David White

The Perfect Storm: Even with Bailout, Economy Is Hurting

Good article. The old Wall Street adage, "Buy on rumor. Sell on fact.", may be in play right now. The rumor of the bailout is certainly lifting the markets. However, the SPY put in an intraday double top today just after Nancy Pelosi and the White House issued statements about a bailout deal being near. This is probably a bad intraday sign. However, it is also probably a bad longer term sign. The failure to take out the high intraday after that news indicates a definite downward trending bias. Then too the durable goods orders and the unemployment data were terrrible today. They were much worse than the market expected. Yet the market is still up. One has to wonder how long this situation can last. The GE news was atrocious also. They scaled back their earnings estimates, and they announced there will be no dividend for the first time in over 30 years. When the bell weathers start worrying about their cash positions, you really have to wonder about the less stable companies. Certainly there is not much corporate credit out there. What are all those struggling companies going to do? I don't think the bailout addresses the commercial paper market to any great degree. It seems likely the M&A activity will be affected also. Without a lot of credit, many companies will have trouble buying others. Probably most acquisitions will be with stock. A few companies could benefit. Cisco Systems is relatively cash rich. Their business will be hurt. However, they may be able to acquire a lot of smaller companies on the cheap for stock during thsi time. This may help them grow. Still they lost their best acquisition strategist in Charlie Giancarlo. Are their acquisitions going to make sense? Are they going to implode with bad strategic decisions? Are they going fail to act due to bureaucratic inability to make decisions? This is certainly Cisco's big opportunity. Will they make anything of it? How about IBM? They are another that could may hay while others falter. Will they?
As I write this the SPY is hitting its top again. It will try to take it out. Will it be a triple top (a worse omen than a double top)? Or will the market continue upward? From what I am seeing (and the news I am hearing), the longer term trend seems likely to be down for the near term, even with the bailout. Even if enacted, the bailout will take time to take effect. There will be more bad news in the meantime, and that is assuming the bailout works fairly well. Cash doesn't sound so bad at the moment. A few puts on specific stocks might be appropriate. PPC has gotten killed recently. There have to be other companies in roughly the same boat. It might be a good idea to look for them.