Wednesday, May 7, 2008

Market Comments

I have not editorialized on the market much recently because to put simply, I don't know (you never know, it is a probabilities game but when you don't know if the probabilities are not heavily in your favor). When you don't know it is often best to just sit back and do nothing. Doing something for the sake of doing something can be a killer. Anyway today was a definite reversal which was important. The question is how important. A day is not a market make. We broke through 1400 in the S&P and broke through 27 on the XLF but we were due a decent pullback even if it is only short term. I honestly thought the news flow was worse yesterday than it was today. Everyone who is blaming oil I think is looking at the wrong thing. Don't get me wrong oil is important. If the government is able to starve off a serious downturn for six months great, I think all you did was starve it off. The world needs a slowdown for capacity to catch up, get rid of excesses etc. That is why in economics your freshmen year in college you are taught that recessions are okay. They are normal and healthy. Instead you get every type of intervention possible to try and prevent one from happening. Well you can push it off but the unintended consequences (i.e. $200 oil) will eventually cause one. Anyway oil adding another couple of bucks did not all of sudden change the dynamics of anything. Market used it as an excuse but there is nothing fundamental concerning slightly higher oil than yesterday.

You also had people blaming the new SEC regulation that would require banks to disclose capital and liquidity levels. Please, somehow that is more important than say Ambac losing billions? It was an excuse to sell financials that have been on fire but the only fundamental thing about it is that it would expose the man behind the curtain. Of course if you know there is a man and you are just keeping up a dog and pony show that others don't know about then maybe it is fundamentally bad.

No the real true significant item in my mind (your not seeing much press coverage) is this.

http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080507%5CACQRTT200805071235RTTRADERUSEQUITY_0720.htm&selected=9999&selecteddisplaysymbol=9999&mypage=newsheadlines&title=Bush%20Threatens%20Veto%20Of%20Housing%20Bill

President Bush brought out the threat of a veto Wednesday, voicing his opposition to a housing rescue package working its way through Congress. The Democratic bill is designed to have the government insure up to $300 billion in new mortgages in an effort to prevent additional foreclosures.

I have said that if the Barney Frank bill gets passed it will cause me to seriously rethink my shorts. It is not that I think that after that the market compounds annually at 10% over the next five years. I think it does mean the market could tread water for quite a while and the true bear case of continuing declining housing prices would be seriously impaired.

What you could see is the market demand it until Bush has to react. Similar to what you saw with interest rates and Bernanke. The market would tumble, its own version of a tantrum, until the pressure came to great and caused Bush to buckle signing the bill.

Anyway in the short term that 1400 to 1410 level is critical. We broke below 1360 after breaking that important level to the upside before rocketing above it again. To finish out the week it will be very interesting if we stay below 1400 ish.

Like I said I just don't know. I usually have some probabilistic outcome scenario in my mind with how the market moves over the next couple of weeks that I use to hedge around fundamental picks but I don't know. As I said when I don't know, I just don't do much.

At the end stay focused on the fundamentals. All the other stuff doesn't mean much longer than a few days.

55 comments:

Travis said...

You need to read this article by Tom Brown showing why Frank's bill may do more harm than good:

If I understand its terms right—and I think I do—Barney Frank's ballyhooed $300 billion plan to stem subprime foreclosures figures to take a bad situation and make it even worse. Reason: the plan would give up-to-date borrowers a powerful incentive go delinquent on their loans, perhaps on a massive scale. This is supposed to help fix the problem?
There's no way of knowing what the final bill will look like, or course—or even whether any mortgage relief plan will pass at all. But as it's written now, here's how the Frank plan would work. The holder of a delinquent subprime mortgage would take a writedown on the loan, then dispose of its loan in a short sale funded by the issuance of a smaller, government-guaranteed FHA loan. In return, the holder escapes further credit risk. Fine. The specific size of the loan writedown, though, would depend on the size of the new FHA loan, which in turn would be set according to terms "the borrower can reasonably be expected to pay." In particular, the maximum allowed loan-to-value ratio of the new mortgage would be 90%. Notably, the process would be initiated by the borrower or the loan servicer.
As I say, if the government has ever before put in place such a powerful inducement for wholesale borrower delinquency, I can't recall it. Let's walk through some numbers and you'll see what I mean.
Neighbors A and B
Take two neighbors, who both took out 0%-down, $300,000 ARMs, each with a 5% introductory rate, in mid-2006. Since then, the houses they bought have fallen by 10% in value, to $270,000. At reset (which will happen any month now, to around 8%) their monthly payment will rise to $2,000 from the current $1,250.
OK so far? The only difference between our two borrowers is that Borrower A is current on his loan, while Borrower B is delinquent, and so qualifies for relief under the Frank plan.
And, indeed, Mr. B applies for relief. His new, FHA-funded loan comes to just $243,000—90% of his home's $270,000 appraised value—so his monthly nut (at the same 8% he would've been paying under the terms of the old loan) is now just $1,620. Still-current Borrower A, recall, is paying $2,000 per month, after reset, for the identical house. Oh, and Borrower B now has $27,000 of equity in his home, while A is upside down by $30,000.
What do you suppose the Borrower As of the country would do at this point? I'll tell you one thing: a lot of them would go delinquent on their mortgages on purpose, to qualify for the same sweet deal that the Borrower Bs have gotten.
Boom—a new leg down in the subprime mortgage crisis!
Two million, and counting
And the numbers wouldn't be small, either. Frank himself sees something like $300 billion in new FHA loan issuance under the plan, to up to 2 million households. And that's if everybody plays by the rules. Once you add in people who fall behind on purpose (which won't be a few, trust me), the number of new bad loans could skyrocket.
You might object at this point, and say that that Congressman Frank has built safeguards into his bill—like, say, insisting on a government claim on any subsequent home-price appreciation--to prevent intentional delinquency from happening. You would be mistaken. Sure, the feds would have a claim on any gains the borrower realizes after a sale. But the size of that claim declines the longer the borrower stays in the house, and falls to zero after year five in any event. In the meantime, the borrower gets an immediate $57,000 boost in his equity, to $27,000 from minus-$30,000.
Similarly, to prevent abuse the Frank plan requires that borrowers must have had mortgage debt-to-income ratio of at least 40% at March 1, 2008. But as the press release that accompanied the bill notes, "regulators can make exceptions for involuntary changes after that date." So there's discretion and wiggle room.
In all, it's very likely that the bill, if enacted in its current form, would end up doing more harm than good. I'm all for finding ways to help overstretched borrowers. But it's crazy to consider any "solution" that figures to take a bad situation and make it even worse.

Anonymous said...

To be frank that bill doesnt scare me, granted one could be hit hard but at the end you have to wonder who is financing us deficits. Fiscal deficit could be record this year reaching 0,5 trillion, therefore current account, ceteris paribus, though improving slightly due to trade improvement would hit near 1 trillon. Having a look at fannie financial statements you realize that it is bankruptcy(if fannie and fredi have 0,7 trillion of subprime an ALT-a loans and taken 30% cut,lower than that seen made by banks, it means 0,21 tr or 3 times book value)like her cousin freddie. The worst is about to come yet(debt over gdp is 330%). Do you think that homeowners will keeep paying their mortgages once they have negative equity close to 25%?

Market Seer said...

Travis

1) Do you have a link to that?
2) I didn't know anything could be bearish for you. :)
3) Tom's track record has not been stellar. Whitney Tilson and Bill Gross have said several times this bill is the first thing that actually reaches the problem.
4) Looking through the math what he is saying makes sense but the important aspect of the bill is once again bailing out Wall St. Maybe you have a wave of deliquent borrowers but it is the government picking up the tab not the banks. So the market moves up and you increase the likelihood of serious inflation.
5) Very very interesting. Thanks for bringing it to my attention. I need to think over it a couple of days.

Anonymous said...

buy tramadol online tramadol hydrochloride for dogs 50mg - buy tramadol online no prescription cod

Anonymous said...

alprazolam xanax + 1 mg per day - xanax drug classification pregnancy

Anonymous said...

generic xanax xanax side effects muscle twitching - xanax online from india

Anonymous said...

buy tramadol online tramadol 50 mg hcl narcotic - tramadol 200mg dosage

Anonymous said...

buy alprazolam online without prescription buy xanax online mexico - overdose on xanax and methadone

Anonymous said...

buy xanax online without rx xanax side effects dogs - order xanax pakistan

Anonymous said...

buy tramadol online tramadol 50 mg for anxiety - tramadol for dogs withdrawal symptoms

Anonymous said...

buy tramadol online kicking tramadol addiction - how to buy tramadol online

Anonymous said...

xanax online what is the lowest dose of xanax - drug interactions dramamine xanax

Anonymous said...

buy tramadol online non generic tramadol - buy tramadol online australia no prescription

Anonymous said...

generic xanax yellow xanax effects - drug interactions with xanax and lexapro

Anonymous said...

buy tramadol online order tramadol online with cod - tramadol withdrawal day 6

Anonymous said...

cialis online can you buy cialis over the counter in america - cialis daily long term effects

Anonymous said...

xanax online how to order xanax online - order xanax pills

Anonymous said...

xanax online generic xanax green oval pill - generic for xanax xr

Anonymous said...

cialis online can you buy cialis over the counter in thailand - buy cialis from us

Anonymous said...

tadalafil no prescription buy cialis online safely - cialis online apotheke holland

Anonymous said...

xanax online 1.5 xanax high - klonopin xanax and alcohol

Anonymous said...

buy cialis online cheap cialis new zealand - generic cialis discount

Anonymous said...

xanax online xanax 1 mg effects - generic xanax vs brand name xanax

Anonymous said...

cialis online cialis 20 coupon - buy cialis online fast

Anonymous said...

buy tramadol buy tramadol online mastercard - tramadol hydrochloride 100 mg

Anonymous said...

http://landvoicelearning.com/#23561 tramadol 50 mg kapseln - is it illegal to buy tramadol online

Anonymous said...

buy tramadol tramadol 50 mg kern pharma - buy tramadol online cod

Anonymous said...

http://buytramadolonlinecool.com/#56411 tramadol overdose dosage - is it illegal to purchase tramadol online

Anonymous said...

http://landvoicelearning.com/#97734 tramadol dose vet - can you buy tramadol online in usa

Anonymous said...

http://landvoicelearning.com/#23561 tramadol 319 dosage - tramadol 100mg effects

Anonymous said...

buy tramadol g e tramadol hcl - buy tramadol online with paypal

Anonymous said...

learn how to buy tramdadol tramadol hcl 50mg tv 58 - ultram tramadol overdose

Anonymous said...

buy tramadol tramadol hcl 50 mg recreational use - tramadol legal to buy online

Anonymous said...

tramadol online pharmacy 6 50 mg tramadol - tramadol 50 mg para que es

Anonymous said...

tramadol online tramadol buy online no prescription mastercard - tramadol for dogs liquid

Anonymous said...

learn how to buy tramdadol order tramadol online us pharmacy - tramadol 50 mg tab

Anonymous said...

buy tramadol tramadol medication online - 150 mg tramadol high

Anonymous said...

learn how to buy tramdadol buy tramadol legally online - tramadol zydus 50 mg

Anonymous said...

ways to buy ativan online lorazepam 1 mg what is it for - ativan trazodone overdose

Anonymous said...

buy tramadol tramadol dosage 15 pound dog - tramadol hcl urban dictionary

Anonymous said...

learn how to buy tramdadol tramadol online no prescription needed - order tramadol online to florida

Anonymous said...

ativan mg ativan side effects in the elderly - ativan pill

Anonymous said...

buy xanax online xanax bars 93 1003 - drug interactions dramamine xanax

Anonymous said...

buy tramadol online tramadol 50mg recreational - tramadol 50mg tablets narcotic

Anonymous said...

buy xanax online can you take 2mg xanax - xanax xr brand vs generic

Anonymous said...

buy tramadol online tramadol 50mg over counter - tramadol tablets dogs dosage

Anonymous said...

buy tramadol online tramadol hcl 50 mg mylan - tramadol hcl good pain

Anonymous said...

buy xanax online xanax drug identification - xanax bars to buy

Anonymous said...

http://ranchodelastortugas.com/#30416 xanax sizes - xanax withdrawal stories

Anonymous said...

xanax generic xanax withdrawal neck pain - risque overdose xanax

Anonymous said...

http://bayshorechryslerjeep.com/#1833 generic xanax blue pill - xanax and high blood pressure

Anonymous said...

lN5S1g http://karenmillenoutlets.webeden.co.uk jX5G3j karen millen dresses uk sQ2V5u [url=http://karenmillenoutlets.webeden.co.uk]karen millen dresses uk[/url]
eG6B2i http://longchampsoldes2013.webnode.fr nW8T8u longchamp soldes hW9O1s [url=http://longchampsoldes2013.webnode.fr]longchamp soldes[/url]
qY4K0m http://ghdhairstraightener.webeden.co.uk nX2W8f ghd hair straightener kY8A8j [url=http://ghdhairstraightener.webeden.co.uk]ghd uk[/url]
vQ2S3d http://sac-longchampssale.webnode.fr xK7V9k sacs à main longchamp fK5Z8f [url=http://sac-longchampssale.webnode.fr]longchamps sac[/url]
bT6W6x http://straightenerhair.blogspot.com iM0H1x ghd outlet yW0V8i [url=http://straightenerhair.blogspot.com]ghd uk[/url]

Anonymous said...

buy tramadol cheap online buy generic tramadol no prescription - buy tramadol no rx

Anonymous said...

where can i buy ambien sleeping pills where can i buy ambien sleeping pills - buy ambien sleeping tablets

Anonymous said...

Les Canadiens ont enfin pris leur revanche sur Buffalo lors de la quatri rencontre cette saison, soutirant une victoire de 4 3 aux Sabres. ghds I use one of our Musical DNA segments to explain why I like it, offering up source music like a track from the seminal Sketches of Spain by Miles Davis and Gil Evans and a more recent classic by Jerry Gonzalez Y Los Piratas del Flamenco. ghd iv styler On geographical mix, India (2. Many vacation or visit Coronado often, spending a lot of money during their stays, he added. pinkstraightener.webeden.co.uk Espagne.ghd sale You simply pick your day of departure, fly to San Jose, and join your tour group and wellinformed escort. mulberry handbags 300 kilmetros por segundo hacia la Tierra, comenz el jueves por la maana, despus de que unas llamaradas se desprendiesen de la superficie del sol a principios de semana. 'Mr Big', who has major Provo credentials, cannot be named for legal reasons but he was in involved in a bitter feud with the Real IRA last summer which led to two murders and a number of shooting incidents. karen millen outlet online Now that's a happy ending. ghd iv styler Hello Elaine. Karen Millen Outlet "In the room where we are sitting, all the windows are blown in andthere's still lots of glass all over the floor. saclouisvuitton.zohosites.com If she fights the case, it could take until the summer for the court to rule whether or not she should be sent home to face trial.ghd straighteners cheap In August, Telstra scrapped plans to build a new $4 billion fibre optic broadband network after negotiations with the ACCC over regulatory issues broke down. This process is quite intuitive, but you'd be surprised at how many people ignore this chance for help. ugg boots sydney Blend. sacoche louis vuitton But Taylor reminded her how crazy Justin is over her and to just try to stay above the fray. ghd stockists Les les Marshall. www.sacslongchamppascherrr.com ??iclismo venezolano aspira subir al podio en Londres LONDRES Los ciclistas venezolanos tienen suficientes argumentos como para dar la sorpresa y subir al podio en los Juegos Olmpicos de Londres, vaticinan las autoridades del pas sudamericano.