Late in the day today the Feds came up with another plan to bolster the economy: the US Government is going to offer 4.5% mortgages through Freddie and Fannie. I am pretty sure some people in-the-know about this news bid the stocks higher later in the day. News via Market Watch:
The plan would employ Fannie Mae and Freddie Mac to offer mortgages with rates as low as 4.5%, roughly 1% lower than current rates. The measure is under consideration as part of the Treasury Department’s continued effort to limit foreclosures, which has been at the core of the financial crisis. The plan would seek to revitalize the financial market without bailing out homeowners and lenders, the Journal reported.
Back in July, I thought this is something they should do, of course with tight oversight. It may even work better than their plan to pump monies into financial companies.
- After wasting nearly 2 trillion on a variety of programs that may not yield any results, after a number of companies going insolvent, and after having lost another million jobs in the economy, are there enough qualified borrowers left to make avail this opportunity?
- In what way does this help people whose houses are worth less than their current mortgage?
- How will it help improve the over-supply situation?
- Will this help boost home prices across geographies?
I don’t know about the long term implications of this policy. It sure looks like this news will completely change the dynamics in the market. What do you guys think?
[I am still evaluating the potential impact of this news on near-term implications for the market. I might add more to this post later.]
what a nutjob idea. steal business from the ailing banks and shift the risk to the government. when the banks have to give up business that is paying them on time where will they get revenue? another step to building the USSA.
one other note: this action is further proof that America has no “real” economy. the real economy was sent overseas over the past 30 years. with a “real” economy all this bolstering and fixing of home prices will do nothing long term. if we dont see great depression2 by 2011 ill be amazed!
there arent enough qualified borrowers….(where do they work? exactly my point…they were all laid off)
Why are we all watching the news suddenly ?
Is that a bad thing?
For traders yes i believe it is a bad thing a ) because we do it when we dont have a clue whats going on or b ) it clouds your judgment and hence TA.
The news is another factor (among many) that explains the price action, so ignoring it would seem a little absurd. Yesterday and today, the markets saw exagerrated selling. I called the breakdown of the 2 day VWAP and the selling was terrific! What caused the sharp turnaround? Some BS news. Just like today, which thwarted the downward move. My take, you don’t have to watch the news to trade it but don’t ignore it as it is one factor among many that you can’t choose to ignore. Just my 2cts.
The sellers are finished selling , thats what caused the turnaround by the time people realise its time to be bullish the market will be ready for its wave 5 plunge. My tutor drilled into me the market leads the news ( Rimms bas earnings were in the descending triangle for example ) by the time you have read about it , its already happened. Perhaps i came out wrong but there are tech analysts and fundies and rarely do the 2 mix successfully and when i see evey blog across the sphere discussing news ( and justifiying positions ) it makes my glad i chose a cash position and feel a little less isolated ( lack lustre ) as an analyst.
My take though is that this is wave4 and while tommorrow might be a boring doji i am looking for longs.
News kills Traders not because its bad but because they try to trade it and not the chart.
I don’t agree with that notion at all. News is critical. If you are a trader, it helps you get the entry, exit correctly. If you also follow fundamentals, you can avoid traps. As with the RIMM example you mentioned, I believe that most on this board have some idea about the news being priced in RIMM stock. You cannot say that is true for all the stocks.
Also, I don’t believe that market discounts what will happen ahead of time. What part of the credit implosion did the market discount in May 08, or a year ago? Very little.
I thought the bear flag , rising wedge and failure at the 200 day average said it all. ( ref May 08 ). In March of this year everybody but Cramer knew we werre in deep doo doo , but if you tried to trade that belief you were mince meat unless you can take a lot of pain.
And what i meant by the RIMM example was whilst i shorted the sucker at 43 bucks , its precipitous drop to 32 wasnt a surprise when they didnt beat earnings estimates.
David,
I don’t want to prolong this conversation. If you have a system that is working, that is great. Stick to it.
However, I totally disagree with the notion that news is not important. Charts don’t always tell the whole story.
all ive been doing is reading and if you look at Great Depression Canada on google and read the whole story in WIKIPEDIA the problems that led Canada into the Great Depression are smack dab on to what is happening right now! Canada was one of the most affected countries then and will be within 6 months from now. Sudbury just closed down the last of the Nickle mines due to depressed prices that show no sign of recovery. Oil at $45 and falling with no signs of a bottom. the charts have forced me to look further..look to the news to better understand where we are headed. im convinced we are headed to a depression and im sure im not the only one… we will have another nasty sell off as any investor with a brain can see where this “economy” is headed. the news solidify what the charts say and helps me keep my emotions in check as the market manipulators move this thing around and try to convince everyone to sell thier puts on the cheap.
I have to come back and say i was totally wrong about the trend, egg on my face totally. Thankfully it didnt cost me.
David,
Participating in any type of market is a humbling experience. This market is even more humbling. You don’t have to be hard on yourself.
Tomorrow you could be proven right.
According to Fast Money this is not a done deal and the leaking of this could have really screwed everything up. LOL. In the mean time bogus crap like this will boost the market falsely. Fed needs to make an announcement very soon regarding this – if that announcement is negative watch out.
Plus – what pisses me off – why not for everyone. New mortgage only? BS -
To the best of my knowledge, this helps very few people. It doesn’t put a dent in the 40% drop in home values that already hit bank balance sheets.
Let us see what Mr. Mortgage says.
let me guess…to be eligible you have to do a double-default-backflip first. Those with FICO scores greater than 600 need not apply (because then you’re going to be the poor son-of-a-bitch paying for it!).
Is it just me or does anyone else think that each genius idea they come up with that is going to save us is really something that is going to prolong all of our problems? By the end of all this they may have to come up with something worse than a depression to adequately describe it.
yup
someone i can agree with. there is no economy and there has been no economy for at least 10 years if not 30…. what we were enjoying was loose credit and only loose credit. now that the lending is over… the “fake” economy has begun to implode. Depression will not be the word to describe what comes out of this. Turmoil is what we will see. and will we have a stock market to trade at the end of this mess?
You will like this story
http://biz.yahoo.com/rb/081203/business_us_funds_leggmason.html
This guy must be smoking crack to say the Bear Market Bottom is in.
His fund is only down 59.7% this year, so he is credible source.
I have been bearish for a year (my account doesn’t show it) but I have been right a few times. This Miller dude called a bottom in April.
Enough said.
LOL. This is one tough board! 15 years of outperforming the S&P is forgotten rather quickly. Miller is only in the news because of the reverence (and rightly so. His record outperformance vs. the SP is to be commended) he has gained in the investment community over the years for his great acumen, and how quickly he has lost that acumen this past year.
If we are to measure others by this short term metric, I suppose Warren Buffet, Eddie Lampert and Steve Cohen are bums as well? Let us not forget this bear market has been shredding up just about everyone regardless of their reputations, and the real metric will be were they are 2, 3, or 4 years down the road. I still think we can learn alot from Bill, Steve, Eddie and Warren, and it is humbling that even great investors such as them are humbled by the market from time to time.
Good points. However, I don’t think Miller is in the same league as Buffet. Real mettle of any fund manager is measured in a bear market, not in a bull market. Heck, even Cramer gets one right during a bull run.
I just wrote to Mr. Mortgage to seek his opinion on this news.
I remember back in the day when news really moved the markets.
The plan is short term positive, long term unknown. Here are the positives
1. While you can call it a trick a day pony, the continued roll out of plan after plan indicates the government is still in the game and that there is no longer the fear of the interregnum inaction that the market feared a couple weeks ago. 60 days of no one tending the store is not what the market needs at such a skittish time. Call it removal of uncertainty. The market is can better price in the known (even if it is bad) rather than the unknown. Action over the past couple weeks indicates the government is working 24/7 to creatively tackle issues. We can dispute the efficacy of the plans, but the lack of interregnum inaction has been removed and I think the market likes it.
2. The market seems to have priced in recession, perhaps a severe one. A couple weeks back the market got spooked with talks of a depression with the historic drop in consumer prices. No one wants to see a deflationary spiral, and while you can gripe about helicopter Ben, it is clear they are engaged in quantitative easing to do all that is necessary to prevent such a deflationary spiral. That removes the Armaggedon trade that was on a couple weeks back and as such is positive.
3. It is one of the few government programs taking aim at the underlying problem. Restoring liquidity and stability to the housing market can go a long way to stabilizing the bonds and other structured assets on the banks balance sheets.
Does any of this mean the bottom is in and the market has an expressway higher, or that we will avoid future pains? I don’t think so. I think the ultimate bottom is next March or July or even later. But there is a confluence of events at the moment that are permitting higher equity prices, and I rather be flat or riding along with those prices rather than fighting the tape because “the market should go down”. I realized long ago that my thoughts about what the market should or should not do on any given day or week is irrelevant, the market will do what it wants to do. Our job is to figure out what that is, whether it is rational or not.
As Shanky said in an earlier post, the market seems to need even worse news in order to go down. The talk of 10 percent unemployment, depression, etc, has set the bar pretty high at the moment and at current equity prices (oversold on monthly charts, and stretched from the 200 dma) that the news will have to be rather shocking and severe. I don’t see that happening at the moment. Let prices approach 1060 on the SP and let some of these programs fail to alter the progression of events, and let reality sink in after Q1 that this may go into 2010, and you got a good risk reward short. Throw in the fall of the dollar, collapse of treasury prices, and perhaps a geopolitical situation (perhaps a crackdown in china or russia?) and you can see how things can get bad rather quickly. Remember the ultimately lows in the 30′s took several years to form, but the rallies in between were historic. There is money to be made on the short side, but it is by picking the right entry and the right vehicles. I don’t see the risk reward for the shorts at the moment, save perhaps for a small OTM put that I would roll over from month to month to take advantage of any Black Swan even that collapses prices in a hurry.
Just my thoughts, and again, I could be completely wrong.
I too am thinking that in the intermediate term (one-month to six-months) it could be positive. If this is a give-away for the home-builder lobby, another feather in the cap of our government. The fundamental problem we have is housing glut – not scarcity of homes. In the long run, it is probably a bad idea as it will possibly break the Federal Reserve, T-Bonds and the Dollar (in addition to all other things that already doing this)
However, for the very short-term, there can be a lot of unintended consequences because it is going to disrupt the mortgage applications that are already in the process, current mortgage lenders pricing rates at 5-5.5% etc.
maybe it would be cheaper to get some gas and a match and start burning the homes down if they want high house prices. all these policies to produce high house prices is hilarious. they want Americans who own a home to feel wealthy so they go to WalMart and buy crap they don’t need. what really needs to be done is let the market collapse like it wants too so that the current homeless population can buy a home at fair market value. everyone complains about housing affordability and so the government creates a housing bubble and puts people in them that cant afford it. nothing this admin. has done makes any sense and its starting to make me nuts. id love to trade the upside of this market. but trading the upside of an overinflated market like that in 2006… is scary. it can bust at any minute.
need more bad news? BDI dropped another 12 points today to 672.
‘Revolution, food riots in America by 2012′
http://www.commodityonline.com/news/Revolution-food-riots-in-America-by-2012-13062-3-1.html
After hours, FNM up 5.95%, FRE up 7.32%.
Meanwhile, the Federal Home Loan Mortgage Company is down over 36%.
I’m starting to worry I’ll forget what a free market looks like.
/QM (light sweet crude oil future) just dropped more than 2% in a few minutes.
Tony C’s new video: I Use Head and Shoulders, Do U?
http://www.youtube.com/user/ThePracticalInvestor
Im sry but I cant listen to that guy…
I have come to assess Tony’s videos as 80% entertainment and 10% educational and 10% useful. He has had a couple good calls early on, but to be honest anyone on this board can be a bull or bear and be right 2-4 times during the day. Begin down 200, rally up 150, go down 120, close up 170. That’s just a single day.
A few points on Tony:
1. His “Flags at half mast”, “Crash Helmets required” and “Rogue Rally” calls never came to fruition. His last call about the a head and shoulders pattern on the BKX predicted SP 450 (yes 450) by Dec 21st. Mohan communicated with him after that call and apparently he told Mohan there were plenty of other reasons he was so bearish, and he was going into the SKF. That was a week ago, and you can check the results for yourself.
2. He starts this current video with “I got this information from a book …. that inspired me to use the head and shoulders pattern on the BKX as presented last week. Frankly, I was a little bit uncomfortable with it. I won’t mention the name of the text, and one of the reasons is, that the author does play a little fast and loose with his images” For me, this speaks volumes about Tony’s credibility and accountability:
a. He seems to be covering his rear end. This is what I thought would happen, but it didn’t play out, and it was because of someone else’s fast and loose interpretation of a pattern.
b. Thanks for the heads up when you made the video last week about sharing your personal discomfort about your primary source’s reputation. Might have been relevant for investors or traders at that time, not after the fact.
c. I can’t reveal the source. What is this the CIA? Its apparently a trading book, and if you are embarrassed to mention the source, why are you using it to make a video for public consumption?
3. There are several good TA commentaries available on youtube. SNP500 trader, Brian Shannon, etc., and Craig and Idan on here. There are several good fundamental analysis guys on this board, Mohan at the top of the list. The GS reports and currency insights from Pete are great. Shanky and Schweizer have been doing a great job with the intraday TA. I think those two should create TA video’s with nightly analysis, from what I have observed during the day, their calls remind me of Craig’s intraday postings that were so helpful.
4. At the end of the day, we are each accountable for our trading decisions. What we invest in, how much, and at what entry point. We decide where our profit level or stop loss will be at. More importantly we decide what information to seek out and what weight to give to that information in reaching our decisions. I know the allure of trying to find the holy grail of trading. Seeking out that one guru who will lead us to riches. Its not that easy. Trading is work. In the end each of us has to work hard and formulate our own strategies, our own ideas, and to be professional enough to refine them when the market tells us they are not working.
Good luck to all. And as Michael Conrad would say. “Let’s be careful out there”
Kenny’s gone bearish again:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3095409&cmd=shows154284185&disp=O
What’s up, everyone is confused.
We are in a Cyclical Bear Market which likely began in 2000. They typically last an average of 15-17 years however you can have mini Bull Markets within a longer term Bearish Cycle. Most likely we will either see a complete breakdown like occurred from 1929-1932 or we will see a period like that from 1966-1982 in which the market got stuck in a longer term trading range for several years. At this point it’s not clear which one will pan out however the current chart of the Dow looks more like the 1966-1974 time period.
Speaking of news, you’ve got to wonder how Thursday’s market will respond to the breaking news about a pre-arranged bankruptcy by GM and Chrysler now being considered:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMTynXWxak9I&refer=home
Any plan that pumps money into banks is nothing but a transfer of wealth, and will do nothing other than provide a windfall to bankers. Any plan that helps homeowners, or prop up the prices of actual homes (the underlying assets, the implosion of which is the primary cause of the blowing up of the MASSIVELY leveraged derivatives based on those underlying assets, which in total value PALE in comparison to the leveraged vehicles). The attempts to “save the system” by pumping incomparably more $ to ARTIFICIALLY PROP UP the leveraged securities has proven to be nothing more than folly at best, and an intentionally engineered plundering of the Treasury at worst (and in truth).
What ever step is taken (if government funds indeed should be used in this “crisis”) will involve ARTIFICIALLY PROPPING UP something. Given this, artificially propping up the prices of the underlying assets WILL, for all practical purposes, WILL SOLVE the problem. Again, it’s the EXPLOSION of the MASSIVE LEVERAGE of the derivatives BASED on the implosion of the underlying assets that is the problem. If the leverages weren’t so ABSURD, this would be NOWHERE near the crisis that it is. You “save” the underlying assets, at a much lower cost, and you save the derivatives. Simple. If Paulson, Bernanke, et al, SERIOUSLY wanted to “save the economy,” this is what they would’ve done to begin with. They are not stupid. On the contrary, they are extremely smart, and using this engineered crisis to put through their unprecedented transfer of wealth upwards was their goal from the very beginning, with NO intention of truly “solving” the problem.
If one truly wants to “save the economy,” this lowering of mortgage rates is ONE STEP towards doing so. Others would involve loan modifications, injunctions on foreclosures, etc. YES, these would be ARTIFICIALLY PROPPING UP of property prices (the underlying assets), but what the government is doing NOW is ARTIFICIALLY PROPPING UP banks – in fact, many, if not most, of these banks would NOT EXIST today, sans the TRILLIONS of $ that they are getting for what has been to-date worthless junk as collateral.
This, therefore, if it actually comes to pass, would be the most IMPORTANT step taken supporting a potential recovery of the markets that we have had to date, IN SPITE of the TRILLIONS of $ that have already been LITERALLY WASTED (obviously not for the bankers).
Damn, I really gotta start proofreading these damn things before clicking the friggin button…
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should have read:
Any plan that helps homeowners, or prop up the prices of actual homes and other properties (the underlying assets, the implosion of which is the primary cause of the blowing up of the MASSIVELY leveraged derivatives based on those underlying assets, which in total value PALE in comparison to the leveraged vehicles) WILL SAVE the derivatives, and THUS the MARKETS.
What the?!…
Inside the “” above, should have been (somehow got deleted when submitting the comment…):
should have read, etc…
All right, this is getting out of hand. Things getting deleted left and right…
There should have been a inside the quotation marks in the immediate above revision. They were deleted in submission. Don’t know why.
AAAAAAAAAAAAAAAAHHHHHHHHHHHHH!!!
Deleting brackets now!…
___
OK, the 10:23 edit attempt:
“Any plan that helps homeowners, or prop up the prices of actual homes and other properties (the underlying assets, the implosion of which is the primary cause of the blowing up of the MASSIVELY leveraged derivatives based on those underlying assets, which in total value PALE in comparison to the leveraged vehicles).”
should have read:
“Any plan that helps homeowners, or prop up the prices of actual homes and other properties (the underlying assets, the implosion of which is the primary cause of the blowing up of the MASSIVELY leveraged derivatives based on those underlying assets, which in total value PALE in comparison to the leveraged vehicles) WILL SAVE the derivatives, and THUS the MARKETS.
And there are countless more typing errors in subsequent paragraphs I now see. Please excuse them. I will proofread before submitting in the future.
I faded the morning gap down. I think most people were expecting this pop. I closed my longs. I’m looking to get short here. SRS looks good down here at $110.