WED. SEP. 10- Bailout Redux

In 1979, Chrysler was ostensibly forced to be bailed out by the government as there was widespread worry that the failure of that corporation would expedite the collapse of the auto industry which could spiral the American economy out of control. In 1984, Continental Illinois was deemed ‘too big to fail’ and bailed out as the Feds were worried that the failure of that bank would expedite the collapse of the banking industry which would spiral the American economy out of control. The S&L crisis of the early 1990’s was next. Over the long-run, this type of action shows that the American financial system has a few major chinks in it here and there, but the federal government can be counted on to be a backstop (with the taxpayers of course footing the bill). Stock market-wise, the stock market did not have a cyclical low until three years after the Chrysler bailout, the market did not bottom for almost a year after Continental Illinois, and it was over a year before the market bottomed post S&L crisis. Most recently, we are two days removed from the FNM/FRE bailout – a bailout that will likely prove to be the most costly in financial history. The jury is still out as to what impact on the markets this will have. Will mortgage rates go down because the government is there? Or will mortgage rates go up because there is less competition out there amongst mortgage brokers? Will real estate prices stabilize and rise because the Feds are at work restoring confidence? Or will the real estate market continue to crumble? These are not questions we as day traders need to worry about to make a living. However, what we can take from all of this is that the fallout is not over as other entities (Lehman- LEH), et al are clearly in some degree of trouble. We must focus on the immediate-term and the reaction of equities in the present rather than let our individual beliefs over the long run distort our judgment. What is good one minute may be bad the next- and it is that principle from which we trade.


Ovenight, markets are down across the board, but not heavily. Futures up pre-open on speculation of LEH news. It is a complete crapshoot today; track LEH and that is likely where the market goes- simple as that.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified

Good-

LEH- due out with a conference call at 7:30AM this morning; expected to announce many new initiatives. Should cause the stock to rally...if it fail, short thru unch particularly pre-open.

FDX- pre-announced to upside.

TXN- pre-announced good earnings.

CRM/FAST- replacing FRE/FNM in S&P 500 on close today.

WHR- on Cramer's show last night

Bad-

DIN- closed on its low.

AIG- particularly weak yesterday. This may be the next LEH.

HUM- announced they were losing several hundred thousand members as Medicare costs will be higher than anticipated.

AAPL- down yesterday despite Jobs's denials of ill health...should rebound today if market does...if market is strong and AAPL cannot hold early gains if it opens higher, short it. Conversely, if market is weak and this is holding up strong, it will trade stronger than market all day.

Banks (WM,WB,STI,ZION among others)- all weak yesterday; will likely lead the market one way or another today.

MBI/ABK - among reinsurers weak yesterday; will track financials.

MER,GS,MS- brokers which will likely follow LEH

RDN- weak yesterday

PBY- closed near low after horrible earnings; may have continued momentum.

JOYG, BUCY, BTU., ACI, MEE- among energies and coals which closed at or near lows; watch oil report at 10:35AM today.

SU, MEA, FWLT- materials and heavy oil which closed weak yesterday

OXY, EOG, COP, HES, NOV, CNX, ENER, CVI, HK, ENOC, - oils which closed very weak yesterday

MOS, CLF, ANR- fertilizer and oil entities; all closed weak yesterday

CHP- closed on a low

GHM- pummeled in recent days

AKS, NUE, X- steels which were thrashed yesterday

STP, LDK, FSLR, JASO, CSIQ- solars which closed weak yesterday

PAY- bad earnings

WED SEP 10 BEF

SRZ ? ? -1.90/1.74B -1.56/1.84B

STEI .10/130M .09/128M .42/524M .50/551M


Good luck today.

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