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Market Wrap - World Economies Continue to Weaken

Yea, that would about sum up the sentiment in the market today. It did not help matters when this mornings jobless claims showed no let up in US employment declines. Another catalyst was the poor retail sales data (same store sales) that came in during the pre market hours. The mood going into the opening was fairly negative.

Sales at retailers continue to show a building trend of consumers spending less and buying only the essentials (i.e. Wal-Mart sales increase). The back to school shopping season appears to have been a disaster.

Throughout the day there were rumors of hedge funds blowing up (liquidating their holdings) and  Fed President Janet Yellen’s comments on the future were very pessimistic. She said today that there are “substantial” risks of slower US economic growth. She went on to say that the U.S. economy’s acceleration to a 3.3 percent growth rate in the second quarter “is likely to prove ephemeral”.  “My forecast is for sluggish growth in the second half of this year, with substantial downside risks — especially emanating from the financial system.”

The ISM Non-Manufacturing Index data this morning also showed a continuing decline in the employment picture. The employment component of the ISM data was 45.4.  Anything below 50 is an indication of slowing growth, or in this case, layoffs increasing.

Anyway you look at it, today was a bad day if you were looking for signs of an improving economy. And let us not forget the financial’s. Yes, the poor financial institutions that just keep digging their own holes even deeper. Bloomberg reported today that Lehman (LEH) is still considering off-loading somewhere in the neighborhood of $32 Billion of commercial mortgages and other real estate to a ‘new’ company. This way they can remove it from their books and have it reside in a separate entity for now. But, according to the article, it would require capital from outside investors . Hey, Lehman.. good luck finding someone to invest in ‘that’ portfolio.

While on the subject of mortgages, et. al., we have Standard & Poors revising their projections for the housing market.  They now say that housing declines will continue all through 2009, with expected ratings downgrades to gain momentum on the US home builders.

Today, the FDIC, (you know, that Government entity that protects our money), issued a report to every bank and lending institution in the country that they want banks to get back to basic lending principles. But, they also want banks to “innovate” new ways of helping the lower and moderate income people have the means to obtain a mortgage. One recommendation is a broad adoption of a 40 year mortgage, or the use of alternative ways to verify payment history for those who have little credit history. One example laid out is that banks should look at utility bill payments as a gauge of credit worthiness if one has a poor or low credit score. Look, if you ask me the FDIC should go about their business of protecting money in these deposit institutions and stop trying to blow into the inflate tube of the housing market. For goodness sake, don’t these people understand that the ONLY cure for the housing market is for it to correct itself. Let the market find its own natural price discovery.  Interference with this process, no matter how benign it may be on the surface,only delays the inevitable and prolongs the agony in the housing market. Housing prices MUST reach historical mean averages of cost vs affordability.

Tomorrow at 8:30 am (US EST) we get the monthly jobs data. The official non-farm payroll data as it is called. With the market as oversold as it is right now anything better than feared (notice I did not say ‘expected’) may trigger a re-tracement of today’s substantial losses. But, I still must say that any move up is a bear market rally. Should data tomorrow be even worse than feared than we could have a very steep decline tomorrow.

Charts to follow soon…