Stock Market Sumary - May 27th 2008

Bear Market Madness…

 

Oil dropped 2.7% today on a pullback. And the media is instantly jumping all over this as if some great event had happened. The Associated Press headline today:

Investors move back into stocks after strong home sales data, oil’s retreat

Investors moved back into stocks.. did they really? Well, if we use volume as a gauge then they were not. Not in any convincing manner anyway. And why did oil pullback some? Because of the reports this weekend that driving (demand for oil) had decreased substantially. So, let me connect the dots. The economy continues to weaken, people can’t afford to drive and go shopping, the hard facts that the economy is getting worse are coming off the printing press, and that is a reason to buy up stocks again? Someone please tell the media to "get real". History has shown us that the economy continues to weaken long after commodity price runs have temporarily topped. And is this really a temporary top in commodity prices to begin with?. Falling oil prices do not equate to an improving economy, just the opposite can be said, it is a declining economy that brings commodities back down as they become victim to the declining economy like everything else. Rising oil prices simply helped speed up the declining economy, that is all.

The economy began to deteriorate when oil was less than $80 per barrel. I don’t think that a drop in oil to $125 is really going to make any difference in the grand scheme of things. Even if oil dropped to $100 again, it is still a weak economy that is getting weaker. I still anticipate oil to go higher in the long run, but a brief pullback is no reason for the media to claim that a victory has been established, It is utter nonsense the way the media has been covering our economy.

And what about those "strong home sales" that the media also printed as a headline? Attorneys that I know who process foreclosures for Fannie Mae and Freddie Mac have been receiving increasing numbers of transactions to process. It is important to keep in context that the Governments data on home sales does not distinguish between banks taking properties off the market as they go back on the books of the mortgage companies and those of regular buyers and sellers conducting a transaction. And the foreclosure rate is increasing rapidly, this we know to be true.

And prices? No bottom in sight…

 

 

 

 

 

 

 

 

Bear Market Madness… I chose that title for tonight’s wrap up as the sentiment in a bear market goes through some of the wildest swings you will ever experience in your trading and investing lifetime. In a bear market the gloves come off and it becomes a war with bulls and bears constantly at each others throats. When you think of how the markets operate at the very core it really is a war. But, in a bear market it becomes a war of strategy, deception, planning, and propaganda. Everything you find in a real war except there are no machine guns and no bullets (at least I hope not). Over the past 5 trading sessions the DOW has lost nearly 600 points, and today the DOW gained 69 points. And with that 69 points comes the propaganda again. CNBC reported today that the pullback in oil may be a signal that the worst in the oil crisis may be over. Suddenly everyone wants to go long on stocks for the long term again. Have you noticed that you don’t hear anyone on CNBC say that this is a bear market? For some reason they hardly ever mention that anymore. As if they completely forgot their history from the bear market of 2000-2002, and every bear market in history before that.

This is still a bear market, inflation will be with us for a long time to come, and the economy will weaken to anemic growth for a protracted period of time. And the recession will be longer and deeper than the media and the Government will tell you.

There is good money to be made on the long and short side in a bear market, it is all about timing. And if our new site was on the air right now you would be joining us doing both on our day trades. We are pressing to have the site operational as fast as conceivability possible. Our longer term outlook for the US stock markets remain bearish and the declines in equities may have only begun. The decline from January to March may very well be a teaser of what may be in store for us down the road.

Bear Market Madness… it can make some people want to pull their hair out, it can be frustrating, and it can be disastrous for those that don’t have an escape plan for their long term investments (buy and hold). But, as educated, thinking, and insightful traders as we are here, our job is to do our best to keep you and your money together. And to build it up as we go.

Day trades, swing trades, position trades… all good and solid trading plans. In a bear market each becomes a challenge, but we are here to help you through these very bad economic times.

Today reminds me of the picture hanging in my office…

 

 

 

 

 

 

 

 

Off the Wires:

 

ACCORDING TO S&P PRICES ACROSS MOST COMMERCIAL PROPERTY/CASUAL LINES IN THE US ARE FALLING
- S&P adds that there are strong indications that the profits of underwriters may begin to fall due to the fall in prices

 

INVESTORS IN SOME TYPES OF MORTGAGES ARE PRESSURING LENDERS TO REPURCHASE THESE ASSETS - WSJ
- Investors who lost money by buying subprime mortgages are trying to force banks and mortgage companies to repurchase a rising number of troubled loans.
- The potential liability from the growing number of disputed loans could reach billions of dollars, according to FBR analyst Paul Miller.
- In a recent filing, Countrywide disclosed that its estimated liability for such claims rose to $939M as of March 31 from $365M y/y

 

NYT REPORTS THAT TALKS BETWEEN US AIRWAYS AND UNITED AIRLINES APPEAR TO HAVE COLLAPSED
- The report cites people with direct knowledge of the matter.
- According to the NYT, there has been little contact between United and US Air in recent days and the internal teams of sr. executives at both companies as well external bankers and lawyers assigned to the project have put it on "permanent hold."
- People close to the matter noted that talks between United and US Airways might revive at some point.
- Follow Up: Later a source said that the talks between the two airlines have not ended, but no deal is expected in time for review by the Bush administration; The source added that United is continuing alliance talks with Continental

 

S&P SAYS THAT DEFAULT RISK REMAINS DESPITE MARKET IMPROVEMENTS - REPORT
From the Press Release:  "Despite the recent market improvement, we maintain the same fundamental outlook as we did at the beginning of the year," said Diane Vazza, head of Standard & Poor’s Global Fixed Income Research Group. "We continue to expect deterioration in credit quality for the high-yield segment." Downgrade risks are elevated, and the pace of downgrades has accelerated in 2008.

 

ABC CONSUMER CONFIDENCE FOR WEEK ENDED MAY 25: -51 V -49 PRIOR (MORE THAN 22 YR LOW)

 

And the last item for tonight is a screen shot of the latest Federal Reserve aggregate reserves of depository institutions data:

 

 

 

 

 

 

 

 

(Source: Federal Reserve)

Good night to all, see you in the morning.

Market Close

The volume was low again today and it just tapered off more in the afternoon.  Hmmm….volume declines, price moves up.  Do we like this pattern?  No.

-  NYSE volume 815M shares, about 35% below its six-month average; advancers lead decliners by 1.9:1.
- NASDAQ volume 1.4B shares, about 20% below its six-month average; advancers lead decliners by 1.8:1.

A bankruptcy court judge has ruled that Bear Stearns cannot shield assets from the proceeding while liquidating their Cayman assets.  I believe this is related to those hedge funds that blew up on them.

Durable goods orders number is due in the morning, so that may have some effect on market movement.  You know how this works now….if the number is bad, the market moves up and vice versa.  Ok, just kidding (I think). 

I’ll have more for you later.  I hope there weren’t any rebels out there buying today (except dt’s of course).

Military Families Hit By Foreclosures

Military foreclosures are four times as high as civilian foreclosures.  VA loans were at a 12 year low, replaced by those ‘no money down, teaser rate’ loans.  Can we get pissed off yet?  It is deplorable the way we are treating the people who fight to protect us.  This is just one more example.  And, yes, I do know it was the individual buyer who made the decision to take the loan, so there’s no need to tell me about responsibility.  If our government took care of our troops the way they should, off-post housing wouldn’t be necessary.  More important that our elected officials have pensions and health care for life, I guess.

Mexico’s Turn To Be Funny

Mexico’s Finance Minister says the US economic slowdown is not yet affecting the Mexican economy.  Pardon me while I laugh hysterically.  I may have been born at night, but it wasn’t last night!

Not even two hours into the trading day and I already have whiplash.  That isn’t a good sign of a happy market.  Stay safe out there, protect your capital/profits!

And The Beat Goes On

Dallas Fed Manufacturing Production for May (ouch!):  5.5 V 12.5 in April

It should be noted here that the new home sales numbers were abysmal.  Inventory seems to be dropping a bit, but I’ll need to see another month or two to be happy.  And don’t forget this is NEW homes, existing homes numbers still have major problems.  Go to Calculated Risk for graphs on April New Home Sales. (No need to reinvent the wheel here). That first chart is a whopper.

The indices are trying to hold on to modest gains, but I think it is going to be a struggle throughout the day.

Morning News Updates

S&P Case-Shiller US Home Price Index (HPI): Still falling

Q1 S&P CASE-SHILLER  US HPI  Y/Y: -14.1% V -12.7% PRIOR; US HPI: 159.2 V 170.6 PRIOR

MAR S&P CASE-SHILLER COMPOSITE-20 Y/Y:  -14.4% V -14.2%E; HOME PRICE INDEX: 172.2 V 175.9 PRIOR
- prior revised from 175.9 to 176.0

FED SETS 28-DAY REPOS, ACCEPTS $20B

Consumer Confidence and Richmond Fed Manufacturing numbers are disappointing, but the market wants to focus on the "apparent improvement" in the New Home Sales numbers:

MAY CONSUMER CONFIDENCE: 57.2 V 60.0E; 14-YEAR LOW
- prior revised from 62.3e to 62.8
- 1-year inflation expectation at  7.7% v 6.8% prior

MAY RICHMOND FED MANUFACTURING INDEX: -3  V 1E

APRIL NEW HOME SALES;  526K V 520KE
- prior revised from 526K to 509K

APRIL NEW HOME SALES TABLE
                                         Apr       Mar        Feb

Sales At Annual Rate  526,000   509,000    572,000
Percent Change           3.3%    -11.0%      -4.2%
Northeast               34,000    24,000     34,000
Midwest                 73,000    69,000     77,000
South                  289,000   296,000    318,000
West                   130,000   120,000    143,000
Median Price           246,100   225,500    243,100
Mean Price             321,000   291,500    300,600
Houses For Sale        456,000   467,000    475,000
Months of Inventory     10.6      11.1        9.7

Stock Market - Pre Open Report for May 27th 2008

Ford (F) CUTTING PRODUCTION, NOTES THAT PLANT CLOSURES AND LAYOFFS COULD FOLLOW DUE TO HIGH GAS PRICES
- Co has announced significant production cuts as a result of rising gas prices and a re-examination of its production strategy.

 

 

Tuesday

8:15am: Fed’s Kroszner speaks in Brazil on banking risks

8:55am: Redbook Retail Sales

9:00am: March S&P/CS Home Price Index (last 175.9), March S&P/CS Composite-20 y/y (last –12.7%), Q1 S&P/CS Housing Price Index (last 170.6, y/y –8.9%)

10:00am: May Consumer Confidence (last 62.3),

10:00am: May Richmond Fed Manufacturing Index (last 0),

10:00am: April New Home Sales (last 526K, m/m –8.5%)

11:50am: Fed’s Fisher speaks in San Francisco on the economy

Earnings:

Before the Open: DCI, GMTN, SGK, GASS, VOD.

After the Close: BGP, DCI, INET, JMBA, SNDA, SHRP, LNUX.

 

Wednesday

7:00am: MBA Mortgage Applications

8:30am: April Durable Goods Orders (last –0.3%, ex-transport 0.9%)

12:50pm: Fed’s Stern speaks on the Economy

1:00pm: Treasury’s Two-Year Note Auction

9:00pm: Fed’s Fisher speaks on inflation and debt in San Francisco

Earnings:

Before the Open: AEO, CBRL, CHS, DAKT, DLTR, RL, ROLL, SHMR, BRLC.

After the Close: AFCE, APSG, CWTR, DBRN, DCP, JAS, MW, MYL, TIVO.

 

Thursday

8:30am: Preliminary Q1 Annualized GDP q/q (last 0.6%), Q1 Personal Consumption (last 1.0%), Q1 GDP Price Index (last 2.6%), Q1 Core PCE q/q (last 2.2%),

8:30am: Initial Jobless Claims (last 365K), Continuing Jobless Claims (last 3.073M)

9:00am: Fed’s Geithner gives opening remarks on money markets at New York conference

10:00am: April Help Wanted Index (last 19)

10:30am: Crude Oil/Gasoline/Distillate Inventories, Natural Gas Inventories

1:00pm: Treasury’s Five-Year Note Auction

2:30pm: Ben Bernanke speaks on Fed liquidity provisions

6:15pm: Fed’s Kohn speaks about money markets at NEw York Fed

Earnings:

Before the Open: AGYS, ANST, BIG, COST, FRED, GCO, HNZ, JOYG, MESA, MNRO, MOV, NM, NZ, PDC, RSTO, SHLD, SCVL, SCMR, TSL, WSM.

After the Close: JRJC, DLIA, DELL, ESL, FRPT, HEI, IUSA, JCG, MRVL, NINE, NOVL, OVTI, NX, PAY, WTSLA, WIND.

 

Friday

8:30am: April Personal Income (last 0.3%), April Personal Spending (last 0.4%), April PCE Deflator y/y (last 3.2%), April PCE Core (last m/m 0.2%, y/y 2.1%)

9:45am: May Chicago Purchasing Manager (last 48.3)

10:00am: May Final U. of Michigan Confidence (last 59.5),

10:00am: May NAPM-Milwaukee (last 48)

11:45am: Former FOMC Alan Greenspan speaks in Montreal on economy and markets

12:30pm: Fed’s Rosengren speaks on economic outlook

Earnings:

Before the Open: KIRK, TIF.

After the Close: CAO, LGF.