It's stimulus day, aren't you excited?
Apparently the markets aren't as we are down considerably in early morning pre-market trading (7am). Asia got hit hard with the Hang Seng dropping 500 points (5% since last week), the Nikkei off 1.3% (5% since last week), and even the Shanghai, which has had a fantastic run, fell 3.2% this morning. The FTSE is testing their own 5% rule on their third consecutive down day while the CAC bounced right off the 5% line at lunch and the DAX needs to get more bouncy just to take it back.
Kind of a disaster on the whole isn't it? One big reason for all the market dips is the dollar is flying as investors scramble for safety. Gold (which I may have mentioned a fondness for) is up over $460 as banks and property firms lead the way down on feelings that simply not enough is being done to right that sinking ship. The overriding concern of the day is the deadline for the Big 3 auto makers, who are required to submit a
fantasy plan showing they can (ROFL) be made viable after already receiving $13.4Bn in emergency aid. I have long stated that the failure of one of the Big 3, most likely GM, can sink the markets 20% below our 8,650 mid-point, to 6,920 and 7,785 is exactly between the two so it should be no surprise that we are at that point on a day of uncertainty like this one.
The US banking industry also faces uncertainty as the final stimulus bill includes harsh restrictions on executive pay at banks receiving Federal aid beyond the $500,000 cap already announced. In the final bill, bonuses for senior executives and next 20 highest employees at companies that receive more than $500 million from the Treasury are restricted but ALSO "The soon-to-be-law prohibits paying commissions, which are the lifeblood of a salesperson’s income,” said Scott Talbott, vice president for government affairs at the Financial Services Round Table, a Washington trade group that lobbies on behalf of banks. “Non-TARP companies, like hedge funds and foreign firms, don’t have this restriction, so it will be easier for them to hire the top producers away."
This change may be overreaching somewhat and could make the acceptance of TARP funds "toxic" to the banks they are supposed to support.
Hey, screw those guys! That's right, screw them! Look at this chart and realize what a scam these people are running. The actual firms, the companies you buy stock in (and this is just GS, MS, MER, LEH and BSC), made $12Bn in profits in 2007 yet the people working there took over $100Bn in salaries and bonuses. What the hell kind of business model is that? We had to pay these guys $95Bn in '06 to earn $30Bn but last year, in 2008, these crooks took $60Bn in compensation for losing $7Bn (and that's just what was booked)!?! So let these greedy bastards threaten to take their con game overseas and good riddance to them, they do nothing for the economy but churn fees and skim the profits away from people actually doing the work. Do not be sucked into the pity party for the middlemen, imagine what would have happened if these 5 US Investment Banks were not able to take $500Bn in transaction fees since 2002 and that money actually went to the companies doing the IPOs or went to the shareholders of the companies being acquired – now THAT's a stimulus!
I'll put it out there right now – if anyone wants to do an IPO, I'll handle it for a flat $10M, that would be $70M less than Google spent on their IPO and I'm pretty sure I could have gotten just as many people to invest in GOOG as these guys did for the extra $70M. Yes, not all IPOs are easy to raise money for but that's the problem isn't it – companies that are too weak to IPO do so anyway by paying these hustlers to scam investors and THAT'S why they get the big bucks. In fact, the 3% fee paid by Google to IPO was less than half the industry standard 7% and that doesn't even include the preferred stock and other options the firms skim off the top.
So happy Tuesday to you! I'm sorry but that needed to be said, we discussed it some last week and I've been moving more and more towards the camp where we have to let this industry die. We don't need brokerage firms to fund business. Good businesses will find investors and bad businesses shouldn't have them in the first place. All this industry does is distort the game and funnel capital away from good firms and to bad ones who are able to lobby better or hire bigger rainmakers to raise capital. Capitalism is supposed to be based on survival of the fittest, with investment capital chasing the companies that provide the best returns – not whatever makes Goldman's "conviction buy list" or any company your broker has an "in" on. Did we learn nothing in the dot com era?
As I said in our Weekend Wrap-Up, we finally have some evidence of rotation, rotation away from the BS commodities and other ridiculous vehicles that were pushed by the brokers who made themselves $100Bn in fees while putting their clients into toxic assets. Effectively, it is costing the US $8Tn to pay for the $500Bn in fees these guys created pushing bad products and even worse investing ideas on America – it would have been a lot cheaper if they would have just said "stick em up" and we gave them a Trillion…
So today we get the next (and certainly not the last) Trillion dollars of bailout spending and investors have already decided it's not going to be enough to save us, but I'm starting to think that flushing all this garbage out of the system may ultimately be the best thing for us. Capitalism has lost it's way, we have sent so many jobs overseas that there are no workers left in this country to buy the goods that we have to import back in – gee, who'd have thought?!? I can make an Indy race car go faster by tossing out the weight of the driver but that doesn't make it a good plan does it? Capitalism has lost it's drivers as the insatiable greed of Wall Street caused the United States economy to crash. Fortunately, the drivers were thrown clear before the empty machines hit the wall and we still have the people we need to build a new economy – they just need to be given the opportunity and that's what this stimulus is about, it's an opportunity to rebuild our economy and it's just too bad if the investment bankers aren't along for the ride.
Hopefully 7,650 (-2.5%) holds up on the downside and we can get back to 7,785. Of course 800 is the critical line for the S&P although 788 is the official 50% off mark for a spike down. On the Nasdaq it's 1,431, 5,194 on the NYSE and 428 on the Russell – all may be tested today so let's be careful out there but we're already bearish and holding those levels (NYSE will be hardest) by the day's end could actually be encouraging. We'll have to play it by ear and, of course, have our Mattress Plays ready – just in case!