Rebel Traders - Stock Market and Economic Analysis

Where to begin…

First I will discuss some of today’s economic events then I’ll dive into the charts.

This morning we received additional confirmations that the housing market is still declining. The Case-Shiller 20-city price index dropped an additional 2.2% from the previous month, and is now down nearly 25% from the peak 2 years ago. No bottom is in sight yet, but the Government is trying to put in a temporary floor by throwing (our) money at it like mad.

Then came the consumer confidence reading of 38, and that was another record low. The monthly consumer confidence data comes from “The Conference Board” and has been used as a gauge of ‘real world’ economic conditions for many decades.

The Consumer Confidence Survey measures the level of confidence individual households have in the performance of the economy. Survey asks a nationwide representative sample of 5,000 households, of which approximately 3,500 respond. Households are asked five questions that include (1) a rating of business conditions in the household’s area, (2) a rating of business conditions in six months, (3) job availability in the area, (4) job availability in six months, and (5) family income in six months. The responses are seasonally adjusted. An index is constructed for each response and then a composite index is fashioned based on the responses. Two other indexes, one for an assessment of the present situation and one for expectations about the future, are also constructed. Expectations account for 60% of the index, while the current situation is responsible for the remaining 40%. In addition, indexes for the present and future economic situations are calculated for each of the nine Census divisions. In the base year, 1985, the value of the index was 100.

And just hours after GMAC was provided $5 Billion tax payer dollars they came out screaming loudly about how fast they will begin making new loans this morning. The fact that tax payer dollars are going to be used to backstop new car loans for GM car shoppers is bad enough. But what is even more disturbing is how GMAC plans to make new loans.

[...]The company will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, a significant expansion of credit compared to the 700 minimum score put in place two months ago. [...]

A credit score of 621 is just one point above the classification of ‘sub prime borrowers’. GM will begin aggressively selling cars and trucks to people who are just an inch away from being sub prime quality borrowers. This in the face of rising unemployment and a deteriorating economy. This is set to be another round of defaults in the coming years and this time the damage from the resulting bad loans will be taken out of the tax payers pockets.

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