Stock Market Summary for February 15th 2008

A lot of information to go over and I am writing up a commentary on the current state of our economy and the markets. Check in tomorrow for a detailed analysis of our view of where the markets, and the economy may be headed…

The amount of economic data and events unfolding in the markets can be confusing and overwhelming… we will help you through all of the turmoil. Our long time readers have come to expect us to say it like it is… and that is what we will always do.

 

Options Expiration

Volume has dried up it seems.  Relatively quiet this afternoon, trading rather flat.  At least that’s fairly typical for options expiration Friday.  Overall volume was pretty good, but most of it occurred this morning.  Lots of rumors of takeovers (ugh), and Bear Stearns (BSC) jumped 5% on yet another takeover rumor.  But Mr. Faber from CNBC said just recently that the rumors were untrue.  I’m shocked!  I swear that’s the only time BSC moves anymore.

The Fed’s Mishkin is speaking today.  So far he’s expressed concerns about inflation and believes the subprime market will come back.  He said the ratings agencies will be less essential going forward.  Not sure what he means by that, but we’ve been looking for a shake up in that industry for awhile.  It needs a major overhaul.

See you all tonight.

Manufacturing Numbers

February Empire Manufacturing: -11.7 v prior 9.0.  This is the lowest reading since early 2003.  The numbers today are certainly not showing strength in the economy, for business or consumer. 

Stock Market and Homebuilders

The National Assoc. of Home Builders says the economic stimulus bill is too weak to help the housing market.  So Senate Democrats are planning a bill that would include a tax break for home builders and higher caps on state mortgage-revenue bonds.  Homebuilders, just as any other business, should not receive special treatment because they screwed up.  Government intervention should not be happening with this group!

The University of Michigan Confidence number is 69.6 v 76 expected.  This is unconfirmed at this point.

According to Financial Times, major banks are being advised by their lawyers to walk away from funding commitments.  Wow.

News sources report that investors are alleging  some banks may have conspired to fix transaction prices for leveraged buyouts.  This involves Bain, Goldman Sachs, Blackstone, Merrill Lynch and 12 other investment banks.

The market is weak in morning trading, but expect volatility with options expiration before a 3 day weekend.  The market is closed on Monday for President’s Day.

Stock Market - Pre Open Report - February 15th 2008

Futures have deteriorated substantially this morning on multiple signs that the economy continues to worsen. This morning we received the NY Empire Manufacturing Survey data and it indicated a continuing decline in employment and orders that manufacturing companies are receiving. Manufacturing industries in the United States has dwindled substantially over the past 5 years and turned this country into a service provider economy. From 1950 to 1990 the United States was a growing industrial complex. And because of that we rely more and more on imports and any change in import prices has a material impact on inflation and our economy. This brings me to the second bit of news we received this morning which was the import / export price data. Import prices has continued to rise over time and any change in import prices has a very material impact on our inflation.

Another aspect of the import / export price data is the difference between the imports and exports. Over the past 12 months import prices have risen 13.7% and our export prices has risen 6.7% for the same period. This relationship is important in that the United States is paying more to bring goods into the country then it is receiving for goods we sell. And our main export product is agricultural goods.

The import price increase adds to inflation pressures and makes it increasingly difficult for the FOMC to keep cutting interest rates. Credit availability continues to worsen and inflation is still growing.. Not a good combination.

On Wednesday we shorted the Dow by buying the Ultrashort DXD and this trade has worked perfectly so far with the reversal in the DOW taking place just where we predicted it would on our technical analysis. Volatility today is likely to rise on the deteriorating economic reports and it being options expiration day, this combination could provide some wild price moves. For those who also took the trade on shorting the Russell 2000 from our technical analysis are also doing well as that index has also turned as predicted.