Monday, December 04, 2006

Price Move Monday

On page one of the WSJ you will find and article entitled “More Borrowers With Risky Loans Are Falling Behind” with a subtitle of “Subprime Mortgages Surged As Housing Market Soared; Now, Delinquencies Mount.”  We recommend this article and hope that you can find the time to read some or all of it.  According to the article the Subprime market has had some historically low delinquency rates until the past year.  “But as the housing market peaked and loan volume leveled off, some lenders responded by relaxing their lending standards.  Now, the downside of that strategy is becoming more apparent…’We are a bit surprised by how fast this has unraveled,’ says Thomas Zimmerman, head of asset-backed securities research at UBS.  Roughly 80,000 subprime borrowers who took out mortgages packaged into securities this year are behind on their payments, the bank says.”

The article goes on to say that “Delinquency rates have been rising steadily since the middle of 2005.  But the trend has accelerated sharply in the past two to three months, according to an analysis by UBS.  The figures don’t include loans that lenders were forced to repurchase because the borrower went into default in the first few months; such repurchases also have increased sharply this year.”  

We point out this article, that you will no doubt see for yourself if you pick up the WSJ on Tuesday, because we are paying attention to the housing market and how it will ultimately affect the stock market, however, not today, apparently.  Today, the market heard that PFE (Pfizer) was pulling one of its drugs out of clinical trials and investors decided to pull out of the stock.  PFE dropped about 10% and it is part of the Dow.  

Still, there seemed to be no stopping the Monday bulls on their way to a 90 point Dow advance and an SP 500 advance that took that index to a relative new high.  We did say that these new highs need to be respected but they should occur with other indexes doing the same thing And on chunky volume.  Those two things did not happen on Monday.  Volume was light and priced moved up strongly.  

We remind you that we have our sights trained on Friday’s jobs’ report.  We are looking at maybe unloading our bonds on Friday morning if we get the weakness in the jobs that we think.  That should give bonds a nice boost and give us a chance to sell our TLT’s.  We will monitor this situation this week for insight on whether to make this trade or not.  We have been comfortable in bonds for the past year or so and the last couple of months have shown strong price moves.  Now, we are thinking it may be time to step back.  With Bill Gross of PIMCO getting nervous about bond spreads, we are thinking it’s getting time to protect some profits.      

Dow Industrials:  12,283.85  +89.72
VIX: 11.23
QQQQ:  44.26
RYVNX:   16.91
RYAIX:  21.45
RYCWX:  36.31
TLT:  91.58
BEGBX:  14.43

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