One thing that can be said about the market these days is that it's not boring. Tuesday the market jumped out of the Monday lows and it looked like it might be off to the races. Then on Wednesday the market tried to follow through on those gains but at the end of the day the sellers took over again.
We need to take some time to evaluate the position of the market. The past week has shown us that the market is truly on a weak footing. The market has its ways to confuse as many players as possible and it seems that now is one of those times.
As we have watched the news over the past couple of months, the market has seen the same news and decided that in the end it didn't really matter the way the housing world was going. Every day that goes by, there are more and more billions of dollars that are being "written down" and it seems that the sheer volume of items is finally waking up the market.
Today's news includes a couple of items that work into our viewpoint. The first is a Bloomberg article describing a situation about a Florida agency that had nearly 5% of its assets cut below investment grade with possibly more downgrades coming. These assets are short term and should be fairly safe but not in today's environment. Will this mortgage monster affect the money market funds we all hold?
The second item relates to the general softness in the retail sales data released on Wednesday morning. The dots are finally being connected by other people who agree that maybe holiday shopping may suffer somewhat from the issues at hand, reporting directly from the article:
"This [sales report] is the worst performance in five years and we expect a further deterioration as consumers cut back in the face of soaring gas prices, falling stock prices and the continued disaster in housing," Ian Shepherdson, chief U.S. economist with High Frequency Economics, wrote in a note Thursday.
These statements will continue because that is the trend of the economy. The consumer in general will find it difficult to spend the money they don't have. They used to be able to do that when the ATM they were living in was coughing up large chunks of money. Now they are trying to pay back the amounts they borrowed. There are some who won't be able to do that.
The WSJ reported that UBS might be reporting a $7.1 billion charge. CNN Money was kind enough to report the story so that we can bring it to you here for free.
We seem to be overly pessimistic this evening but the world is about to be set on its ear as the great speculation of the past several years starts to unwind. The unwinding of all the debt that will never be paid back will cause the investors to get less than they expected. The deflation we have talked about in the past is about to come into view. We will continue to watch this.
The stock market will put on a brave face and try to rally under any circumstance but we see that more and more there are still sellers. As the buyers get thinned out or sold, they will disappear and we will see a free fall in the market. Fear is a powerful emotion.
FSI:
Arithmetic: 96.74
Market Cap: 96.22
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