Tuesday Market Conditions

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.