Friday Financial Roof Fire
Jobs jobs and more jobs!
Well, not quite...
The blowups in Hedgistan are now a daily event. Here's the latest; a lockup
but not an explosion yet....
"Union Investment Asset Mangement has temporarily closed its ABS-Invest fund for institutional investors and halted redemptions, said spokesman Markus Temme."
Is that good?
Nonfarm payrolls up 92,000 in July
, unemployment basically flat at 4.6%, earnings up 0.3%.
As ADP predicted, this number is WAY LIGHT
. Construction and manufacturing both down (duh). The futures did not like it a bit, collapsing by nearly half a percent instantly
, but then recovered some. The dollar shit the bed .vs. the Yen immediately as well; that's potentially more important and its not the piece that people are watching.
? The Option MMs listed five dollar options
today on them. FIVEs! Including for the front month - August - which expire in two weeks! If you want to play on a raw bankruptcy in the next two weeks on them, now you can.
And the credit markets? They're thinking that might be a good bet!
Credit spreads went apeshit the last two days on Countrywide's debt
, widening by nearly 100 basis points today alone!
That, by the way, is a roughly thirty percent increase
in one day. Does someone smell something rotten seeping out from under the door?
Nor is it just them. Look at IndyMac Bank and WaMu for more examples.
Essentially the story today is "if you write mortgages, you're getting roached." To that I say - its about damn time.
These "exotic" products have gotten way, way too common the last few years and it is my sincere hope that when the risks
are exposed those who wrote 'em are forced to eat them.
Last night in response to IndyMac posting a letter on their web page basically bleating for a government bailout I penned a letter to Chris Dodd
(Chairman of the Banking Committee) asking that he do exactly nothing.
Click the link to read it, then reword as you deem appropriate and, if you are of like mind, fax him something similar. The markets must be allowed to punish those who have inappropriately taken risk!
ISM Non-manufacturing fell
to 55.8, much worse than the expected 59. More evidence that we're headed for a recession as the economy cools!
The equity markets are finally
waking up to the truth about "Subprime" (that is, its not about subprime at all; its about the real estate bubble created by our former Fed Chairman
), and its not liking it a BIT. In the days and weeks to come I predict we'll be talking about this:
Of course you won't hear that
from our mainstream media idiots - at least not for a while. But someone will eventually write a book or three about this, and who's really responsible for the nuclear blast and knock-on effects that are certain
to roil our financial markets - and the economy - in the coming months.
You have to love the talking heads today - they're all over CNBS talking about how "electronic trading makes it all so volatile and makes it easy to explode." Yeah, right. What makes for blasts in the financial markets is raw, intentional mispriced risk - in short when GREED - or "animal spirits" if you wish - overrides good common sense
Does electronic trading make it easier to "pile in"? Sure. But electronic trading actually reduces
the risk of market dislocations - there is nothing worse than a market in which you cannot sell at any price
because the volume overwhelms the system. THAT
is the kind of thing that REALLY
begets trouble, and electronic trading reduces
The credit squeeze is getting worse and the street is starting to wake up
. Try this:
"But the fallout could get worse. Some experts say the debt crunch could squeeze underperforming companies that have, until now, been able to finance their way out of trouble - and trigger a wave of corporate bankruptcies.
"There have been a lot of operational problems and other problems within some companies that have been masked by liquidity in the marketplace and the ability to refinance their debt," said Jeff Marwil, a partner in Winston and Strawn's restructuring and insolvency practice in Chicago."
Naw, you think? I do.
But boy are the talking heads trying to dismiss it. All of it. Anyone remember how CNBS for months
talked about the "LBO PUT" under the equity market? Well guess what - its forking GONE now guys!
Now add to this the risk of some REAL bankruptcies (not to mention that they seem to actually be happening!)
So how come with that "PUT" gone you think its unreasonable that some of that price appreciation comes back off? And let's be straight here - the market has essentially a 30% premium in it - even now with the "correction" - from that PUT!
Decelerating earnings growth, a slowing consumer, the housing market is bad and going to get a lot worse
and people are bitching about a 5% correction being "overdone"? YOU ARE NUTS CNBS! My minimum downside target on this market is 20% and a 30% retracement from the 2003 lows is more likely! IF those levels don't hold - and they may not - then we are gunning for those '03 numbers!
Bear Stearns tried to soothe the markets about their exposure (and the financials in general) and instead threw gasoline, propane, butane and diesel fuel on a roaring fire - and I think they also parked a truckload full of ANFO next to the blaze. There's a good chance they have lit the fuse with that call - we shall see, but the market didn't like it a bit up front and it turned what was a fairly quiet day into a total rout going into the close.
Heh Bear Stearns (and the Credit Markets) - DAMN IT, YOUR ROOF IS ON FIRE!
How many times do I need to tell you before you figure it out!
Cramer went nuts
today on the air! You have to see this link....
Amazing stuff. I swear the guy's going to blow an aneurysm right on National TV!
As for what the mortgage market is going to look like for the next few years
, well, its basically what it looks like now:
"Some nontraditional mortgage loans have vanished from lenders' menus, while others have gotten more expensive during an eventful week for those in the mortgage industry.
But a looming credit crunch for riskier mortgage debt has not yet spilled over to traditional, creditworthy borrowers, who can still obtain conventional financing at market rates, mortgage lenders say."
And it won't. Agency paper will remain available, if you have 20% down, a 36% back end ratio (DTI) and want a conventional mortgage (no more than 400kish.) If you need a Jumbo, it'll be a point higher (as it was in the 80s and early 90s.)
If you want to get cute with an interest-only loan, option-arm or other means of committing financial suicide via lender extortion so that Wall Street can pay out a few billion in bonuses and mortgage house CEOs can cash half a billion in options over 2 years, sorry, that window has been closed.
THAT IS A WINDOW THAT SHOULD HAVE NEVER BEEN OPENED, AND THE PEOPLE WHO DID OPEN IT SHOULD BE IN FEDERAL PRISON FOR THEFT BY CONVERSION FROM THE AMERICAN PUBLIC, NOT WHINING TO UNCLE BEN AND DEMANDING FED RATE CUTS (which wouldn't help anyway!)
EAT THIS mortgage company CEOs and Wall Street spinmeisters - The INVESTOR, including foreign governments like CHINA, Pension funds, Endowments and others have woken up to the FACT that your claimed "AAA" paper IS NOT AND NEVER WAS. They have WOKEN UP by being exposed to BILLIONS (that's with a capital "B") in REAL losses and they're NOT going to get assraped a second time by you guys. THE GAME IS OVER and Cramer ought to tell his "buddies" to take a walk off the parapet on one of the nice 40 floor building roofs on Wall Street when they call him next time!
Ok, technicals, and I'm sure you want to see 'em. Here's the charts and the reality:
Ouch. But it gets much, much worse. Here are the transports:
Now this sucks. Severely. For Dow theorists, this is "game over." You've got a violation of support confirmed by the Transports.
For The Bulls, this is serious, it is severe, and it is undeniable.
Now here's the SPX:
There ain't a thing to like here. Next stop is the February lows. All the "normal" Fib retracements and support levels have been broken with conviction. No ifs, ands, buts or maybes. Now the February lows loom below us, and if they don't hold...... well..... here's what we're facing:
Ok, here's the deal guys. Assuming the decline does not stop right here,
the next place we target is the February lows.
That is an extremely serious support level because it is suspiciously near the long-term trendline!
If that level violates CONVINCINGLY then WE ARE NO LONGER IN A LONG-TERM BULL MARKET!
We then have a number of support levels below, including a strong support level around 1165, which is 50% retracement plus a late 05 support, and 1072 plus 958 below that, but we are also eyeing 768! Aieeeee!
Now we got one more
critical support matter to attend to. The Nasdaq Composite violated second-level support today on a closing basis (a new signal not seen before
) BUT BUT BUT - and this is important - the NDX (Nasdaq 100 and QQQQs) DID NOT. It DID, however, break the short-term support from earlier this week. 1900 is the critical level to watch there, with 1880ish below that.
So this is what we got, as I see it here:
- There are people calling for a "corrective rally" in the indices to retrace part of the first move downward, followed by a roller-coaster plunge. Many have said they expected this to be a common "wave" sort of retracement. Today's price action shows why expecting a 50% or 61.8% retracement on a "Elliott Wave" basis can rape you raw - if you traded for a long retracement the other day you got murdered this afternoon. NEWS OVERRIDES TECHNICALS! In fact we did get a fib retracement, but it was the 23.6% level early in the week - a level which is rarely seen.
- The risk is quite high that we are setting up for a huge plunge Monday. At this point this is not a matter of Elliott Waves; it is a matter of news flow, the credit markets and especially what happens to the Yen Sunday night in the FX market when it re-opens. If the Yen goes under 118 into the 117s (or worse, below 117!) the risk goes up precipitously of forced-unwinding of Carry Trades. THAT IS THE FUEL FOR A CRASH MONEY MORNING. WATCH THE FX AND CREDIT MARKETS, AND BLOOMBERG BOTH SUNDAY NIGHT AND THE EARLY MONDAY FOR HINTS!
- An alternative scenario and one you must guard against if you are short anywhere in this market - that is a SURPRISE Bernanke Fed RATE CUT. I rate the odds of this extremely low but you cannot ever turn your back on risk in the market guys! As such if you don't have protective stops over all your shorts in the market, go out there RIGHT NOW and put them on. IF - and I say IF - because I think there is less than a one percent chance this happens - Bernanke was to cut rates Monday (or Tuesday) we would get a violent whipsaw and I cannot predict which way it would go. Odds are it would fuel a market collapse as it would all but be an admission of a recession but there is the possibility that the market could shoot up 500 points in minutes. You simply must protect against being caught offsides!
In short this sort of action illustrates why last weekend I said that there was much risk
here for both Bulls and Bears, and that it is nearly impossible to know what the right "count" or right "level" is to pull the trigger on shorts or longs. This is a market where defined-risk plays are the safest but they're getting expensive - the options MM guys are wising up FAST to what may be on deck, as was seen in the lenders this week. Expect this to spread to index options FAST if a plunge starts to develop.
As I see it here attempting to play for a bounce going into the close today was a bad bet.
But - if we open up Monday and regain the 200 on the SPX and Transports, you must consider stepping aside
until this pattern resolves.
However, odds now favor the scenario of the corrective rally being far weaker than anyone (including me!) had looked for last weekend, and for it being over as of today.
This means that we are now at serious risk of a major plunge Monday or Tuesday, and if we don't get it Monday then all eyes will be on The Fed.
If you think the risk was high
last Friday, its off the charts
Good luck and have a great weekend!