Market Summary for July 16th, 2008-
All of the news will be good, anything bad will be buried (or dismissed) as much as possible. Maybe. This could be the start of the next bear market rally, or not. Don’t you just love that decisiveness! Financials certainly got a boost today. The last few weeks have seen them beaten into the ground, and then some. So it’s really no surprise, on top of Wells Fargo reporting alleged good numbers, that there would be some kind of rally. I’m not as optimistic on WFC as some people are, with the growing delinquencies on their books, but the stock was up over $6 today (31%). Sure enough, one of the CNBC commentators questioned if this was a sign of a turn-around in the financials. You know, "the worst is behind us" kind of thing. The drop in oil futures prices was another catalyst to push the market higher. I’m not impressed with that pullback, either. But, if it would keep dropping about $5 a day, I could do a happy dance! Feeling a little nostalgic, I went back through our previous posts to see the progression of the credit crisis. I had posted this to the site back in December. It’s not a bad idea to take a look back to see where we’ve come from, because it helps with that short-term memory problem I mentioned earlier.
Hank "give me all your money" Paulson, continues to do his best impression of "I’m from the government and I’m here to help you." Ben Bernanke continued his useless blubbering before the Senate, and the SEC’s Cox was busy figuring out new rules for the market. The SEC’s garbage of no naked short selling has turned into a total joke. Let’s see, we now have something along the lines of "it’s ok to short stocks, but only certain stocks, and it only applies to some traders, but not market makers." (SEC is considering short sale exemptions for market makers). I thought I was being indecisive! Make up rules as you go along, to benefit those you like, and next thing you know, you have totally eroded everyone’s confidence in trading in the US market. Way to go Christopher Cox, Ben Bernanke, and Hank Paulson. Can’t wait to see what your next trick will be.
JP Morgan reports tomorrow, before the bell. It’s anybody’s call what they will say or how the market will react to it. So much is being hidden in these earnings reports, and I don’t know how one regains confidence in the market until that changes.
We are into earnings season and this is options expiration week, so truly anything is possible. I hate to sound vague concerning the way forward, but we’re watching and waiting with the rest of you. Daytrade cautiously and take profits out of long positions when you can. That is the best I can tell you. The underlying fundamentals have not changed since last week, if anything it’s just getting worse. Indicators show oversold/extremely oversold conditions in some indices or stocks, while other stocks are not oversold at all. So we could be looking at a relief rally, or a "sideways" rally. It’s difficult to say how much "relief" we could get, but we just watch support/resistance levels. Keep an eye on oil prices and we’ll keep you informed of important earnings reports. The technicals and the fundamentals are at war. It’s too soon to tell which one leaves the battlefield on a stretcher.
Here’s an updated XLF chart:
Since Wells Fargo earnings were such a big part of the move today, it should be worth noting that there are details in that report that could come back to bite them. They deferred $265 million dollars worth of HELOC charge-offs by extending their past-due cutoff to 180 days, rather than 120. Basically putting off a $265 million charge.
And in my opinion, their 3 billion provision for loan losses isn’t gonna cut it. Approximately 27 billion (roughly 38% of their home equity portfolio) is at loan to value ratios above 90%. Loans more than 90 days past due are 7.26 billion. And home prices continue to decline.
All is not well on Wells Fargo’s balance sheet. Don’t let the media hype fool you. If the real estate market (particularly in California) is done going down, then maybe Wells Fargo would have more to be optimistic about. Then they might be able to recoup some of their losses and charge-offs. But I doubt that’s the case. I’m inclined to believe this short-term spike in their stock price will not hold.
QUESTIONS: (1) Is Wells Fargo still accessing the Fed 28 day revolving begging bowl/Term Auction Facility? (2) If so, where do they get the balls to waste capital by raising the dividend when they are participating in a “crisis” lending vehicle sponsored by the WE THE TAXPAYERS Federal Reserve balance sheet?
That information is kept from us, the taxpayers. Anonymous beggars at the bowl.
Regardless, the dividend raise was baffling. Especially considering the seemingly toxic assets they continue to hold on their balance sheets.
Thanks WFC we needed a nice bounce. I think I’ll go all in on WFC puts now. This is way too easy$$$
Lisa,If Bush does his U turn on Iran you might get your $5 drop a day on WTI
And if that does happen, i will laugh my head off, in a slightly crazed manner, for then i will know for sure, that we’ve been had!
YHOO is practically screaming “WE ARE GOING TO MISS ON EARNINGS!!!!” this morning with the announcement that they would sell the entire company to MSFT for $33 or “more.” For Pete sake, why would you give away your asking price, that you would be lucky to receive and add the teaser “or more?” Who is running this company? Jethro Bodine?
Chuck,
Thank you for the XLF chart.
Chris