Monday, October 22, 2007

Muted Monday and Chasing the Elusive Bottom

I had posted last night that I thought today would be a rip roarer for the markets. I was counting on a snap back rally today led by the usual garbage like renewed calls for rate cuts by the FED. As in sports, that's why they play the games, and today was especially muted. Oh well, I guess I should stick to football score predictions!

Muted Monday
Reading through the financial headlines and watching some of the talking heads on the business shows had an entirely new feel today. Compare the following points with what was happening when the market tanked in August:
  • I did not find many headlines which linked a market drop to a FED rate cut. I think the recent focus on the high price of Oil, in US Dollars, has finally woken people up to the dollar collapse may not be a wonderful thing for the US economy and consumer going forward. If the mainstream media ever links rate cuts with a falling dollar I can save the shipping costs of a flashlight and detailed GPS map to the "get a clue" box I have buried in the backyard.
  • There is broad discussion that Merrill Lynch will disclose huge losses for the 3rd quarter, and get this, there will be more in the 4th quarter! Who would have guessed? The August-September superficial wound may instead be a deep puncture wound that is going to bleed red for a while. (Note to Merrill, be careful if you go to the hospital, the drug resistant staph infections are running wild this year!) A commentator on CNBC asked a talking head why Merrill did not just write down all the losses in the 3rd quarter, and the guy actually told the truth. He explained that Merrill only could write down little pieces at a time, because they do not want to liquidate their holdings at pennies on the dollar. Those losses, he remarked, are almost beyond estimation. I think Merrill is holding out for the SIV Superfund as well. This is a key moment, the loan losses are going to continue and that has begun to filter down to the mainstream discussion.
  • The Superfund is getting way more attention than anyone involved would ever have wanted. There simply is no way to repackage, rename, or represent the fund as anything but a time bomb and a market rigging of price discovery for mortgage related assets held by the banks. Bill Gross even said it was "lame". It has been a while since a market rigging bailout wasn't embraced like a pretty blonde after last call.
  • Countrywide closed at $15.68 today, well below the $18 dollar convertible price that Bank of America had struck way back in August. The message boards of CFC and BAC are ablaze with speculation on what this could mean.
  • Jim Cramer did not have a melt down on TV. Where's the fun in that?

Quite a difference from August. Now one day does not a trend make, but those are some real changes in sentiment. The existing and new home sales numbers come out on Wednesday and Thursday, and those are going to help with reality osmosis as well.

In Search of The Elusive Bottom

A while back I remember Bob Toll of Toll Brothers saying on a conference call that housing was "dancing on a bottom". The bottom has been predicted by the NAR, homebuilders, and mainstream media every month for the last 12 months. In fact the housing bottom is like one of those exotic animals that are rumored to inhabit some jungle somewhere. They are stalked and tracked for years, but have yet to be captured on film. The bottom for housing is also elusive and secretive it seems. What was supposed to be a late 2007 turnaround was pushed back to a 2008 recovery. Now there is acceptance that the housing downturn could go on well into 2009. That also seems hopelessly optimistic, and I will bet Bigfoot is found before housing posts a gain in 2009. I said Bigfoot, not the Loch Ness Monster because the Loch Ness Monster is actually real. (kidding)

Two things to keep in mind when thinking about a bottom is housing. Calculated Risk has a great mortgage reset chart up today, check it out:

No way are things getting any better in the foreclosure arena anytime soon.

From the NY Times and Calculated Risk covers it today:

Key quotes:

"The market’s really low right now, so you can get a good price,” said Lori Crook, a food server at Keys Cafe who said she was looking for a place she could fix up and sell. “Even if you can’t sell it right away, if you just sit on it and sit on it, it will go up.”

I just looked at the picture and thought if we got it cheap enough, we could rent it for a year, then sell it when the market goes back up,” said Mr. Kihle, a building contractor."

It won’t always be low,” said Pearl Dobbins, who said she was willing to spend up to $50,000. “This is our chance to buy a home and start our financial future.”

I have gone on in detail how a house is a forced savings plan for people without the means or ability to manage their finances. As longs as there is this kind of get rich fast, and a home equals financial freedom mindset we are absolutely nowhere near any bottom. I think I want to leave my molecular biology job and become a foodserver instead. It seems that's where the real cash is being made.

Have a good night.


Anonymous said...

Love your blog

Anonymous said...

You know a friend I had a long time ago once said, "I could make more money being a bread delivery truck driver". And we were doing 3D Modeling and Animation at the time.