The Day that Was - December 3rd 2007

A Lot of news today from the economic front sent the markets down today. In the early morning we had more Fed Speak and the language was not as strong as last week’s comments from Ben Bernanke. This left a little doubt hanging over the rate cut issue. And then of course we had the Secretary of the Treasury, Henry Paulson, give his speech on the "Hope Now" plan. It is essentially a plan with no plan yet, as Lisa stated earlier it has more holes in it then substance. The "Hope Now" plan makes me think back to another disaster, the bail out of the Savings and Loans in the 80’s. Another case where the Government had to step in and clean up the mess of the Savings and Loan institutions.

Tonight after the market closed we had yet another FOMC member, Yellen, talking about the economic situation. In his comments he was sending very mixed messages with the end result being a "?" as to how he stands regarding rate cuts.

It would appear that the sub prime crisis is taking it’s toll on the foreign markets. HSBC’s Asia head, Flockhart, says that there is more to go with the write downs and adds that the crisis is "not over yet". Our credit problems in the US are impacting other markets and that impact looks to be increasing steadily.

After the "Hope Now" plan that Secretary Paulson put forth this morning, the markets thought about it for a bit and decided, "No Good", and the financial sectors and retail sectors continued a down ward path again. The markets saw all the holes in the plan just as Lisa said earlier when she read the transcript. I myself also feel it is ‘too little and too late’, and besides that, I don’t feel the Government should be coming to the aid of the institutions that caused this. I foresee the ‘Hope Now" plan being a total disaster in the making.

Last week I promised to provide a report on silver, as one of our readers requested. I am putting the final touches on that report and you will see it here shortly.

An interesting comparison to the previous market events was done by David Rosenberg from Merrill Lynch, he said that the Fed’s Beige Book last week showed that seven of 12 districts are now reporting slower growth, up from five in October, four in September, two in July and none in June and April. "There’s obviously a pattern here," he says. He points out that during the "financial spasms" in 1987, 1995 and 1998, the Fed had to cut rates by only 75bps each time "and the problems were over," Says "the Fed is going to have to do way more" than cutting interest rates by 75bps, and when it’s gone beyond that in the past, "recessions almost always followed suit." Once again I show you the chart tonight of what the markets have done in the past when multiple rate cuts were issued. Over the past 10 years, the worst performing periods of the market happen when rate cuts from the Federal Reserve’s FOMC came in multiples. And as Mr. Rosenberg pointed out, and plainly visible on the chart, the multiple rate cuts did not save the economy from the recession.

 

 

 

 

 

Each night Lisa and I look at charts for swing trade ideas, it remains VERY difficult to isolate any sector or stock that does not have some technical indication which negates all other aspects of the chart. You hear it over and over from everyone, "the market is oversold". But a market, or a stock can remain oversold for a very long time. Just because it is over sold does not mean it is a time to buy. Look at the XLF (financial ETF), it has been oversold for months and yet still keeps going down.

Our stock market, and the economy, continue to be hanging by a thread. If the FOMC (now referred to as the Federal Open Mouth Committee) continues to cut rates they risk sending the cost of living upwards even more, which is what has been slowing the consumer down in the first place. If they don’t cut then we have a financial crisis that blows up even faster. Either way you slice it, it does not look good yet. Capital preservation is always "top priority"

Every truth passes through three stages before it is recognized. In the first it is ridiculed; in the second it is opposed; in the third it is regarded as self evident.

– Arthur Schopenhauer, philosopher, 1788-1860

Market Close

Today was what I call a “hump” day.  A lot of 60 minute charts had a little hump pattern to them.  Fairly unremarkable day.  Treasury Secretary Paulson’s plan to freeze interest rates on ARM’s didn’t seem to go over very well.  These plans of his have more holes in them than a Dunkin’ Donuts.  At least you can get a good cup of joe at Dunkin’.  I’m working on things for a later post on why the banking systems are giving me nightmares, so I’m cutting this one short.  I suggest taking a break, have some fun and then check back tonight for some reading. See ‘ya all then!

Mid-day Update

Markets are in positive territory this morning on below average volume, decliners outpace advancers and more new lows than new highs.  Oil is hovering just below $90 a barrel and the OPEC president says expectations are for oil demand growth in 2008 to stay at the same level as 2007. 

Countrywide (CFC) CEO Mozilo on CNBC today saying that liquidity was becoming an issue for them.  He wouldn’t comment on questions about continuing their dividend payments.  Washington Mutual (WM) Chairman syas more rate cuts are needed as housing crisis is broader than subprime.  I’ll have more on the WM story later.

The week ahead…

I wanted to post some charts of the US Dollar vs. the Japanese Yen and the Euro. And while working on the charts the Us Dollar is falling once again when measured against the Yen. The value of the US Dollar will continue to be a major issue facing the economy of this country.

 

US Dollar - Japanese Yen:

 

 

 

 

 

 

 

US Dollar - Euro

 

 

 

 

 

 

 

The coming week will be a very volatile one. Many events on tap for this week which could be very significant to the markets…

Monday, December 3rd 

• 8:00 am - Fed member Rosengren will be speaking on subprime mortgages in Boston
• 10:00 am - November ISM Manufacturing data
• 10:30 am - US Treasuary’s Paulson will be speaking at a housing conference in Washington
• 3:30 pm - Fed member Yellen will be speaking in Seattle on the US outlook and monetary policy

Tuesday, December 4th

• 3:15 am - US Treasury’s Ryan will be in Paris to at a Fixed Income conference.

Wednesday, December 5th

• OPEC Meeting
• 7:00 am - MBA mortgage applications
• 7:30 am - November Challenger Job Cuts data (Challenger is an outplacement employment agency and their job cut data is viewed by some as a leading indicator to official US Government unemployment data.
• 8:15 am - November ADP employment change data
• 8:30 am - Q3 non-farm productivity and Q3 unit labor cost data
• 10:00 am - October factory orders, November ISM non-manufacturing data
• 10:30 am - Oil inventories
• 11:45 am - US Treasury’s Paulson to talk on US / China relations (why is the Secretary of the Treasury going to speak on relations? Well maybe it is better he speak on relations between nations instead of getting involved in the US economy, for his department has done enough damage already)

Thursday, December 6th

• 7:00 am - Bank of England interest rate decision
• 7:45 am - European Central Bank interest rate decision
• 8:30 am - Initial jobless claims
• 10:30 am - Natural gas inventories

Friday, December 7th

• 8:30 am - November unemployment data
• 10:00 am - December University of Michigan consumer confidence data
• 3:00 pm - October consumer credit data