS today, along with some new flavors. Have a great weekend everyone!
Have a great weekend and go out and buy stuff you guys can’t afford and don’t need
BTW.. nice end of month window dressing there. I was pretty happy to see the 895 painted on SPX and the fact that URE closed down a bit.
Futures (ES) volume was averaging around 5,000 contracts per minute today. Then, one minute before the close, volume surged to 55,000 and pushed the SPX up to 896 – a rather blatant example of tape-painting.
Matt, did CNBC mention any reasons for China selling gasoline?
Dressguard,
No, they didn’t give many details, but they implied that it was because demand was down in China.
Matt
Wow — we’re on the playbook so far. This is quite the soap opera.
Today’s rise may make the last five days one of the steepest increases since the GD. The rise is coded by the news media as a sign of optimism, and a justification for thinking we can only keep going up.
In the short run, this looks like a safe short. What we don’t know is how far we’ll fall.
The ability of the market to hold despite a surging buck indeed was a sign that the bulls would carry the day.
That said, a top of some kind highly probable early next week
The big question is how deep the correction will be.
I very much doubt SPY will drop below 840.
The dollar looks poised for another run. Oddly, the vix is up a smidgeon today; if we’re correct, it will head to the hills next week.
One reason we need to hit new lows is that the market is at best fairly valued around 900; there is no reason to go any further up, other than old habits of thought. Everyone is still taking for granted that the Xmas rally will take us back up — but how far back up? We’re not going to 1300, and don’t have any good reason to go to 1100. I may be too pessimistic, but what if 900 is the new top? For anyone to be excited about that, we need to head much lower first.
Crimson, at least we have a diversity of views on this board! Cheers to all.
I also put in a very small short towards the close. We have had a 20% rally from the lows and it was sparked by options expiry. In the chart this is looking very similar to the election rally as Matt mentioned. Who are the buyers, is what I want to know……
I am actually playing SH as I don’t like the slippage on the double or tripple shorts. If the market moves 10% against you and comes back 10%, instead of breaking even you lose 4% in double shorts/longs and 6% in tripples. With the current volatility it is almost as bad as holding front month options.
BTW, does anyone know why the 1x shorts don’t seem to have slippage? I have looked at SH and it is up 40+% vs SDS about 60% YTD. SH seems to be tracking the S&P pretty closely. Or am I smoking something?
Kailash,
I think you have a valid point. The economy sucks, no one knows how bad things will get, job losses are accelerating, deleveraging ongoing, retiring boomers have been given the shock of their lives, no inkling where any recovery might come from. Why should the market go to 1100 or higher? But these are good reasons to go lower.
A move to 1100 would be a 50% move from the lows. If it happens, it would not be flagged as a bear market rally. We had a 25% rally off the 2003 spring lows but that is when the housing bubble had already bloomed.
And BTW, I don’t think the market anticipates a recovery or decline anymore. The 2002 bottom occured after we were alredy out of the recession, the 2008 crash happened when we were already in a recession. This might have worked in the past but it doesn’t seem to lately. May have something to do with rapid information flow.
Kalish
Mc Oscillator now EXTREMELY overbought though still not quite up to the previous peak
http://www.stockcharts.com/charts/indices/McSumNYSE.html
Market can still rally modestly from here, but the next big move will be down IMHO.
However given the staggering liquidity pumped into the system and the plunge in treasury yields — the next drop probably will be relatively modest — down to 840 or so on the SPY.
The rally in the dollar is very bullish because a strong buck and low treasury yields means the powers that be have carte blanche to print money to their heart’s content.
I like this poll
http://money.cnn.com/POLLSERVER/results/43610.html
I think I saw it last year too but the results weren’t quite like this. YEeeeeah go black friday live up to your name for retail stores
Over the last days I’ve spoken with a couple of friends from different major internationals. All tell stories of massive, surprising contraction, ongoing management optimism (although this is getting sorted out now) and they still have the urge to buy the dips and to invest long-term in stocks.
The insane amounts being poured into the system can be used in the stock market as well. So I would not be too surprised by an ongoing liquidity driven rally – fundamentals will kill the party sooner or later. 920 should stop this move up at the latest.
Uups… Looks like the world is saved
http://www.schaeffersresearch.com/streetools/market_tools/rydex_nu.aspx
yerk. was that sarcastic or is the world saved?
i dont understand the chart. if you don’t mind explaining?
btw.
Dow today…+1.17%
and look at historical Dow day after thanksgiving
http://bespokeinvest.typepad.com/bespoke/2008/11/market-performance-on-the-day-after-thanksgiving.html
TNX dropped again so market went up at the same time more people keep buying treasury
K, read this as contrarian. There is a (?) bottom at the site with a detailed explanation.
The first time that I heard the “money-printing will ignite a new bull market” theory was back in September from Bill Cara. The S&P plunged several hundred points after he made his bottom call.
If money-printing were the path to prosperity, Zimbabwe would have the strongest economy in the world.
The problem is that a day eventually comes when you floor the money-printing accelerator, dollars shoot out into the economy, and nothing happens. Are we at that point now? Maybe.
One thing I hear a lot is that the Fed’s stimulus always works, and that the “pushing the string” concept is a fallacy. Maybe the Fed will succeed eventually, but they are definitely pushing the string right now. Bernanke’s panicky rate cuts are now months old, and the economic contraction is still accelerating.
Everybody knows how dumb it was for Greenspan to keep rates at 1% for so long, yet here is the Fed not only doing it again, but going much further into “quantitative easing.”
Rather than taking this as a bullish signal, I think it may be more wise to view it as a sign of sheer panic on the Fed’s part.
@K, I think he was being sarcastic. Click on Help for an explanation of the ratio. Basically the sentiment is very bullish – more money going into the SPX fund than going into the reverse SPX fund.
thanks guys sorry i was in mobile. am on a computer now very interesting.
Crimson, the trick is whether the market rose in the face of dollar strength because of underlying strength, or end-of-month tape-painting. If the latter, the the rising dollar simply warns us we’re headed down.
McClelland is not as high as the last peak, but it’s plenty high to warrant a drop. After a five-day record-breaking rise in a disasterous market, we’re overdue a correction.
We’ll see next week if we go higher or not; we’ve all placed our bets at this point, and our arguments won’t make any difference either way.
Matt, is there a phenomena of year end window dressing?
I don’t know what happens in the next few weeks but I will hold some of my shorts for a 6 handle SPX because next QTR earnings will not help the SPX.
newbie,
Yes, but the mutual funds’ fiscal year ended in October.
Matt
Matt, short termish if banks get money for free from the Fed and they feel they can get a little rally going – why not try it? Better than making risky credit decisions. Even I-bankers I’ve spoken with feel the urge to invest now. People make references to the last bear market rally in 1932 when the market went up 75% in a month. 8k * 1,75 = 14k in the dow until year-end. Shoot, I’m missing the boat
[Sshh, I should stop being sarcastic]
Have a great weekend everyone!
PS: RBS just got nationalized… How the mighty come tumbling down
The last peak in the McClellan Oscillator came not only after October’s month-end mark-up, but an additional two days of the PPT gunning the market to try and get McCain elected. Maybe a GM bailout could get it above the October peak, but I wouldn’t be surprised to see that peak remain the high-water mark for a long time.
Re: Rydex Bull/Bear funds. Just about any similar sentiment indicator looks exactly the same: all bent out of shape to the bullish side.
Yerk,
OK, but the Fed has been pumping money into the system for a long time now. That first wave of money probably was used to gun oil up to $150. Maybe they will be able to blow up another bubble soon, but I’m skeptical.
Matt
Matt, the other problem with the money-printing argument is that money is still disappearing at a faster rate than it’s being pumped into the system. Unlike Zimbabwe, we’re not suffering from hyperinflation; we’re seeing massive asset deflation — that is to say, the money supply is actually shrinking, in spite of the Fed’s best effort. When people lose their jobs and their houses have negative equity, they don’t rush to the stores (or the stock market) to buy; they try to survive and save where they can. This is a new regime, very different from what we’ve been used to. When the value of assets are falling — houses, goods, stocks — it always pays to wait, to buy later, to let the other guy take the loss while you hold on to cash. Banks see this and won’t lend; people see it and won’t spend.
Debt destruction drives deflation. Things become cheaper, including the S&P.
Matt, Kailash,
1.3 trillion in two days can make a difference next week (not months!). Not that I’m convinced, but I’m concerned (as I’m short).
SPY #1 again on WSJ money flows of course points in the other direction.
Crimson,
Lately dollar strength has been inversely correlated with stocks. Todd Harrison at Minnyanville has been stating this continuously (dollar deflation vs asset class inflation in his words). It makes sense. Strong dollar implies fear as people are willing to buy the dollar despite the structural problems we are facing. A recovery almost by necessity implies a weak dollar (look at 2002-2008)
Its only the last couple of days that the dollar has been strong yet the market is up. This would be completely consistent with holidays and tape painting by the funds. Also, we were falling off a cliff before the option expiry rally and the resulting short covering. Nothing has really changed, has it?
And if the spend, spend, spend, psychology is truely changing, then OUCH.
GIGI
A strong dollar has indeed been negatively correlated with stocks for the most part.
My point though is that the buck has risen so much and treasury yields are so low that the powers that be now have carte blanche to print money to their heart’s content. With the buck in the stratosphere imagine what might happen to the markets if all this printing finally drives the buck down sharply.
Kalish
I agree the market is grossly overbought and a correction will start very soon.
All I am saying is do not expect it too be too severe.
And when it is over we probably will rally to new highs for the move. Perhaps SPY 1000.
Interesting and excellent discussion. Pumping money ain’t work, as Yerk says. Technically we’re well into the beginnings of a liquidity trap of what could be classic proportions. Hence the Fed’s urgent adoption of direct injection (the latest Economist has an excellent story: Plan C which is free – highly recommended).
As is is the blog post by DeadCatsBouncing which takes a pretty good look at structural re-balancing in world liquidity flows and the implications as shift to more of a saver society.
http://deadcatsbouncing.blogspot.com/2008/11/dollar-as-world-reserve-currency.html
We’re in for a hexx of downturn IMHO and the markets are still to wildly optimistic and still trying to drink the dregs of the koolaid.
ahahahahahaha oh man now i know where the money that has gone in the market has come from this week.
http://news.yahoo.com/s/ap/20081128/ap_on_bi_ge/fed_credit_crisis
The numbers on the last rally:
The stock market closed three hours early the day after Thanksgiving and locked in gains of 16.9 percent for the Dow since the rally began Nov. 21, 19.1 percent for the S&P 500; and 16.7 percent for the Nasdaq.
It was the first time the Dow rose for five consecutive sessions since July 2007, and the biggest five-day percentage gain over five sessions since Aug. 8, 1932. For the S&P 500, it was the first five-day string of gains since July 2007, and the largest five-day percentage gain since March 16, 1933.
The month of November wiped out $1 trillion of shareholder wealth, but the last five days gained $1.2 trillion, according to the Dow Jones Wilshire 5000 Composite Index, which reflects the value of nearly all U.S. stocks.
Some quirk took RYIRX to 61.32 -2.93 (-4.78%) today, down six times IWM, a much better price than I had expected. This is a great setup! Of course whether it will deliver is another matter …
Crimson —
The Fed is attempting to reflate — I’m not convinced they needed the excuse of low interest on the 10-year bond and a strong dollar — but so far have failed.
WSJ writes,
In the U.S., the Fed can only control the supply of money; it cannot control the velocity of money or the rate at which it turns over. The dramatic collapse in securitization over the past 18 months reflects the continuing collapse in velocity as financial engineering goes into reverse…