Bad News... And More Bad News - But We Still Trade Up

I don't know if it was all the media time Obama's new projected stimulus plan got this weekend or the perceived "good news" from the existing-home sales, but whatever the case, the market was some how able to stay up in the midst of some seriously bad employment news and other negative economic data. The Dow did spend some time in the red, but quickly recovered and closed the day up 38 points. Many perceived the 6.5% increase in home sales as good news and an indicator that we may be starting to see the bottom of the residential crisis. However, once again, people have failed to read between the lines.

There are two huge elements which helped increase this number. First, the median of housing prices are down 15% just from last year. Many of the houses that were sold were bank owned and were sold for a loss. Sure, if McDonald's lowered the price of Big Macs to 50 cents, they would probably sell more, but their profits would be down.

Second, THE DISCOUNT RATE IS AT 0%. For those that enjoy good credit, with the help of the FED, people buying houses are seeing rates in the low to high 4% range. At this rate, you could buy a mansion, rent it to a dog, and still probably be able to cover your monthly debt service. The point is, only a 6% rise in home sales with a 15% in price and 4-5% borrowing, is not encouraging at all.

Also, today we were slammed with a whole new round of job cuts. Our unemployment rate is quickly moving towards 9% and up into the teens. They are projecting another 500,000 job loss month for January, however at this rate, we're looking to be closer to the 800,000-900,000 range. I thought I would make a list of all the recent job cuts that have been announced the last week as it may become tough to keep track. I hope none of your companies are on this list:

* Caterpillar to Cut 20,000 Jobs
* Sprint Nextel to Cut Up to 8,000 Jobs
* Home Depot to Cut 7,000 Jobs
* Microsoft to Cut Up to 5,000 Jobs
* Intel to Cut Up to 6,000 Jobs
* UAL Layoffs Planned
* BofA Could Cut 4,000 Jobs
* Cerberus May Lay off 10% of Staff
* Clear Channel Cutting 1.500 Jobs
* GE Capital to Slash Up to 11,000
* Conoco to Lay Off 4%
* Pfizer to Cut Up to 2,400 Jobs
* AMD to Lay Off 1,000
* WellPoint to Lay Off 1,500
* Hertz to Cut More than 4,000 Jobs
* Motorola to Slash 4,000 More Jobs
* Google to Cut 100 Recruiter Positions
* Seagate Cutting 6% of Workforce
* Barnes & Noble Slashes 100 Jobs
* Oracle Cuts Several Hundred Jobs
* Boeing to Cut 4,500 Jobs
* Cigna to Slash About 1,100 Jobs

* U.S. chemical maker Huntsman said it plans to cut about 1,175 jobs, or about 9 percent of its workforce, by year-end to reduce costs and tackle the huge slump in chemical demand.
* Microsoft announced it would cut up to 5,000 jobs and said it could no longer offer profit forecasts for the rest of the fiscal year.
* Intel said it would close sites in Asia and scale back operations in the United States as part of a restructuring that could affect as many as 6,000 jobs.
* UAL announced it will further reduce the number of salaried and management employees by approximately 1,000 positions by the end of 2009. This is in addition to the 1,500 positions the company announced in the second quarter.
* Diversified U.S. manufacturer Eaton said it planned to cut 5,200 jobs, or about 6 percent of its work force, in an effort to further slash costs in the face of a struggling economy.
* Time Warner's Warner Bros. Entertainment said it would cut about 800 jobs, or 10 percent of its worldwide staff in coming weeks.
* Lee Enterprises, which publishes 49 daily newspapers including the St. Louis Post-Dispatch, said its quarterly profit on a preliminary basis fell 69 percent and cut its staffing by more than 10 percent.
* Rohm and Haas said it plans to cut 900 jobs, or 5.5 percent of its workforce, in a bid to tackle the slump in demand and widespread market weakness.
* Bank of America may slash as much as 4,000 jobs in its capital markets units starting this week. The cuts are expected to be in New York and reflect the consolidation of the bank’s sales and trading businesses after it bought Merrill Lynch three weeks ago.

Last month, I discussed the extreme over buying of treasuries, which pushed the yield to almost 0% numbers and pressed me to buy into TBT, the 20-year Lehman treasury UltraShort. As you can see from the graph, it has done quite well for me since I got into it. I expect this short to continue to remain strong as Obama tries to spend our way out of this mess and foreign nations begin to pull their money out of our treasuries.
TBT Chart
Here also is the momentum graph for TBT. As you can see it is currently holding a +70 score, which is pretty strong momentum. I would expect it to keep going up for a bit more. Get your own symbol analyzed for free, all you need is a name and email, Click Here.

TBT ChartTBT analysisBanks came down later in the day due to more concerns of their ability to survive. Hello, why did these concerns ever go away? It didn't help that Fannie Mae is wanting $16 billion more from the Fed to keep a float and trust me, these secondary askings for money is just the beginning. In the next month or two all of them will be back at the table with their hands open. The debt coming due is monumental.

American Express and Texas Instruments reported horrible earnings and with the anticipation of a rocky GDP number this week, I would expect some days of down trading. However, the new Mr. Smart secretary who doesn't pay his taxes was sworn in today, and knowing this market, it could somehow cause some praiseworthy trading tomorrow. I'm sticking with my shorts and gold for the time being. I think the ticking time bomb is close enough to zero for me.

Well, tomorrow should be an interesting day. After hours are up, but that doesn't mean anything anymore. Take advantage of the free trial of INO video, because I believe it won't be offered much longer, click here. I hope to wake up in the morning to see some green in my Zecco.com account. We'll see. Happy trading and we'll see you tomorrow.

9 comments:

  1. Anonymous Says:

    I am worried to see a day that you are still averaging down on SRS at $40 while badly missing the rallies through 2010. Man, the fear of missing the bottom is now more as everyone knows we will see (or have already seen) the bottom. What if your bet on a "crash" proves wrong? Best could happen is that your Gold gains evens your short losses. What a waste of time. At least write some covered calls or out of the money puts to gain some real money. Good luck and thanks for all your effort.

  2. Finance Fanatic Says:

    Anon,
    If you have been reading my site, you will have seen that I have been doing a lot more than just averaging down on SRS. I have actually done 4 different rounds of buying on SRS and SKF, as well as FXP(well only 2 of FXP). My gains from my portfolio this past year show me that what I am doing so far is just fine. Thanks for the concern

  3. Kevie Kev Says:

    I think Kudlow needs to send some of his mustard seeds over to finance ;)

  4. sid Says:

    Futures keep climbing, most likely on the Geithner news. Looks like the market wants a tax crook to run the Treasury. Fine with me, I will avg down on SRS and FAZ as well.

    Clarification, the Pfizer deal will net 16,000 job losses:

    http://www.nytimes.com/2009/01/27/business/27chief.html?ref=business

  5. Anonymous Says:

    FF,

    Thanks for the reply. I have been reading your web site since 4 months ago, and I do understand that you are not only working on SRS, yes you are also working on other shorts and you hedge with oil and gold. Well understood. You did have good gains on shorts for sure and that is good for you. But, this does not mean that the market will keep going down. Canceling gains is not a good idea. Of course, you won't agree with me, but if I were you, I would start averaging "down" on longs with the gains from the shorts till the real rally happens. You all well know that most of the stocks are very undervalued considering the balance sheets. Good luck to all.

  6. Smart Says:

    Hi FF,

    How are you doing? I have managed to buy SRS at different times and my average is about $71. When do you think it would be good selling price? I can wait as long as it takes, but wan to sell at the right time. Thanks and keep up the good work.

    Smart

  7. Finance Fanatic Says:

    Anon,
    I do agree and have "long positions", GE, VZ, VMW, STP and others that I just keep on the side and sit. What I report on this site are my active trades that I plan on taking "short term" capital gains. Of course, it is a good time to buy for the long term, but as we talk about, there are some good buys now that can turn profits in just a few days. Thanks for the input.

    Smart,
    This is such a complex time for the market, with all the fluff of Obama and his new staff and their huge bailout in the works, it may be sometime until SRS is at my predicted levels of $150+. Until then, I plan on playing quickly, and taking profits on the bumps. If we keep going up today, I will buy some before close and hope to turn a 10% profit in 2 days with GDP coming up. But I still feel SRS has big gains to yield.

  8. QUALITY STOCKS UNDER 5 DOLLARS Says:

    A great take on one fine subject.

  9. Chanel girl bag Says:

    Thank you for sharing this. I think we are all made to believe, and want to believe, that high price means high quality. Unfortunately, I don’t think this is always necessarily true