Top Line: The Dow has run back up to the 12,750. This level has provided quite a bit of resistance even in the "strong" part of the month. The market seems to want to push through this area which under normal circumstances would amount to a "breakout". This time we would like to see what is called a "throw-over" and then a fall.
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)