11/27/2007
Interest rates are shooting up this morning as the stock market is better, but that isn't the main event so far. CitiGroup sold 4.9% of itself to the Abu Dhabi government for $7.5B. Citi is in trouble and making the move to sell to the Abu Dhabi government is just the beginning of the sale of America to the oil countries.
America is for sale as the financial and credit markets are in much worse trouble than has been reported or estimated. The media sits by and has nothing intelligent to say about it, but with Citi now with the Saudi prince and Abu Dhabi having such a large investment in the countries largest bank it is one more domino falling. In the short run the markets like it because the large players need capital and they don't care where it comes from and what has to be given up to get it.
It is all about liquidity and credit; the banks don't have it and that will drag the US economy down. With each passing event the outlook for recession is growing; the last ones to accept it are the Wall Street group 'cause it is always the same----don't worry, be happy----until the train wreck happens. The constantly increasing calamity that is the housing sector is getting to the point where the bad news only gets worse. Real estimates are starting to surface as to where home values are headed; some think tanks are now talking a potential 25% decline in home values in the coming few years. While we are unwilling yet to accept that outlook, it is increasingly evident that home values will fall more than expected three months ago and foreclosures will increase geometrically if something doesn't happen soon.
What is needed is the Fed, the Treasury and the government first of all accept the depth of the crisis that is now mainly confined to the sub prime lending practices and WILL also spread to credit cards and autos. Does anyone think that the loose lending was confirmed to just mortgage lending? Normally I would be abhorred to have the government get involved as free markets need to function as such. In this case however, the financial mess created by the financial markets is so severe that unless there is some plan(s) put in place to salvage some of the coming foreclosures and credit defaults, the overall economy is in grave jeopardy of a serious slide. As the economy slides foreign investors (petrol dollars) will seize the opportunity to buy America on the cheap.
Home values retreated 4.5% in the three months through September from the same period a year before, the most since records began in 1988, according to a report today by S&P/Case-Shiller. It followed a 3.3% drop in the second quarter. Prices will probably keep sliding as foreclosures force more properties on to the market and sales weaken as mortgages become harder to get. The slump threatens to slow consumer spending as fewer homeowners will be able to afford vacations, new autos or home improvement projects.
November consumer confidence, reported by the Conference Board at 10:00 was expected to be at 91.5 down from 95.6; it fell to 87.3; the lowest since Oct '05. Now it is even harder for the economic bulls to keep on touting, don't worry, be happy. Consumers will continue to contract---period!
Crude oil is falling hard this morning as once again the run to $100.00 has failed. The stock market, a study in psychological chaos is doing better today.
Tuesday, November 27, 2007
Monday, November 26, 2007
Monday Market Conditions
11/26/2007
The rate markets started generally unchanged this morning after last week's thin markets and early closings.
The stock markets were better global and in early pre-market trading this morning the stock index futures were doing better. Crude oil on Friday jumped $0.89 to $98.18, early trade this morning saw selling (see below for 10:00 level).
There are no economic releases scheduled today, but the rest of the week has data each day. Tuesday: Oct consumer confidence index (91.5 frm 95.6 last month). Wednesday: Oct durable goods orders (unch); Oct existing home sales (-0.9% to 5.00 mil units ann.); Fed will release its Beige Book at 2:00. Thursday: Q3 GDP revision 4.8% frm +3.9%); weekly jobless claims (unch); Oct new home sales (-2.6% to 750K ann). Friday: Oct personal income (+0.4%); spending (+0.3%); core PCE inflation (+0.2% unch frm Sept); Nov Chicago purchasing mgrs index (50.5 frm 49.7); Oct construction spending (-0.2%).
Technically speaking: the bond and mortgage markets are very overbought at these levels; the 14 day relative strength, MACD and stocastics (momentum oscillators) are all at overbought levels, and the bellwether 10 yr note is sitting at 4.00% a level that may be difficult to cut through at the moment. As for the equity market; it is the mirror image of the bond market; all the momentum oscillators are at over sold levels. While we have to appreciate the technical's, the direction remains bullish for the interest rate markets and bearish for the stock market. It is highly likely both markets are in for corrective moves, the timing however is a day to day thing.
Remember all the hoopla when the big banks announced a superfund to be set up to help dispose of some of the sub prime investments that have turned to junk? It was a big deal and for a day or two it was considered the savior, but first it wasn't large enough to even dent the losses, and secondly, it died: until this morning there was nothing more to it. The campaign starts this week with Citigroup and JPMorgan in supporting roles to Bank of America, said two people with knowledge of the matter, who didn't want to comment publicly before the plan is formally announced. The "SuperSIV'' fund, backed by U.S. Treasury Secretary Henry Paulson, would buy assets from so-called structured investment vehicles, whose $300B of holdings include corporate and mortgage debt in danger of default. The fund totals just $80B and was first announced by Citi, however Citi since has found itself with a lot more losses than it thought initially and is now taking a lesser role as it tends to its own mess. The banks want SuperSIV in place by year-end because some SIVs haven't been able to trade. The fund is not likely to make a lot of difference in the markets, other than possibly adding more turmoil as we expect a lot of it will be sold at deep losses and further add more turmoil in the credit markets.
The mortgage market has shown a little sign of life in the last few sessions. After lagging treasuries for over a month as those rates fell, mortgage prices have shown slightly better performances recently. That said, it isn't much and you have to use a microscope to notice it.
So far this morning the financial markets have been quiet. The stock market is at 10:00 a little better but in the first 30 minutes has flipped either side of unchanged; ditto for the credit markets. The dollar so far has been unchanged from the levels on Friday. Crude oil is lower as it continues to find resistance each time it comes close to $100.00; we still believe crude will breach $100.00, but with OPEC meeting on Dec 6th it may be difficult to get it over the hump now.
The rate markets started generally unchanged this morning after last week's thin markets and early closings.
The stock markets were better global and in early pre-market trading this morning the stock index futures were doing better. Crude oil on Friday jumped $0.89 to $98.18, early trade this morning saw selling (see below for 10:00 level).
There are no economic releases scheduled today, but the rest of the week has data each day. Tuesday: Oct consumer confidence index (91.5 frm 95.6 last month). Wednesday: Oct durable goods orders (unch); Oct existing home sales (-0.9% to 5.00 mil units ann.); Fed will release its Beige Book at 2:00. Thursday: Q3 GDP revision 4.8% frm +3.9%); weekly jobless claims (unch); Oct new home sales (-2.6% to 750K ann). Friday: Oct personal income (+0.4%); spending (+0.3%); core PCE inflation (+0.2% unch frm Sept); Nov Chicago purchasing mgrs index (50.5 frm 49.7); Oct construction spending (-0.2%).
Technically speaking: the bond and mortgage markets are very overbought at these levels; the 14 day relative strength, MACD and stocastics (momentum oscillators) are all at overbought levels, and the bellwether 10 yr note is sitting at 4.00% a level that may be difficult to cut through at the moment. As for the equity market; it is the mirror image of the bond market; all the momentum oscillators are at over sold levels. While we have to appreciate the technical's, the direction remains bullish for the interest rate markets and bearish for the stock market. It is highly likely both markets are in for corrective moves, the timing however is a day to day thing.
Remember all the hoopla when the big banks announced a superfund to be set up to help dispose of some of the sub prime investments that have turned to junk? It was a big deal and for a day or two it was considered the savior, but first it wasn't large enough to even dent the losses, and secondly, it died: until this morning there was nothing more to it. The campaign starts this week with Citigroup and JPMorgan in supporting roles to Bank of America, said two people with knowledge of the matter, who didn't want to comment publicly before the plan is formally announced. The "SuperSIV'' fund, backed by U.S. Treasury Secretary Henry Paulson, would buy assets from so-called structured investment vehicles, whose $300B of holdings include corporate and mortgage debt in danger of default. The fund totals just $80B and was first announced by Citi, however Citi since has found itself with a lot more losses than it thought initially and is now taking a lesser role as it tends to its own mess. The banks want SuperSIV in place by year-end because some SIVs haven't been able to trade. The fund is not likely to make a lot of difference in the markets, other than possibly adding more turmoil as we expect a lot of it will be sold at deep losses and further add more turmoil in the credit markets.
The mortgage market has shown a little sign of life in the last few sessions. After lagging treasuries for over a month as those rates fell, mortgage prices have shown slightly better performances recently. That said, it isn't much and you have to use a microscope to notice it.
So far this morning the financial markets have been quiet. The stock market is at 10:00 a little better but in the first 30 minutes has flipped either side of unchanged; ditto for the credit markets. The dollar so far has been unchanged from the levels on Friday. Crude oil is lower as it continues to find resistance each time it comes close to $100.00; we still believe crude will breach $100.00, but with OPEC meeting on Dec 6th it may be difficult to get it over the hump now.
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