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Market Summary for July 14, 2008
Posted: July 14, 2008 at 10:16 pm by Lisa
Where is the confidence in our US dollar; in Bernanke’s ability to stem a financial crisis; or in the earnings statements of any financial institution? Missing in action, that’s where.
Hank Paulson, the US Treasury Secretary, says they will buy equity in Fannie and Freddie, if needed. Credit lines are available to the GSE’s, even though they don’t need to use them, according to all involved. The government spokespeople have said that the "proposals" for the GSE’s were, in large part, to simply calm the markets. These proposals didn’t seem to have a very calming effect on the markets today. The section about asking Congress to raise the national debt limit was a big mistake on their part. The big joke is that Fannie Mae and Freddie Mac are publicly traded companies, at all. They are, and always have been (in my opinion) backed by the US government. Problems inside the GSE’s are nothing new (see 2006 story here) and that’s no secret. But, whatever the "official" status of these companies, it still comes down to the Fed’s having to back them up. How many more institutions can the government afford to "backstop?" Regardless what some people may say, the US does not have an unlimited money supply to bailout everyone. There are always consequences for every action taken, and some of those consequences can be devastating.
The Wall Street Journal is reporting the following:
FINANCIALS: MORE THAN 50 HEDGE FUNDS HAVE BEEN SUBPOENAED BY THE SEC REGARDING THE AGENCYS PROBE OF FALSE RUMORS - WSJ
False rumors? Most of the rumors I’ve heard are about the terrible financial shape of the investment banks and other financial institutions. These rumors are turning out to be true! Is the SEC going to go after the banks themselves for issuing those now infamous "we are well-capitalized" statements, just before running out to beg for capital? Do you believe the following statement from Washington Mutual? Personally, I don’t. Does my stating that opinion constitute a false rumor? No.
Washington Mutual (WM) has stated the following concerning their capital standing and liquidity position:
- The company recently raised $7.2B in capital and its tangible equity to total tangible assets ratio was 7.8% as of June 30.
- The company significantly exceeds all regulatory "well-capitalized" minimums for depository institutions.
- In addition, WaMu has current excess liquidity of more than $40B and a national franchise with approximately $150B in retail deposits.
What I see is panic, not by traders/investors, but by those at the highest levels of government and in the financial institutions themselves. And yet, the whole time they are pleading for calm from the rest of us, while they try and figure out how to extricate themselves from the disgusting mess they made.
Where do we go from here? We are in a wait-and-see mode right here. This chart is for the last three months on the Dow Jones Industrials, and I hope it shows why it makes it hard to short an index OR go long. Just as in a bull market, where overbought conditions can last a long time, a bear market’s oversold conditions can stay that way for a long time, too. An outright crash is still on the table.
ACCORDING TO EXPERIAN, UK BUSINESS FAILURES ROSE BY CLOSE TO 20% IN H1 OF 2008 - TELEGRAPH
- The failure were concentrated in the real estate, financial services and telecom areas.
- The report adds that more firms failed between April and June than in Q1.
That’s not good news. Here’s what’s on tap for tomorrow. Have a great night!
Earnings before the bell: SCHW (Charles Schwab), ETN, JNJ, STT, USB
Earnings after the bell: CSX, INTC (Intel)
Tomorrow’s economic news includes the following:
8:30amET: June PPI; June Advanced Retail Sales; July Empire Manufacturing
10:00amET: July IBD/TIPP Economic Optimism; May Business Inventories
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Chuck and Lisa and all rebels, the few not from the group of the rest - “The Boiling Frogs”…
thanks a lot for your posts again… This place and small community is just so unique ….
Just want to share with you one link which puts the current actions in the bigger(and longer) picture.. it is about “the inexorable tendency of financial fascism to mutate into full-scale financial socialism and therefore bankruptcy”
http://mises.org/story/3045
You can bet, this guy is correct… Now there is going to be millions of freaks shouting how capitalism and free market failed again… They have no damned clue, who is responsible for this mess…
Anyway, good luck in trading, I am even more pesimistic than ever before… I hate to say it, but I short them all, this is only way how to press them to start to speak a truth…
Thanks, Opitz! I really enjoy your comments. You are correct that what is happening is not the fault of capitallism and free markets. The blame lies with government intervention into free markets.
Hi Lisa, I wonder if the evil Hedge Funds are behind this. I mean, is it really happening or is this article just a rumor? I believe former CEOs’ Chuck Prince and Angelo Mozilo are behind this. http://news.yahoo.com/s/ap/20080714/ap_on_fe_st/odd_missing_manhole_covers
LOL! I admire your ability to be so funny this early in the morning!
I never ever heard about this man, Ron Paul, but he nailed it on head… what a brilliant comment… http://youtube.com/watch?v=4Cmp0og5sw0
Deere has been going down for no apparent reason lately.
Is this the time to get back in for the run up?
Nothing Runs like a Deere !
Agco also !
Lisa, you are up early… this is clear bear signal, something going to happen on markets today… long time you didn’t wake up so early…. clear RED signal…
GM: up in the pre market on the “news” of ANOTHER restructuring plan. One part of their business that doesn’t get enough “press” is that they are one of the MAJOR players in the credit markets and have been getting KILLED as a result. It also wouldn’t hurt their business model if they sold a car or two this quarter. It seems the homegamers believe when a stock price reaches single digits it means a good buy even when the company is going bye bye..
LOL! Half the time I never get to bed, Opitz! I just don’t usually post so early, too much researching in the morning. But this morning, it’s just the same stories being circulated, so it’s a “watch the reaction” day for me.
DaveB- Deere has been dropping, and when we get a bounce (someday) DE can be played to the upside. Remind me later and we’ll look at the chart more closely.
Lisa… But remember that a bed is not bad at all…
You sleep too, to be strong, we need you, because you are just the best!
What do you think about Brrnankie and Hankie? They didn’t wake up for years!
Opitz, If Lisa isn’t sleeping much, she is in good company. Rip Van Bernanke and Headless Hank of Sleepy Hollow.
I think this will be one of those weeks where things get really funky, I wouldn’t be at all surprised to see a quick trip down to Dow 10700,followed by a bounce.