Fwd: Cashin's Comments

FAIR VALUE = -235 BUY PROG = -135 SELL PROG = -335
CASHIN'S COMMENTS
FRIDAY, APRIL 17, 2009
[AN ENCORE PRESENTATION]
On this day in 1524, a 39 year-old commodore named Giovanni da Verrazano sailed into New York Harbor. Knowing that his backers expected news of a place where money could be made, Giovanni turned his ship about and sailed back between what have become the straits of leaded and unleaded toward more promising fare.
Eighty-five years later, an English navigator named Henry Hudson arrived at the same spot with a better P.R. man. Although Hudson would later be set adrift on an iceberg by a mutinous crew, his early marketing was apparently effective.
Soon Hudson had a river, a bay and Jack Armstrong's high school named after him, while Verrazano got a Tri-borough bridge.
To celebrate have a Manhattan on the rocks while discussing the importance of timing with a chorine from the Hudson Theater in Union City.
There was more celebration than exploration in the stock market yesterday. Nothing raucous mind you. No stampeding volume just a calm stroll to another late day levitation.
Another Late Session Rally In An Expiration Run-up – Stocks remained range-bound until about 2:00. They seemed to be stymied by the projected resistance at S&P 855/860. Then, as if by magic, the bulls tried one more time and found virtually no resistance. They marched easily through the 858/859 level which had restrained both the opening rally and the early afternoon attempt.
Once they punched through the former highs, they moved up in almost a straight line into the final hour. There was a bit of a head fake in the final twenty minutes. The Dow went from up 140 to up 85 in a matter of minutes. Traders held their breath. Would the rally evaporate? Not to worry, they circled the wagons, although the rally did not resume.
There were lots of theories about what caused the late day rally. Some suggested anticipation of earnings from GE or Citi. Others thought rumors of a possible statement from GM could be a factor. By the bell, however, most traders chalked it up to Expiration position jockeying.
A Dimon Not In The Rough – JPMorgan announced their first quarter results and the markets were pleased. The JPM chairman, Jamie Dimon pulled no punches comparing the burden of TARP participation to the Scarlet Letter (the Colonial mark of shame). He even tweaked Goldman a bit by saying JPM could pay back the TARP funds immediately. (Goldman had done a stock deal to raise funds to pay back TARP.) Mr. Dimon also said that JPM had no plans to participate in the P-PIP program.
We have written about the conflicts and unintended consequences companies have found in participating in government programs. Mr. Dimon made that very clear yesterday. In fanning the flames of public outrage toward Wall Street the government may have poisoned its own well and complicated the resolution of the crisis. Cumberland Advisors has a helpful essay on TARP troubles titled the "Goldman Exit."
Mr. Dimon also created a lot of buzz with his letter to shareholders. It runs some 29 pages. The last 14 or so are a step by step walk through the path of the crisis. It is an insightful and educational piece and well worth the read. In it Mr. Dimon touches on lots of topics we have discussed. One is the much changed landscape of lending and finance. Here's a bit on that:
It is critical to understand that the capital markets today are fundamentally different than they were after World War II. This is not your grandfather’s economy. The role of banks in the capital markets has changed considerably. And this change is not well-understood – in fact, it is fraught with misconceptions. Traditional banks now provide only 20% of total lending in the economy (approximately $14 trillion of the total credit provided by all financial intermediaries). Right after World War II, that number was almost 60%. The other lending has been provided by what many call the “shadow banking” system. “Shadow” implies nefarious and in the dark, but only part of this shadow banking system was in the dark (i.e., SIVs and conduits) – the rest was right in front of us. Money market funds, which had grown to $4 trillion of assets, directly lend to corporations by buying commercial paper (they owned $700 billion of commercial paper). Bond funds, which had grown to approximately $2 trillion, also were direct buyers of corporate credit and securitizations. Securitizations, which came in many forms (including CDOs, collateralized loan obligations and commercial mortgage-backed securities), either directly or indirectly bought consumer and commercial loans. Asset securitizations simply were a conduit by which investment and commercial banks passed the loans onto the ultimate buyers. In the two weeks after the Lehman bankruptcy, money market and bond funds withdrew approximately $700 billion from the credit markets. They did this because investors (i.e., individuals and institutions) withdrew money from these funds. At the same time, bank lending actually went up as corporations needed to increasingly rely on their banks for lending. With this as a backdrop, let’s revisit the main causes of this crisis in more detail.

Cashin's Comments
Friday, April 17, 2009
Page 2
That is why the Fed has had to scramble to address the crisis. The banking system has outgrown the Fed because there is (or was) more banking being done outside the banks than within them. That is also why it has been difficult to re-liquefy the system.
The Wizard Returns – Pimco's Mohamed El-Erian was back on Squawkbox yesterday. He was not the guest host so his comments were time constrained. He echoed some of the "new normal" themes he laid out in the tutorial back on April 7th. He touched on the new role of government.
It has become a marginal price setter and this is a new world for many investors. We’re not used to the government being on the playing field. We’re used to the government being the referee but not being a player. But the government is now a player in many markets.
He responded to a question from Carl Quintanilla with the following observation:
What I’m telling you, Carl, is that when the patient comes out of ICU, having suffered cardiac arrest, the patient will behave differently, there will be much less leverage and credit in the economy. There will be much more government intervention in the economy. And people will be more cautious. The household will be more cautious. The results of that is an economy that grows less fast than it has in the past, and then if you look globally, you have to take into account that certain countries had better initial conditions coming into the crisis. So the new normal speaks critically to the fact that we will see different patterns. And investors have to not only travel this journey to the new normal, but they also have to position for the destination, which is different than where we’ve come from.
Thanks to the folks at CNBC we now have the full two hour closed caption of the tutorial. If there are enough ice cubes in the house this weekend, we will try to put together a full review to expand on next week. I think there's lots of good stuff to mine.
Mea Maxima Culpa – Or – Don't Work With Wet Napkins – In Thursday's Comments we cited a support area in the S&P at 832. We said it was a 50% retracement level of the rally. That was dead wrong and the result of a transposition far too complicated to explain in this space. The 832 level does represent support but for other reasons. We will try to see that the napkins are fully dried before interpretation in the future.
Cocktail Napkin Charting – We think the looming correction was likely postponed by jockeying in front of Expiration. The bulls may also have benefited from the "tax day" phenomenon. There is a historical upward bias on April 15th and the next couple of days. Support looks like 848/853 and then 838/842. Resistance looks like 875/880.
Consensus – It's Expiration Day so almost anything may happen. Rally is long in the tooth and scheduled for a pullback. May be best to hunker down and make weekend plans. Stay alert and wary.
Trivia Corner
Answer - The hyphenated adjective with six of the seven upper consonant ants was "half-baked" (at least that's my theory).
Today's Question - "It's the new sneakers, I tell you!" Teddy challenged his pal, Art the Gimp, to a speed walk race around several trading posts. Teddy covered the course 2 1/2 times faster than Art and beat him by 60 seconds. How long did it take Teddy to cruise the course?