Sideways is Good

Futures are in breather mode this morning after yesterday's big snap back rally. That's good for the bulls as a huge gap up would be met with immediate profit taking.

There is chatter now that Obama's budget has to be reworked as some Democrats just will not sign off on it, that could bring some near term confusion, but in the long run could prove to be a positive for the markets. Stay tuned it's still early.

Jim Chanos is commenting that AIG looks like Enron, he should know, he uncovered the scam there, but what does he know, he's just an evil short seller. Speaking of hedge funds will they be lining up to buy the toxicity soon? If you have $10 billion you can step right up to the plate. Here is Timmy's web site. Oh, and buy all means, bring your leverage because leverage is a good thing when the govy needs your help.

More of the Same

AIG received bozillions from you and me, yet the chatter of an imminent bankruptcy made the rounds yesterday on a report that they have found a way to lose $60 billion. They now have hat in hand for "more" money. Let it die.

JPM, the "bluest" of blue chip banks practically eliminated their dividend yesterday. You heard it all here six months ago as I said all dividends would cut dramatically if not eliminated entirely. Oh, by the way, the ones that survive will still be back for gobs of dilutive capital and I still anticipate all of their credit ratings to be downgraded. Oh joy.

Don't you love the speed with which Washington is dealing with this problem? By the time they announce the next announcement of an announcement, the DOW should be 5000. Keep up the great work, your fingers are right on the pulse guys.

Staring Into the Abyss

In case you missed it, the video above is Rick Santelli from CNBC voicing his opinion on TARP, the housing initiative and the stimulus package. Evidently the market mirrored his passion today as they pretty much sold everything they could. Energy showed some strength, but the toxic beast known as the financials, fell of a cliff and the XLF made another historic low. FAZ was brilliant for me again and unless the financials go zero I just don't know how much may be left for me in that one, although a total surrender of all things equity may do the trick. I've squeezed many pounds of flesh from this one, and next to SKF, it has been the greatest security I have ever owned.

Bank of America has joined his good buddies at the watering hole, AIG,FRE,FNM and C, the most expensive one is buying the booze, but BAC forgot his TARP card so as usual it's on us. I wish I took a screenshot yesterday as I opined that we may never see it at $5 ever again. My constant rant since last summer that COF would be $5 looks to be coming a reality too, amazing times for sure. The financials will soon acquiesce completely and we will know who the survivors will be by the action in their respective stock prices. The separation of the wheat from the chaff will start soon.

What We Know So Far

Bank of America is in talks to by Merrill Lynch at $25-30 and could be announced as early as tonight according to the N.Y Times and the Wall ST. journal.

Barclays and Bank of America have walked away from Lehman and liquidation/ chapter 7 is next. (this could change but I doubt it)

Wamu is still in hot water- will JPM be a white knight?

AIG will be talking about a massive restructuring in the morning.

The market will be off the hook tomorrow---capitulation anyone? Sold to you...

"No Ticky No Shirty"

That's what Barclays has just told Mr. Paulson. They have walked away unless the Fed gives them a guarantee, which Paulson has said is out of the question. Unless things change, and fast, Lehman will be heading for liquidation. Watch out below.

At least we have all that good news though from AIG, MER and WM tomorrow. Gonna be ugly.

Lehman, AIG, Merrill Lynch and the Catastrophic Ripple Effect

If Lehman does actually just "go out of business", I believe it will be the straw that breaks the camel's back, even though everyone already seems prepared for the worst. The risk that I think will turn into a panic, is that of counterparties that do business with these names. It may be like a room full of cockroaches when the lights go on Monday morning-or should I say when the lights go off.

Here is what is being reported by Dealbreaker:

Gloom Descending On Wall Street As Worries About Funding Good Bank/Bad Bank Plan For Lehman
Posted by John Carney, Sep 13, 2008, 8:00pm

The meetings between Federal Reserve officials, senior bankers and regulators to discuss a rescue of Lehman Brothers ended without any clear resolution to the situation. At least some at the meetings now believe that Lehman may be beyond rescuing, and that the focus when the meetings resume tomorrow should be on an orderly unwinding of Lehman. A good bank, bad bank plan has been worked out but it's unclear if Wall Street banks can provide adequate capital to fund the plan.

Although the formal meetings are over for the evening, across Wall Street executives and regulators continue working. New York Fed President Timothy Geithner is still at the bank's headquarters, according to the Wall Street Journal.

"A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street," the Journal reports.

CNBC reports: "Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman's bad real estate assets and create what's knows as a 'bad bank.'"

We understand that as early as last night a major focus in the meetings has been addressing the possible domino effect from a Lehman being toppled. Many other Wall Street institutions have large counterparty exposure to Lehman, and a liquidation of the firm could be costly. The stock drops at AIG and Merrill Lynch on Friday are a major source of concern.

AIG

AIG , WMT and The Jets

Well the analysts were looking for $31 billion in revenues for the quarter and they came in at $11.8 billion. Again, I want to thank the analyst community for the miss. How much do they pay these guys? The value added is just over the top. Yesterday I posted the absurdity of a buy and a sell on AIG on the same day by two different firms. I'll never get it.

Where will the agriculture stocks go today? I had luck long the sector yesterday but today could be the opposite. Watching MOS, and POT.

And the Jets get Brett Favre. We'll still go 9-7 but it should be interesting. Our receivers can't catch his juice.

WMT could cause problems for retail today. I'm still short RTH. The stimulus checks have now worn off, so I expect the true colors to shine for all of the retailers. Ugly.

Bear Market Rallies Are Nice, Aren't They?

I am just not drinking any kool aid, not at all. I'll trade it, but the last few big moves have all been given back. If you want a sense of how confused the market still is about financials just look at the recent calls on AIG. Today Soc Gen went to a sell and yesterday UBS went to a buy on the name. How can intelligent people view things so differently? Of course one of them will be correct in his or her view. Don't you just love how Wall St. gives you just a 50/50 success rate. Even worse if you actually do listen to analysts.

Let's see if commodities mount a rally today or continue the rollover. I think financials should be sold.

Should Be A Tough Day

Oil is ticking at around $124.80 as I write and world markets are getting a cold slap in the face this morning. AIG should set the stage for a pullback in the financials. Citibank may shed $400 billion in assets.They have a $2 trillion balance sheet. What a monster company. I think they will let some air out today as there isn't a positive catalyst in site, and oil prices are really starting to piss the market off. With most earnings out of the way and commodities soaring it may be a good time to step aside or increase short exposure. Keep an eye on yesterdays lows to see if they are violated. I think they will crack. Critical juncture in the market as the rebound could be seriously tested here.

I guess folks that think inflation is contained( uncle ben) ride bikes and don't eat.