EOT Position Update – December 3, 2008

December 3, 2008

Market Snapshot

The Dow’s trading around 8,300 as I’m writing today’s update.  November ended another month of choppy markets, and December looks to be holding the trend.  The last five days have seen the market continue to swing by several hundred points per day.

The market overall may have put in a bottom in late November.  I’m watching closely to see if it holds.

The big news this week . . .

This week the Automakers marched on Washington begging for money.  I don’t know if they’ll get it or not, but you can read my thoughts about it in the “Parting Shots” section below.

The Wall Street Journal reported on fears that Goldman Sachs (GS) might lose as much as $2 billion this quarter.  Goldman reports earnings on the 16th of December… We’ll see what happens.

Friday’s post Thanksgiving rally seems to be a head-fake with mixed results since then.

Oil prices continue to move lower… despite saber rattling from OPEC about rate cuts. Low oil will continue to help the economy well into 2009.

Now for the trade updates.

Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  I try to focus on the positions that have some significant news or price movement.

 IBM January 2009 $60 PUTS (IBMML)
This was a new trade that just went out yesterday.  Everyone should have had the opportunity to get a position established.  Resistance is $90 and $95.  Support will be at $72.50 and again at $70.

  KSS December $30 PUTS (KSSXF)
KSS continues to bounce around that $30 level causing the option value to whipsaw. I’m expecting more bad news out of the retail industry this holiday season.  However this option will expire in a few weeks.  If you still hold the option, look to exit soon.

  JCP January 2009 $30 PUTS (JCPMF)
Like KSS, JCP continues to whipsaw.  We’re well in the money on this option.  I’m expecting more bad news out of the retail industry this holiday season.  You might hold a bit longer in the hope of another leg down.

Parting Shots…

Automakers Ask Congress For Billions!

A few weeks ago the Big Three automakers descended on Washington begging for a bailout.  Congress listened to their pleas then sent them home empty handed.  The auto execs were to return a few weeks later to present restructuring plans for their businesses.

The automakers are returning to Washington.  Tomorrow is their big appearance.

The spin machine is driving overtime with the motto… It’s not a bailout it’s a loan.  It’s being chanted relentlessly.  They’re asking for billions and billions of dollars.

If you ask me, they should be sent home, hat in hand.

The auto industry is no longer the industrial giant it once was.  Unfortunately, the companies are being dragged down from commitments made over the last several decades. I know they employ hundreds of thousands of people. I understand that hundreds of smaller businesses are suppliers to these companies.

I realize a bankruptcy could impact the overall economy.

Here’s the bigger problem.  If you can’t make an honest profit selling cars, how are you going to repay your debts?

The cost of producing vehicles continues to climb.  Just look at the auto companies’ financials. Their profit margins aren’t what they once were.

On top of that you have a massive infrastructure.

Most people don’t realize the cost of infrastructure needed to build vehicles.  Auto company earnings now barely cover manufacturing costs… let alone the cap-ex costs behind the factories.

If an automaker or two goes bankrupt many people will lose their jobs.  But saving jobs now just so we can go through this same situation again a few years later doesn’t make any sense.

Why should we continue to fund businesses that lose money?

In my opinion, Congress should reject any form of bailout or loan.  The money should instead be spent to retrain employees for other jobs.

The car makers that do survive will be all the stronger because of these moves.

Tomorrow the automakers will be in Washington.  Call your Congressman and encourage him to tell the automakers to take a hike.  Spend our tax dollars on something more productive.

Category: EOT Update