The market makes a big up push on Wednesday which should be the start of the "fill" we have been discussing recently. There is a problem with this thinking process, the move wasn't big enough on Wednesday. It failed to get above the highs of the last week in the indexes we follow which leaves the door open, at least, to a total upside failure. We see the futures are trading higher this evening offering the possibility of higher prices than last week.
The problem remains that the major indexes are weak. Normally we would see a stronger push than we did on Wednesday leading to a full move up to the 13,750 we have been mentioning. If the market can not get over last week's highs, the stage will be set for a huge drop. We don't see that happening because of all of the possible bullish news items due out over the next week. Weakness is clear but how weak is it, really.
The news is thick with Wednesday Update type items. The first is the front page article on Thursday's WSJ, a story on Auto-Loan delinquency. You may ask, what does that have to do with the Update? Well, this one of the fallouts from the housing situation and the WSJ seems to connect the dots:
"Car loans differ from home loans in one crucial way. During 2004-06, many home loans were made to speculators on the assumption that the underlying asset -- the home -- was sure to keep rising in value. Many people, inspired by fervor in the market, took out home loans that in retrospect they had little hope of paying back.
By contrast, everyone understands that the car behind a car loan is an asset destined to lose value. The typical delinquent borrower in a car loan isn't a speculator but someone who became unable to make what previously seemed like a manageable payment. That is why car delinquencies are closely linked to the health of the economy. "
Then, on Thursday, the Bush administration is unveiling a plan to help the homeowners who can make their payments under the pre-reset interest rate but not after the reset. The politicians want to swoop down and save the day. Unfortunately, the problem is Too big to solve. When the problem started everyone, including the politicians, were considering that home prices would naturally go to the moon.
The President's proposal is designed to help a small segment of the foreclosure pool. Not everyone can be satisfied but as Fleck reported this evening, there was a Contract signed at the outset of the mortgage. Contract law has a long history that is being questioned at this moment in time. Do politicians really think they can just wave their hands and break these contracts? If they can do that, they can do anything.
And, without much detail, MBIA dropped 16% to 27.42 which seems a little lower than its price back in early October, 68. (symbol MBI if you care to try it on bigcharts.com) From the WSJ: Moody's Investors Service said that it considers MBIA "somewhat likely" to fall short of its capital requirements. Investors seized on this wording, since Moody's put MBIA in the less-likely camp just one month ago.
And, last is the Fed outlook. On Wednesday ADP, the payroll company, said that their employment estimate had jobs increasing by 189K compared to an expected number of 60K. Still, the estimate for Friday's report remains closer to 60K, at 78K. Plus, the productivity number was stronger than expected, too. So, the economy seems to be percolating along and at the same time the credit market is in a crunch and the dollar is declining, or was going into the last few weeks.
What's the poor Fed supposed to do? As mentioned in our last post, the Fed has plenty of room to lower rates if they so choose but with the GDP up over 4% in the last quarter, the employment numbers in pretty good shape, and the stock market in pretty decent shape, an interest rate cut seems pretty self serving, for the banks only. We have yet to decide what the number will be but we will make a stab in tomorrow's post with an refined number early next week--before the number comes out. Our initial thought is, "How can they lower by more than 25bps?"
FSI: 104.70 (and RIMM is down four days in a row, not much but down???)