Thursday, February 28, 2008
On Thursday, the market got off to a poor start with the help of several news items. The first item was the weekly jobless claims which jumped and were higher than expected. This number is unpredictable anyway but the fact that it jumped gave the recession theory some credibility.
Then came the news from Thornburg, the troubled mortgage lender, who said they were trying to make Margin calls on their investments. The key for the market was the Type of mortgage in question and in this case they were Alt-A, no these were not subprime. So, when the world had decided the subprime Problem was contained, they were Hoping that was the case. Now that Alt-A is starting to show up with problems, the stock market was not happy.
You know that the market doesn't like looking at facts that are bearish so there was another item they had to look at, the revised GDP. The market expected a bit of an improvement in the last estimate, which was 0.6%. But, while a number around 0.8% was on their minds, they got the same old 0.6%. This also provided fuel for the recession talk.
The Chairman of the Fed was still on the Hill speaking to the Senate on Thursday. The important points of his speech are concerned with interest rates and the economy. What do you think he said about lowering rates--you guessed it, he was clearly ok with lowering rates. Almost immediately the futures market pushed the probably of a 50 bps cut at their March meeting to 100% and started moving in a 75 bps cut.
The Chairman had his eye on inflationary pressures but said he wasn't really worried about it, but he did say it may make the Fed's job a little tougher. The Chairman also thought the dollar was in no danger of being displaced as the world's reserve currency--the keepers of the Euro may argue with him since it seems to be moving up every time the Chairman speaks about lowering rates.
The President got into the same pool as the Chairman of the Fed when he asserted that the economy wasn't going into a recession. Yes, he said we have had some slower Growth but the economic stimulus should help. So, we now have the Chairman of the Fed and the President of the US both telling us in loud words that we will not go into a recession. Both of them think they can mandate there will be no recession. The rest of the world is making the opposite conclusion, which is that the US IS going into a recession and may be there already.
After the market brought some bad news from both AIG and DELL. AIG says it lost over $11 billion on some of its investments and would therefore put in a losing quarter. DELL disappointed its shareholders with its after hours announcement.
We are pretty sure there was some good news out there somewhere but we couldn't find any. The market could not disregard the news on Thursday and sold off by the end of the day.
We are getting more convinced that the market is ready to spike lower and maybe that could start on Friday. The major successful test of the resistance line somewhere around 12,750 has solidified our thinking. This market is so ready to fall out of bed and the participants will hit a little fear and probably hitting sell orders as well.
The only thing we can do this evening is wait for the developments. This should be a spike down based on the technical picture. Let's sit back and watch this.
Wednesday, February 27, 2008
One thing we want to mention this evening is the notion of a "bull" market. We have seen market action when the market is in a "bull" phase. Bull markets don't let you get in. If you want to buy something, you don't dare wait until tomorrow because even a pullback in prices tomorrow or the next day would put the price higher than it is right now.
On Wednesday morning, the market got a little shock from the durable goods orders which were down 5.3%, not a great result after all of these rate reductions. But how have those nice rate cuts been doing for the stock market generally? Well, let's take a look.
The time of the first cut, a 50 bps drop on September 18th, the Dow had been right around 13,500 and then the Dow moved up to its high close just over 14,100. Just prior to that cut, the Fed Funds rate rested at 5.25% and now after several cuts sits at 3% and you do remember what level the Dow is today. Yes, right at 12,750 or a little below that since the test was successful and the Dow couldn't hold that level.
So, with the Fed lowering rates from 5.25% to 3% in about four months, the Dow has managed to gain, hey, wait a minute, it has Lost 750 points. Good thing we got those rate cuts so the bulls can make some money.
The other big news on Wednesday was from OFHEO, the regulatory body that oversees the likes of Fannie Mae and Freddie Mac. OFHEO, the Office of Federal Housing Enterprise Oversight, a big mouthful if nothing else, said they would agree to allowing these GSE's to buy mortgages higher than the $417,000 limit they have had to live under for a while now.
This announcement launched both of these companies with both companies trading near decade lows. The launch propelled the Dow to get to our 12,750 test but then fell apart. FNM managed to close up 1% but FRE ended down on the day, this after both of them were up about 20% on the day.
There was one other, hardly worth mentioning, event on Wednesday, that being the Chairman of the Fed's remarks over on the Hill. He said some pretty amazing things (sarcasm, in case you were wondering) about the Fed being willing to lower rates if necessary and that we really should be concerned more about slowing Growth and not so much inflation. Let's see, the stock market has lost 750 points on the rate cut news so yeah, let's have some more cuts. The Fed can do magic with its elixir, or can it?
PS With any of you new readers out there, please feel free to put a comment out there with your questions or comments. We try to answer them at least in the next post. Plus, you can remain nameless if you like and no one will know who you are. Thanks for stopping by.
Tuesday, February 26, 2008
Top Line: The stock market is challenging our 12,750 resistance level. The area did hold the advance on Tuesday and we will need to keep an eye on it over the next couple of days. The NASDAQ indexes didn't do as well without IBM in them. In fact our own FSI was down to a new low with all four components down on the day (GOOG, AAPL, AMZN, RIMM).
The blue chip indexes (Dow INDU and SP500) enjoyed a good up run on Tuesday on the back of IBM's news that it would buy back another $15 billion worth of stock. When their announcement came, IBM jumped 4 points (about 4%) in about a minute, equivalent to about 40 points in the Dow. This news was enough to counteract all of the other negative news. Well, we're not sure the record oil price is negative news these days, we think so but the stock market doesn't.
The big bad news was the PPI, Producer Price Index, and that was up a magnificent 1% and the "core" PPI was a little high, too, at 0.4%. The other number was the consumer confidence at 75, a number that the WSJ says is the lowest in 15 years except for the early days of the Iraq war.
Another article that popped up in the WSJ on Tuesday was an (opinion) article on the bond insurers entitled "AAA Oliopoly" back on page A18. Since it is a pay site, we thought we should let you know the key point--"why were the bond insurers facing downgrades in the first place?" The article says that it's in part due to the original "faulty" ratings from S&P or Moody's.
Back to the future: The stock market is at a critical point here. As negative as the news is, there should be no possible way the market could go up but...We know that the news doesn't drive stock prices. We need to wait another day or two to see if the 12,750 level holds the advance. There are strong month end tendencies--which we acknowledge but don't believe they really matter. But, we wait...
FSI: 74.07 (new low after GOOG's back to back 20 point plus down moves)
Monday, February 25, 2008
The news from S&P doesn't sound as good as the market traded. When the news hit the wire, the stock market was only paying attention to the headline. That headline was that Ambac would Not lose its rating. The fine print was, "not Now".
Last Friday the market jumped on the scent of the "bailout" for Ambac. While Ambac was working on getting some funding/capital to keep its rating, the shareholders were getting worked over. One of the proposals for Ambac was to sell some additional shares in the company. Let's see, how many shares would you like? Stock is trading around 10 and now they want to triple their stock outstanding to get the needed capital infusion. We suspect the price of the stock might not stay at 10 bucks.
But, let's get to the bottom of this stock market analysis. How does this affirmation give us confidence that the market should be bought? Does the Problem go away now and what was the problem exactly? We think the market has also been suckered into believing that there is some connection to bearishness when Ambac was rumored to be downgraded. Bearishness in the global sense, not just for Ambac as a company but the stock market as a whole.
While it is true that the major defaults would not be a good thing for the market, having a little AAA insurance seems to be good enough. We suggest that the problem is bigger than a little insurance. This blog has a core belief that the economy will suffer from the housing problem. Ambac insures some of the mortgage backed securities that are directly tied to the houses that we are talking about. Somehow, Wall Street thinks that as long as there is insurance, there is no problem.
Oh, and by the way, MBIA decided to forgo its dividend to shore up its capital situation. On Monday they were also planning to split up there business into two pieces, the mortgage (they call it asset backed) and the municipal. As Fleck said, bad plus good equals less than 0.
These two companies, Ambac and MBIA, have both dropped about 80% the past year and have done several things to bolster capital against the screaming mortgage market. When will that problem be over? The bottom line is that the market has, for the moment declared this problem solved. Let's see what transpires now.
We noticed that there have been a few articles that might have been written by us over the past few days. We thought you might think so, too. The first is one from Bloomberg on the stimulus package announced by the Fed and the Government.
Here's one on people digging into their 401(k)'s. The article talks about how they had to tap into their retirement fund and now also need to sell the BMW!!! because American Express had reduced the limits on their credit cards??? What is wrong here??? We would say that people wanted to take advantage of easy credit (remember, we call it debt here at the Update).
There are more stories just like this one. We couldn't find the article but the woman was quoted in the article saying she couldn't make the payments on her child's preschool education. Why? Because a bank had called her and told her that her home had gone down in value and they were reducing her home equity line of credit. She had been writing checks on her HELOC for the costs of preschool!!!
FSI: 76.54 (GOOG was down hard on Monday)
Sunday, February 24, 2008
The world seems to want to allow the market to go up since it's been down since October. Since the January lows, there has been a little corrective rally that has now run its course. That is not what Wall Street expects and is certainly not what the Fed has spent all of these bullets to achieve.
Speaking of the Fed, the futures market has priced in a nearly one hundred percent probability for a half point cut in the funds rate at their March meeting. Then there is the near certainty of the Fed lowering rates to 2% by summer sometime from 3% today. We're pretty sure that the Fed has no shame saying that the economy won't go into a recession this year, and all the while driving rates down. More and more people are starting to think recession which makes it near certainty just because of that.
The market's sudden turn around on Friday was inspired by a Rumor that one of the bond insurers, Ambac, was going to get some capital, uh from somewhere, early this week. The general feel in the market has a lot of expectations, we would call it speculation, that the bottom is in. As the self appointed contrarian in the room, we think the notion that the market feels like the "bottom is in" means that the bottom Can't be in.
We would enjoy seeing a rally going into the beginning of the week. The market has every right to go up or down, but given the position of the technicals, would think any rally should be sold. This week has the honor of being the last of the month and usually has an upside bias so we'll have to see.
One of our readers, thanks CM, sent us a link to a chart that seems like something we should share. This chart has to do with the value of the Dow in "real" dollars, that would be gold. The people over at Elliott Wave International have been showing this chart for a while now so here it is in your daily read. This chart shows that the Dow has been in a slow bear market for a long time when compared with the price of gold.
Thursday, February 21, 2008
Wednesday, February 20, 2008
The CPI news should have the bulls running for cover because higher inflation should mean a tougher Fed...but that is so Paul Volker and the Fed of many years ago. On Wednesday the Fed stated clearly that it was ready to lower rates again if they felt it was necessary and that inflation wasn't going to be a problem due to slower economic growth. Ok, whatever you say, we should believe.
Our thought is that a 100 point Dow move is just so much noise. Stocks have been hit hard this year and a little move just gives bulls hope, no real fuel for a sustained advance. Hope doesn't drive stocks.
We saw a good article on the mortgage crisis that we thought we'd share and since it's so late this evening we will again let someone else write the Update.
Tuesday, February 19, 2008
Our thoughts are mostly centered on the continuation of the bear market this evening and we will keep our eyes open over the next few days for further weakness confirming our position. Tuesday's market was filled with higher commodity prices, oil over $100 for one, which was cited as one reason for the turn around in stocks.
Wednesday we get three things, the CPI, the January housing starts, and the Fed's minutes from its January meeting. There shouldn't be too many surprises in these numbers but the market could interpret any one of them as bad.
After the market closed on Tuesday Hewlett Packard (HPQ) announced good earnings pushing that stock up in after hours trading. Funny thing is that the rest of the market continued heavy even after that news. And, as we write, the US futures are down about a half a percent and Asia is down a couple of percent.
We have mentioned credit default swaps on occasion here at the Update but these derivative securities have now been mentioned in an article by Gretchen Morgenson of the NY Times, someone we have mentioned here also. This time she has given us some good info on the subject and will be our primary item this evening. She says that the world of CDS's is arcane and could be the source of another problem.
Her point is that risk is now being traded away and there is no real way to do that but people have become complacent on the way they look at risk, thinking they have traded it away. The idea is that if a problem occurs, there may not be a good way to find out who has taken the risk and who should pay. It's a good article about an important topic.
Monday, February 18, 2008
The news from Friday was fertile but it is old news. The new news is from the UK where the prime minister (Gordon Brown, in case you don't remember) says that the UK should take over the struggling Northern Rock Bank. The WSJ has a front page article scheduled for Tuesday morning addressing this subject.
The WSJ says that the government may have to take over the company "forcing shareholders to accept a deal that will likely leave them next to nothing; evicting some people from their homes amid a forecast rise in loan defaults; competing with private mortgage lenders; and potentially slashing nearly half of the 6,300 jobs at a company long a source of pride and economic growth for the northeastern English city of Newcastle."
The issue here is whether the government will take a direct position in the current housing situation. Here in the US, the president has signed a law that allows small rebates to be sent to lower end taxpayers to spur the economy. They stop short of getting into the mortgages of homeowners, preferring instead to encourage the mortgage processors to take some actions to help homeowners.
There will be much to discuss this week as the market enters a period of danger. We want to focus on the price movements more than the news this week, but news items like this are sure to be part of the psychology of the market traders.
Thank you for your patience with us last week as we spent more time on our grandson than the market but we are back this week and it should be a good one.
Thursday, February 14, 2008
There have been a few news items the Update has missed this week. A notable one is the one about the municipal bond offering that was held without very many buyers causing the rate to jump to 20%. This was a modest $100 million offering that couldn't be sold without raising the rate to an unusually high rate. In the Treasury bond market we have talked about the bid to cover ratio and how important that is. In this case, the same concept applies.
Bid to cover means how many bids were there to cover the auction. An entity says they have $100 million of bonds to sell and would like bidders. If there are enough noncompetitive bids the auction goes off without any trouble at the rate specified in the offering. Competitive bids may come in at higher interest rates, or more to the point, lower prices in order to get higher rates.
So, in the case where noncompetitive bids are inadequate to cover the auction, they offering would have to go out on the Tail to fill its needs. The tail is where competitive bids reside and determine the final interest rate on the bond offering. The rate of interest is the same to all bidders so the more bidders there are, it would seem, the lower the interest rate.
In the case where there are a lot of bids, the bid to cover ratio is high and there is plenty of flexibility to issue the bond. On the other hand, if there are few bids compared to the offering, then you have what happened on this particular offering--not enough buyers to cover the offering and the bond goes out at 20%. Yicks.
In the bigger picture this is all part of the "credit crisis" which we have heard so much about over the past several months. On Thursday, the Chairman of the Fed said to the Senate Banking committee that he was prepared to lower rates again in order to maintain growth, albeit slower growth. He even said that with the government rebate program along with the Fed's rate reductions, the economy would start moving forward again in the fall. Where have we heard this before???
Seriously, we have looked at the headlines in the WSJ for days and weeks now and have seen that credit has been the central theme in what seems like half of the articles. We just can't keep up on reporting them all. We hope that you have been prepared to read these articles with some "insider" knowledge of how some of these things work.
One last item is that the options expiration is Friday (today for you) so there could be a little more volatility. The significance of options expiration is not necessarily very important, it just serves as another opportunity for the market to struggle.
The market is in a dangerous place right now. Many are hoping for the best with all of the attention being thrown at the mortgage problem and the rebate program. The problem is that the stock market is not much better off after all of the attempts of the Fed and the Government to stop the bleeding. We think there is ample room for the market to drop hard due to the dashing of hope that will come from no buying.
Wednesday, February 13, 2008
Well, since there may be a few extra readers here after the last few days of baby pictures, we thought it might be good to review what we are all about here at the Update. The primary reason for this blog is to provide market commentary, and that happens every evening before a market trading day, usually by midnight Central Time. So, normally there is no post on Friday or Saturday evening. Next Monday the market is not open so there will not be a post on Sunday evening this weekend either. Got it? Good.
We are willing to give opinions on the direction of the market which should Not be used as trading advice, just to give us a chance to try our hand at predictions. No one knows for sure what the future holds. Our opinion is that the stock market leads the news and therefore looking at the news needs to done carefully if you are trading stocks. We like to say that the news helps us make the trades that we want to make, as in if we think there is a good chance for an up move, then we would try to buy any early morning weakness. Likewise, if we're bearish (yes, we are bearish now) then we like to have the market up on news in order to position for selling.
At the Top of each post, we have the Top Line which is our assessment of the near term market direction or other pertinent stock Price action. It is our way of giving you a brief synopsis of what we think, as opposed to the rest of the post where we normally report on news or price movement during the day. In particularly obvious (???) points, we think there are opportunities based on our view of the pond and we make statements to that effect--these are Not things you should do, they are things that we see that may make sense for us.
At the end of our post, we have the FSI which is our stock "index" that is based on the four horsemen that Jim Cramer annointed. These stocks are AAPL (Apple), AMZN (Amazon), RIMM (Research in Motion, the makers of the Blackberry), and last, but not least, GOOG (Google). We have been keeping track of the price of these stocks together in order to see how much speculation there is in the market. That's how FSI got its name. FSI stands for Fo(u)r Speculation Index. The index was normalized at 100 back on October 22, 2007.
Our favorite topics are the stock market and specifically tech and financial stocks. We do mention other stocks at times but those two broad sectors are our area of most concentration. We mention other investments like gold and silver, as well as the mining stocks. We write about the bond market and the dollar and what the Fed may or may not be doing, basically anything that may affect the markets we follow. We don't spend any time on politics unless it directly relates to the market. That usually means that the Government has done something which may give the market a lift, not election results.
One of our main tenets has been that the housing market would bring the economy into a recession. The posts are all out in the archives. Here is what we said back on August 24th, 2005:
"And, more real estate news as yesterday we heard that the existing home sales dropped unexpectedly and that inventory of existing homes [is] at 4.6 months. These inventory levels are starting to show some signs of the real estate market getting tired, especially taking the inventory build of new homes in today's report. We want to keep a close watch on these developments as the next few months go by. Some whiff of weakening in the real estate market will have a dramatic effect on the stock market. We will see." Oh, in case you're wondering inventory of existing homes is over 10 months now.
So, what about today? Well...
As we mentioned, the market spurted ahead on Wednesday morning. The news for this was the retail sales figures which showed a 0.3% rise compared to a 0.3% drop that was expected. This data seems inconsistent with all of the recent noise about the economy but maybe it's right??? If it is, why is the president signing a $170 billion rebate program into effect on the same day? Or, better yet, why has the Fed been dropping interest rates so much recently along with all of the other cash enhancements it's doing?
Thursday, both Fed chairman Bernanke and Treasury Sec'y Paulson will be doing there best dance in front of the Senate Banking Committee. This should prove to be a deliberate avoidance of the obvious. The CNN article talks about the five questions that should be asked of the twin towers. (that's a nice hyperlink that you can use to read the article, just click your back button to come back here when you're finished)
More tomorrow...come on back.
FSI: 81.43 (up nearly 4%, speculation is alive and well)
Tuesday, February 12, 2008
Gramma Pam is all smiles.
Even though Jackson doesn't Always smile.
They do seem to like each other, don't you think?!?
Dad Jeff seems comfortable even when Jackson is screaming.
Jackson calms with Dad's thumb to suck.
And, Grampa Glenn is content with the entire event.
Ok, back to the market for a short Update. Look for a full Update tomorrow. For those of you who have come to visit for a day or two, come back tomorrow for the basics on Update and find out what we're all about.
Top Line: The stock market got a boost from the Oracle and the Sec'y of Treasury on Tuesday with the Dow moving up 133 points but the NASDAQ failed to break even, closing down just a few cents. The market is in a very dangerous place right now. The rally of the last few sessions looks like it is about to roll over into the abyss.
As you have heard by now, Warren Buffet, aka, the Oracle of Omaha, has made an offer to help the bond insurers acquire some capital. Of course, Mr. Buffet is not in a particularly "giving" mood when it comes to his investments. How do you think he got to be a billionaire? Surely not by being willing to take on a lot of risk without any reward.
He has offered to buy the Municipal Bond portfolio insurance premiums if the companies in question also give him an additional 50% above that amount. We are not sure if the investors in those companies will be willing to pay that much. That would leave these companies with a lot of poor performing assets that they are insuring.
Then there was the announcement from Treasury Sec'y Paulson who said that there should be a moratorium on foreclosures for 30 days to give more time to some who might be able to renegotiate their mortgage situations. The government is here to help, again.
There is another article from Glenn Beck (hm...another Glenn) comparing the latest government rebate program and FEMA's efforts after hurricane Katrina.
More tomorrow...come back then, we'll be back.
FSI: 79.65 for Monday and now 78.55 for Tuesday (yes, we'll explain this tomorrow)
Monday, February 11, 2008
Please welcome Jackson Glenn Stading.
More stock market analysis in tomorrow's post.
Jackson with Uncle Jason.
With his Dad, Jeff, that is a mouthful.
It's Jason again.
Three Generations of Stading boys:
Please don't tell Mom that there is a picture here--she'll never talk to me again. She did great.
Ok, two pictures. Oops.
Proud Father and son.
The star of the show, Jackson:
And, of course, with Proud grandpa:
One more with Mom:
Sunday, February 10, 2008
We apologize for the brief post this evening. In fact, we expect the market to go down as we kind of sit back and watch it. The posts this week will be available but there is a grandson coming tonight so we are going to be savoring the events of the week. Of course, there is an options expiration on Friday which should sort of top off the week. Take care. We'll be back tomorrow.
FSI: 78.21 (strong 3% move--still down nearly 3o% this year, yes 30%)
Thursday, February 07, 2008
The news of the day is that Romney called it quits in the election--not much to do with the stock market but it was kind of a shock that he dropped out.
Back to the market...Before the market opened, Wal-Mart disappointed the market with its January sales which were up but not by much. This along with the CSCO news was enough to push the market down in the very early going. It didn't take too long before buyers arrived. There was a lot of volatility with the market moving violently in both directions even though at the end of the day there was no real sign of it. The Dow was up 46 points on the day after getting pounded all week.
Today saw the Congressional passage of the economic stimulus package. The media is reporting a very underwhelming expectation by economists. Which brings us to bonds...
The Treasury Department held its quarterly auction of 30 year T-Bonds on Thursday and the report is that no one showed up. Well, that's not exactly true, they showed up but the were requiring higher yields to go out 30 years. The so called bid to cover ratio was a scant 1.82 which means there were $1.82 bids for every $1 of bonds sold. This may sound ok but it is very low. The US is trying to sell its debt to outside buyers to finance all of the spending. If foreigners decide not be oblige, there could be a little back up in rates. The bonds moved up about 14-20 bps in yield, today.
Lots of little news items about the consumer. The main idea is that the consumer is going into hibernation. The WSJ has a front page article scheduled for Friday which describes the plight of the credit card holders or users. Solid article.
FSI: 75.94 (just a little higher)
Wednesday, February 06, 2008
Before the market opened, there was a yawn when Toll Brothers announced that it doesn't see any end in sight to housing-market woes. The housing news must have been completely priced into the market by Wednesday morning...Well, maybe not quite.
The news that may have tipped the market over in the morning came from Macy’s who said they were going to have lay off about 2500 workers. There could have been another reason, too, which was a voting Fed member saying that the Fed’s job includes price stabilization. The market took this as a sign that the Fed was possibly willing to keep interest rates where they are for the time being. We don’t think this is even a real consideration for the Fed. The Chairman is committed to the idea that he can singlehandedly keep the economy afloat. This delusion will soon be rectified but in the mean time we are going to see lower and lower rates from the Fed as Bennie tests his theory.
The market couldn't maintain the rally it started in the morning and has now dropped below some key support. That doesn't mean we'll see an immediate drop but it does mean there is a lot of weakness.
The market had a blow after the close when CSCO CEO John Chambers discussed the outlook which didn't make anyone too happy. The stock fell about 7% after his comments and pushed the US futures down into the evening hours. We can only wait to see if there will be any carryover in the morning. We have to believe that the participants are getting a little tired of seeing the market go down after they buy.
FSI: 75.39 (new low)
Tuesday, February 05, 2008
The Update is brief tonight with the market saying it all, the Dow being down 370 points on the day. The initial cause was the release of the ISM Non-Manufacturing index, we call this the ISM Services Index. This is one of those numbers that comes out every month and has the 50 level as the line between expansion and weakness, expansion being higher than 50.
Tuesday morning's release of a very weak Services sector was pretty much immediately reflected in the price of stocks, down. What the market was expecting was a slight decrease from last month but still above 50. What it got was a huge decrease and a number well below 50, in the amount of 41.9.
There are a couple of items to note. The ISM has created a new Composite index reflecting a few different components. This new index had a number of 44.6, a little better showing than the traditional service sector index of 41.9 as reported above.
The other thing is that the number was announced earlier in the day than normal. This is highly unusual but the ISM said they were concerned about a possible breach that may have accidentally allowed the number to go out early. To make it equally available to all, they decided to announce it early. Curious. The release of this number brought about a CNN headline that said, "Recession is here - economists". (This topic will be featured on the front page of the WSJ on Wednesday, also.)
The other big item was delivered by a person associated with the Fed, Jeffrey Lacker, someone who is known more as a Hawk than a Dove, meaning they want to be inflation monitors rather than always easing monetary policy and asking questions later. His comments were, as reported in the Recession article above, that "the prominence of downside risks means that further easing ultimately may be warranted." This was taken as a white flag from the hawk and the market didn't like it at all.
FSI: 77.35 (up a bit on a very negative day--no fear in speculation land)
Monday, February 04, 2008
There isn't much to mention about Monday's trading except that it was heavy. With the AXP downgrade, even the techs decided to slump. This didn't really seem likely after Monday's trading in Asia, which was strong.
As for AXP, it represented the lead dog in Monday's down move. Looking back over the past few weeks as stocks have moved up, the financials have been the backbone of the move. Even though they dropped hard into the middle of January, their bounce has been strong. Two months ago AXP traded near 60 and two weeks ago it was near 40, a stunning third cut out of it in about six weeks. The rally took it back over 50 late last week so today's 2 point drop, while large, didn't dent the latest up move. Other financials have done mostly the same thing including the homebuilders.
After the market closed, there was some more deterioration in prices. The overnight US futures are down a little which sets us up for a down opening and then maybe a bounce to get this rally phase over and done.
Our FSI (Four Speculation Index) has the four horseman in it. Those four are GOOG, AAPL, AMZN, and RIMM. It has been "normalized" to a basis of 100 from back on October 22. GOOG had been trading at 650 that day and traveled up to around 741 at its high. On Monday, GOOG closed down about 20 to a finishing price of under 500. This helped the FSI to close at its lowest point since October's inception date. The highest closing level of FSI was 111.86, the day GOOG closed at 741.
We recommend reading a housing article from our last post. They are sobering and should give you an idea that a recession is almost unavoidable and that deflation is coming.
FSI: 77.12 (ouch)
Sunday, February 03, 2008
The Main Stream Media seems to be quite concerned about the subprime mortgage "crisis" as we have been reading several articles about it over the weekend. Here is a sample:
Broke Homeowners Linked to Arson: The article says there has been an increase in arson since the housing bust occurred.
Lenders Who Sold and Left: Here is information about the mortgage industry which has seen a great deal of turnover, exodus is probably a better word. The article is by Gretchen Morgenson, a reporter whom we have quoted before.
The Pools of Riverside County: This article laments the general suburban wasteland left behind after the mortgage market went belly up. They use the word exurb which loosely translates to a place that's out of town, past the suburbs. Here's a quote from the article: "Peek behind the palm trees and there you see the most shocking sight: abandoned swimming pools, fetid and green, left to the elements and choked with algae. Thousands of people have walked away without even draining the water. Mosquito control agents now patrol these murky pools, treating them with pesticides to keep disease-carrying larvae from forming."
Trying to Tap Into Home Equity? We'll See: Here's the crux of the problem, limiting credit to people who assume they have some room left on their credit cards.
We read a few articles about this subject which fits in with the deflationary argument. Banks are limiting what we have been calling HELOCs, Home Equity Lines of Credit. These lines of credit are set up against people's houses and then checks can be written against the amount of equity that was originally assumed. Now that home values have declined, there are some lines of credit being reduced.
[We almost think this housing news is old news because we have been talking about it for so long. These articles seem like an echo of the Update. The housing market has a long ways to go and there will be much more trouble, prevention should have been considered.
You probably heard the jobs' report wasn't really all that good, with total jobs dropping 17,000. Of course, the articles also said that the news probably wasn't as bad as the number indicates because the number will most likely be revised next month, oh that's right revised upward. Let's make it clear that jobs being below 0 is not the line that gives the impression of growth or recession. In order for this economy to seem normal there should be nearly 200K jobs added every month...not just plus or minus.
Meanwhile, the market is leaning on the Fed's lower interest rates and the government's latest rebate program. Both of these entities have said we will not going to have a recession. The problem with this situation is there is no answer to the problem except to let the economy go do what's it's going to do. By the way, the economy will do whatever it wants anyway, no matter what any entity does. The stock market is hoping that someone somewhere can fix this. We'll see.
We may have a throw-over directly ahead or the 12,750 will hold. The next week should bring us the answers.
FSI: 79.29 (new low for the move)