Tuesday, February 3, 2009

Obama's PPT Working Group On the Job

The perks of the presidency are large.

One of them is that you have at your disposal, thanks to the "godfather of conservatism," Ronald Reagan, who, in his limited wisdom, created, by Executive Order 12631 -- Working Group on Financial Markets(otherwise known as the PPT, or Plunge Protection Team) to ostensibly put the nation's various stock exchanges under the control of top government operatives whenever necessary.

The presidency being largely a function of public relations, it seems that President Obama has finally gotten his guys together and instructed them to keep the market on an upward keel. All of the fingerprints are there: the subtle prodding, the 50-point spikes after 2:00 and 3:00 pm, the positive close. It's just so nice to be able to salve the wounds of fractured investors with a couple of nice gains.

Of course, it's merely a mirage, and a temporary one at that. Once again, I must invoke my status as Resident Genius, noting that the Dow (and by inference, the other major indices) cannot escape the clutches of pure market dynamics at the resistance line of 8149, the point at which the market must invariable submit. Today's pumping was likely some short-covering and market tinkering to keep the Dow above 8000, a key psychological level, but nothing more than that. In the long run, it's just another number on the way back down to the mid-7000s.

Being that my job is keeping track of these arcane, diabolical market assumptions, it's clear that the investment community (with the assistance of the Working Group) still has much work to do, now that the Dow has closed below our magic number 8 times since its invocation on December 1, 2008, and, with today's finish, for the fourth time in a row.

So, when your friends say smart things like, "How'd ya like the Dow today, huh?" You can even-more-smartly respond with the retort, "8149, kid, watch it," secure in the knowledge that any rally that doesn't reach that level is doomed, caught like a fly in a spider's web.

Besides, the bears have a secret weapon which will be unleashed on Friday morning. It's called the Non-farms payroll report, tracking the number of jobs lost in January (lots of them, like more than 500,000).

When the BLS releases that figure at 8:30 am, all the little knee-jerk relief rallies of this week will look like just so much noise because that's all they are. Lows must be retested and haven't been. Just getting within 400 points is not enough.

Dow 8,078.36, +141.53 (1.78%)
NASDAQ 1,516.30, +21.87 (1.46%)
S&P 500 838.50, +13.06 (1.58%)
NYSE Composite 5,268.00, +101.53 (1.97%

As for news flow, it was good early - Pending home sales improved 6.3% in December as eager buyers snatched up foreclosed homes, Merck (MRK) reported a strong 4th quarter - but soured late as automotive firms reported year-over-year sales declines for January: GM -51%, Ford -40%, Toyota -34%. It's not pretty in the auto dealer world. And it's not improving, either.

Citigroup says they're going to start loaning money again, which is really not news, or shouldn't be, since that's what banks are supposed to do, but they announced that they'll employ some $36 billion of the money the government GAVE them, for loans and securitizations of mortgages. Maybe they'll get it right this time, though any positive result from bank lending is still very much in doubt and a matter of severe speculation.

The trouble with unleashing loans across the landscape is that the lender still has no idea what the immediate future holds. No doubt, the honchos at Citi were prodded into making a public loan announcement by the Fed or Treasury or both, as the public has been outraged over the non-use of some $350 billion in TARP funds. Whether this round of lending will help Citigroup is a dodgy issue. Home prices are still falling and the economy is anything but stable. It's likely that this $36 billion to be lent is just a cover for the eventual break-up and bankruptcy of the once high-and-mighty Citi.

Market internals confirmed the move higher. Advancers beat back decliners, 3840-2624. New lows remained ahead of new highs, though the number of new lows decreased along with the gap, 250-24. Volume was nothing exciting, as low volume is becoming a semi-permanent feature of this sublimated market.

NYSE Volume 1,353,295,000
NASDAQ Volume 2,091,114,000

Commodities were mixed, if not mixed up. Oil for March delivery gained 70 cents, to $40.78. Natural gas slipped 4 cents to $4.51. It seems as though the home heating fuel folks missed their opportunity completely this winter. January was extremely cold, but prices barely budged. The Midwest and Northeast parts of the US are about to experience the other side of the coin, with warmer weather predicted for much of February.

Gold fell $14.70, to $892.50. Silver dipped 12 cents to $12.30. The precious metals are still the sweet spot in this market, especially silver, which is being suppressed in a variety of ways and is well below the traditional gold-silver ratio. Just as gold was the fair-haired boy of the previous five years, it may be silver's time to shine.

Midday, Tom Daschle withdrew his nomination for Secretary of Health and Human Services in a tax-related snafu.

Honestly, is that good news or bad? Probably a little of both. Maybe it's time to overhaul the tax code. Just a thought...

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