General Motors and Citi Group

General Motors (ticker: GM) and Citi Group (ticker: C) are about to be removed from the Dow Jones Industrials and S&P 500 indexes. Very nice news, and good decision - better later than never. Those companies with lousy management should be removed from the indexes a half of year ago. If it would be done in December 2008 when GM and Chrysler requested bailout money (what a scam...), I would assume the recovery would started much earlier. As I mentioned in my "Automakers Bailout - Good or Bad?" post in December 2008: "this bailout could become a waste of money", it is sad to accept, but it happened. I am still taking the same old position: "Old fat, spoiled, lazy dinosaurs has to die in order to free the way for young, strong, energetic wolves who will lead the pack... " - this what is recession is above - to clean the market and economy, so, it can develop further. If there is a demand on a product and a company producing it go bankruptcy then somebody will fill this place and will lead the economy. If there is no demand on a product then nothing and no bailout money will help.

Bailout Rush

I do not believe in any bailout. For me recessional is a process of natural selection when: those companies who lie about their stability and profitability have to die because the truth is revealed; those companies that have produced uncompetitive product and oversupplied market with useless stuff have to die because they become too fat and too slow. When you bailout these companies you are breaking the order of natural market flow when economy corrects itself in recession. This is why recession is needed - to kill and destroy the old spoiled corrupted and lazy monsters, so economy may move forward again. If you bail them out they will continue to destroy the economy, still they will die later by bringing more harm than it would be now. If you bail them out new businesses will not be born because old monsters are still alive and they are still hungry.

The purpose of the recession is too clean the economy from parasites. Yes, the current recession is very strong and very scary and this is because the parasites are very big and are in the core of the economy - in the financial system. If you continue to feed them they will not be changed into good bacteria they will grow and they will demand more and more food.

We had several bailouts in January 2008 and it was under the umbrella that it has to be done to save the economy and protect people. Yet, we still had crash in fall 2008. Then another bailout was sold to us that should save us all. Half of this bailout is already spent and we still where we were. Now we are told that we need another huge bailout... I'm just trying to image what would happened if none was bailed out in the first place and those bailout money would be invested directly into building, for instance, of plants for batteries for electric cars (30 of such plants in China and zero in USA) or building a wind, solar and nuclear power plants or in oil drilling... If it would be done a year ago instead of the first bailouts wouldn't it created new jobs and slowed down the recession? But it was not done because the old government was weak and future government (current) had interest in the economy crash and did whatever it took to make the recession as bad as possible - it guaranteed them the victory...

But this is all past. What is now? Why do we need another bailout ("Stimulus Plan") when the second half of the previous bailout ("Rescue Plan") is not spent yet? Why in rush to borrow again? Is it because tomorrow we may discover that we do not need them at all? There is no question that with all the money left from previous "rescue plan" and money from new "Stimulus Plan" the new government will be able to create jobs within the next two years and will look like a heroic government. But what is going to happen in two years when the money is gone? New bailout or new crash, even worthier then the recent? Sooner or later the borrowed money will hunt us down.

On my opinion there should be changes in the regulation of the Wall Street, in the regulation of the financial institution and regulation in the government spending. Until then, pumping money into the economy is just wasteful feeding spoiled monsters...

New Bailout

Will the new rescue package save us or this it just another project to be wasted? New President has received first slap in the face when he received numbers from Wall Street about "bonuses". It looks like the Government has power to borrow money from China and print money only. When money are moved to banks they control it and they can do with it whatever they want. I do not think there is any regulation that allows the Government to control how the Government's money are spend and until there no any I do not think the "New Stimulus Package" will work. As soon as the funds from the new rescue plan are moved to banks the banks will control them and no one including President and Government will be able to tell to the banks what to do with this money otherwise they call it "socialism".  Sorry, I'm a pessimist in trusting banks, I'll just hope and pray that new President will have enough courage to fight...

I do not want to go deep into the politics, this is a job of fundamental analysis. My job is technical analysis, to watch charts and to spot possible reversal points. At this point my charts are negative by pointing to a possibility of further slide. However, they point to the oversold market as well, thus recommending to monitor charts closely over the next few sessions because based on how heavy indexes are oversold the reversal could be sharp and very strong.

Automakers Bailout - Good or Bad?

Automakers received what they wanted. I like the requirements that were put on the them in relation to the UAW. I already mentioned last week and today's news and Government action confirmed that UAW is the main reason why the auto business has be become unprofitable. I still afraid that this bailout could become a waste of money. I'm still not convicted that it would not be better to spend these $13B on the development of new productions that would create working places. Example: $1B is required to build a plant for production of Lithium batteries for cars - there is zero of such plants in USA and 14 in China..

It looks like today's market reaction on this bailout was not very happy. Positive sentiment at the market open fainted very fast with DOW below zero by the end of the session. I think many investors are looking at this bailout as just a delay. What is next? GM and Chrysler already told that these money would be enough for a month only. It means that in January 2009 we have to expect them to step forward and start begging and threatening again. The Government attempted to delay bailout and that tells me that the Government considers it extremely risky "investment" after looking at the numbers they have and Bush statement "Preventing disorderly bankruptcy" makes me expect orderly bankruptcy instead.

Recession and Bailout

As I told before one or another way the Automakers will receive the money they crying for. Do they really need them? If their business has become unprofitable the bailout will not help but only will delay the dead end. How to become profitable - almost impossible because for that the wages has to be cut in half and autoworkers union will not let to do it, they would rather let it crush than give their power away. I think that after automakers receive money they will continue to layoff people and ask for more money. It could be the best to let it go. Yes, some companies will crush, yet, if there is a demand on the cars, somebody will replace them. If there is no demand on the cars then no bailout help them - it's simple - then it's only waste of time and waste of money. The excuse that other businesses will be damage is wrong. Only those businesses that oversupplied the market will be damaged. If people stop buying new cars then they will start to repair the old cars, that means that there is still going to be demand on the car's parts and it is going to boost new repair businesses which still will need car parts. Yes, some drillers will be shut down, but do we not need so many of them?

Recession is a process of "natural selection" when overweight animals die. This is not the end of the evolution. When lazy, fat, spoiled animals die it clears pass for new blood, for strong, creative, not spoiled youngest who desire to work and get to the top.

$60 Billions is $10K for 6 million people - it's about 4 million families (about 10 millions people) may survive for a year. Think about that. Instead of helping the dying from extra weight animals these money could be spend to help people to survive the recession, to boost new businesses, to create new jobs.

$25B

By some reason I have high degree of confidence that automakers will receive their $25B. The only thing I think they are doing now is looking for a "wrapping paper" to sell it to taxpayers under an umbrella that it is done for their own good - the same as with finacial sector bailout.

If you have a company and you have to pay your loans and debts and you have a product that you cannot sell then you have to find out how to survive. First thing you have to do is to sell the product you, at least part of it and get cash. If you cannot sell it, then you drop the price and sell it any way. You receive cash and it will buy you some time to restructure your production to make it profitable again. If automakers cannot do it then there is something very bad in their structure of business and $25B will not help them, it will only delay the death sentence… unless they need it for something else… as banks used bailout money to buy other banks…

People do not have money to buy cars and nobody wants to lend to people because they already in too big debt, house foreclosure or without job. You want to sell cars, drop the price.

What government can do beside $25B to help automakers on my opinion is

1. Increase taxes on the cars that are made oversea – you have to protect your own market.
2. Increase taxes on American cars made outside of USA – it is wrong when USA owned companies build plants in Mexico to sell product in USA.
3. Decrease taxes on the cars that are made in USA by American workers even if this is not American cars – it should attract overseas investments
4. Decrease taxes on the cars that are made overseas if 80% of the car is made from the details produced on the plants in USA – invite overseas companies to buy supplies made in USA.
5. "Layoff" union. Here government can make a compromise and give authority to the company over the union with power to close it if company guarantee that 100% of its employee have medical coverage. Union is "business killing" machine that constantly working on production cost increase and development slowdown.

There could be other points, yet, I doubt the government can do even any of above. And it is not only about car. I always frustrated when I see something in a store that is made in China but made from American material. Why is it more profitable for Chinese businessman to buy supply in USA, ship it to China, make product, ship it back to USA, sell it in USA, pay taxes in USA and China. Why does Chinese businessman not buying supply in USA, make product in USA, sell it in USA and pay taxes only in USA? Isn’t there something wrong in this chain?…

Another Bailout?

Another bailout? Can anyone explain why do we need it? Is this the beginning of the end? The explanation that banks need to land money to people so they can borrow and spend more because when the people spend it stimulates economy does not explain how we are going to recover from the crisis. Put people in bigger debt is not a solution, but only delay of worthier. People do not have to buy a car every new year just because new model has GPS and the next model has DVD - it is an automaker who has to look how to improve technology and reduce the cost - it is an automaker problem to find a new markets...

It is not a consumer problem that a producer oversupplied the market with unnecessary, uncompetitive and overpriced product. My answers to the banks is "Stop putting people into the debt - it will crush you. You may not survive on the debts of others. Work on how to make people rich and you will be rich".

This bailout looks scary for me. I have feeling that banks uses the first bailout not what it was set for and now they need another package. Increase our national debt by another trillion? What is next? - Selling Alaska back to Russia?

Another bailout?

Another volatile week is behind. I did not expect the market to retest third time the 10/10 (October 10, 2008) lows, yet it is forth time when we see rebound from this level. That is why it's important to monitor charts on daily basis, especially in these volatile days - if I made mistake I have time to reanalyze and correct yourself.

I believe there is no doubt that 10/10 high volume stopped the crash and set support level. From that time we have seen volatile swings between October 10 lows and October 14 highs. Some of the indexes dropped slightly below the 10/10 support (Nasdaq 100) and some of the indexes are moving flat on and above the October 14 level (Dow Jones Utilities).

I believe many investors asking the same question "Will automakers crisis push the market into another crash?". This is another political game and I do not know. My opinion is that what we see now is a direct result of financial bailout. We did bailout banks and now we started to discover that the financial sector did not suffer as badly as it was described - they use bailout money to buy another banks. As I understand, if they do it they were not in the need of cash to be saved... They needed the cash because now when the market is in the bottom it's good time to buy... Now automakers started to follow this example. If you do not bailout us we will crash you - doesn't it remind you something????

I was against bailout of financial sector and I'm against bailout of automakers.

This is my word to you automakers: "DO YOU NEED MONEY? DROP THE PRICE ON THE CARS BY 20% - YOU WILL GET WHAT YOU WANT. IF IT'S NOT ENOUGH THEN DROP THE CAR PRICE BY 50%". When I drive on the street I see thousands of cars in hundreds places. It tells me that you have an asset that you may sell to taxpayers and cover your losses caused by your bad management instead of threatening and asking taxpayers to bail you out... But you won't do it... You do not even think what has to be done to save this industry, what you think is how to get easy money...

PREVENTING UNJUST ENRICHMENT

"Protection from the Golden Parachutes"

I read to the page #9, I found the paragraph below, I become disappointed and did not read further... I'm not a proficient in the art of bailing out the financial institutions - maybe this is why I have luck in understanding...

From the bailout Bill:

(e) PREVENTING UNJUST ENRICHMENT.—In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset.

How do I understand it:

If a financial institution has paid for an assets that now in trouble $100K a year ago, and now the market price of this troubled assets is $1K, we have a guarantee that we will not bailout this assets for more than $100K, but there is a high possibility that we will pay $100K for something that currently worth $1K and is in trouble and could cost $0 in a few months.

Wall Street - Spoiled Kid

The bailout will be passed. If not tonight then in a few days. It's out of the question they will play around it it until it's done.

"You do not take away a candy that you've already showed to your spoiled kid. You will give it to him sooner or later".

People of the Kingdom may scream as loudly as they want - nobody will listen. They will be assured that this candy is for their own good but it will be given to the spoiled kid. The huge mistake was done in the first place when this question was risen at all and the candy was brought to the light. Now, the kid already knows that the candy exists and when the kid's parents hesitated in delivering it on Monday the kid has send strong "Black Mail" by pointing to the kid's power and ability to crash the Kingdom.

So, do not worry, the candy will be delivered to the spoiled unregulated kid. You may see it from the fact that the parents do not discuss on delivering or not delivering. All discussions are only about wrapping paper that should be used with this candy.

Main personages
Spoiled Kid: Wall Street
Candy: Bailout
PParents: .....
The Kingdom: .....
People of the Kingdom: ....

I will not be surprised if they rename the "bailout" into the something like "the Kingdom rescue action" by granting themselves as heroes of the Kingdom.

Bailout on Holliday - Stock Market is happy.

As I expected yesterday today we had very nice day on the stock market - more than half of the yesterday crash is recovered. Is it "Because the government is on holidays…" and nobody is messing with market and the stock market is doing what it supposed to do - to recover from the strongly oversold levels. Today's recovery witnesses one more time that yesterday crash was nothing more like political game to scare and press "them" to vote in favor of bailout. They still will be on holiday tomorrow... Does it mean that tomorrow is going to be nice day as well??? If yes, then maybe we have to send them for longer holiday...

Bailout

As I stated yesterday "I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it..." - today we had clear political crash. I bet a lot of traders were just looking with smile on this 1-day stock market crash followed by games in the government.

The fact that today’s crash was on light volume tell me that majority of traders are already out of the game, watching the CNN movie called "Breaking News" and just waitinng...

I think tomorrow is going to be a nice day, you know why? Because the government is on holidays…