Storm before the Calm

A growing number of struggling companies are opting to liquidate rather than trying to restructure in bankruptcy. Bankruptcy lawyers say many are caught between a slowing economy, a lack of bankruptcy financing, and loose covenant-lite bank agreements that allowed their financial situations to worsen before creditors could intervene. -WSJ

This is what the WSJ had to say concerning the Bennigans and Steak and Ale bankruptcy filings. I believe Linen and Things is liquidating along with of some others I can't name at the moment. Mervyns, a department store, also just filed a chapter 11 but intends to reorganize. This liquidation trend is clearly an out growth of this credit crises. I can't recall anyone liquidating in the past 2 decades. They'd just file for bankruptcy protection, reorganize, and come out swinging again with a cleaner balance sheet. It didn't matter that these also ran competitors had poor returns on capital. Hardly any unprofitable bankrupt company liquidated. But that's changing. I have a feeling that a bunch of well known franchised restaurants and retailers are not going to make it and will not be resurrected either. The end result is that although it's a near term lose for the economy, the survivors will be much more profitable. Sounds like an investment opportunity. Capitalistic Darwinism the way it used to be. This is just like the 1930, I suppose, when tons of business went under.


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Another market rally catalyst might be these vulture funds buying up more of the toxic paper from sick institutions such as Wachovia, Washington Mutual, AIG, or some other insurers who have refused to write down this garbage so far. Don't forget about the institutional imperative and the lemmings who run these places. They'll watch and see how the market reacts to the so-called Merrill cleansing (yeah right). A wave of the magic wand and these clowns have found a way out of their self inflicted debacle. Their shareholders of course get screwed (like they aren't already) through the dilution of their shares. If these vulture deals start coming at us in numbers, CNBC will be screaming at the top of their lungs that the bottom is in, and the market will get all excited for a while any way.


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On Wednesday the NYA rallied late in the day taking out the weekly pivot range with a close of 8565. The ultra long SPX (SSO) ETF closed above its weekly pivot range (59.40 - 60.40) at 61.65. So far so good I guess. Its hard not to be cynical about any sort of move with these hedge fund lunatics running the asylum. Positive economic data Friday should keep the bulls in charge. However a really bad jobs number will absolutely crush the market -- probably 300 to the downside. A bad jobs number will present a quick short SPY, QQQQ type of trade.