From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
Saturday, December 20, 2008
Readings for the Day
From Mish: California Implodes in Multiple Ways
From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
From Mish: Catch a Wave
We are currently in Wave 4 Up of the Elliot waves. And Bear Market Rallies often end on good news (ex: Obama legislation passing the stimulus package)
Friday, December 19, 2008
Readings for the Day
From Calculated Risk: T2 Partners: "Why there is more pain to come" explains why housing crisis is not over because subprime mortgage is only a small portion of the MBS. As we all know, Alt-A mortgages is the next to blow up.
From Calculated Risk: Crude Oil Below $33 a Barrel: Crude oil dropped below $33 a barrel in New York as rising stockpiles at Cushing, Oklahoma, leave little room to store supplies for delivery next year. The more-active February contract rose 69 cents, or 1.7 percent, to $42.36.
From Calculated Risk: Retail Space to be Vacated and Calculated Risk: CRE Owner "Walking Away": These are why commercial real estate is going to continue performing weak in next year.
From DataQuick: California November 2008 Home Sales: An estimated 32,163 new and resale houses and condos were sold statewide last month. That was down 24.0 percent from 42,293 in October and up 25.7 percent from 25,578 for November last year.
From Calculated Risk: Crude Oil Below $33 a Barrel: Crude oil dropped below $33 a barrel in New York as rising stockpiles at Cushing, Oklahoma, leave little room to store supplies for delivery next year. The more-active February contract rose 69 cents, or 1.7 percent, to $42.36.From Calculated Risk: Retail Space to be Vacated and Calculated Risk: CRE Owner "Walking Away": These are why commercial real estate is going to continue performing weak in next year.
From DataQuick: California November 2008 Home Sales: An estimated 32,163 new and resale houses and condos were sold statewide last month. That was down 24.0 percent from 42,293 in October and up 25.7 percent from 25,578 for November last year.
The median price paid for a home last month was $258,000, down 7.2 percent from $278,000 for the month before, and down 37.7 percent from $414,000 for November a year ago.
Mortgage Equity Extraction Strongly Negative
From Calculated Risk: Q3 2008: Mortgage Equity Extraction Strongly Negative
For Q3 2008, Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW):
The second graph shows "active MEW". This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".
This suggests that the Home ATM is closed, and MEW is no longer supporting consumption.
For Q3 2008, Net Equity Extraction as minus $64.1 billion, or negative 2.4% of Disposable Personal Income (DPI). This graph shows the net equity extraction, or mortgage equity withdrawal (MEW):
The second graph shows "active MEW". This is defined as "Gross cash out" plus the change in the balance of "Home equity loans".
This suggests that the Home ATM is closed, and MEW is no longer supporting consumption.
S&P cuts ratings on 11 US and European Banks
From Yahoo! Finance: S&P cuts ratings on 11 US and European banks
Credit ratings agency Standard & Poor's said Friday it slashed the ratings on 11 U.S. and European banks by either one or two notches, while cutting the outlook on a 12th bank after revising its view on the troubled sector.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.HSBC Bank's outlook was revised to negative, though its rating remained unchanged.
Credit ratings agency Standard & Poor's said Friday it slashed the ratings on 11 U.S. and European banks by either one or two notches, while cutting the outlook on a 12th bank after revising its view on the troubled sector.
S&P cut ratings on Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase Bank, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo Bank.HSBC Bank's outlook was revised to negative, though its rating remained unchanged.
All 12 banks still carry investment-grade ratings. The banks' ratings range between "A" and "AA+."
Banks are facing increasing industry risk amid the deepening economic slowdown, and that is likely to affect their future performance, S&P said. In revising its ratings, S&P increased the sensitivity of reliance on short-term wholesale funding into banks' ratings analysis. S&P now expects higher levels of stress on the sector during this downturn than in past slowdowns.
Auto Makers receive Bail Out - more than $17 Billion
From Market Watch: Auto Makers to get more than $17 Billion in Loans
The White House announced plans Friday to extend $13.4 billion in loans to troubled Detroit auto makers, with another $4 billion likely available in February, citing the need to avoid "disorderly liquidation" during an already troubled economic period.
The deal could help General Motors Corp. and closely held Chrysler LLC avoid bankruptcy. The administration said the funds are contingent on the companies showing they're financially viable and competitive by the end of March -- otherwise they must pay back the loans in full.
The loans will be allocated from the $350 billion Troubled Assets Relief Program being managed by the U.S. Treasury Department, subject to approval of bank capital applications.
The White House announced plans Friday to extend $13.4 billion in loans to troubled Detroit auto makers, with another $4 billion likely available in February, citing the need to avoid "disorderly liquidation" during an already troubled economic period.
The deal could help General Motors Corp. and closely held Chrysler LLC avoid bankruptcy. The administration said the funds are contingent on the companies showing they're financially viable and competitive by the end of March -- otherwise they must pay back the loans in full.
The loans will be allocated from the $350 billion Troubled Assets Relief Program being managed by the U.S. Treasury Department, subject to approval of bank capital applications.
Thursday, December 18, 2008
GE News Drives Market Down in last hour
From Yahoo! Finance: S&P says chance GE could lose "AAA" in 2 years:
Standard & Poor's on Thursday changed its outlook on General Electric Corp and its finance arm to negative because of concerns about funding at its capital unit, and said there is at least a one-in-three chance it will cut GE's credit rating from the top "AAA" in the next two years.
"In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade," the rating agency said. "We will continue to monitor GECC's success in executing on its funding and liquidity plans in light of capital market turmoil."
Hedge Funds closing is a major reason for the big sell off we have seen in September, October and November. According to Yahoo! Finance: Hedge Funds Close at Record Rate:
The number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.
-- Prices are right at the top of a downward sloping channel
-- Prices have been increasing since the end of November
-- The 10 day SMA is rising, it has crossed the 20 day SMA and it is about to cross over the 50 day SMA
-- Prices are above the 10, 20 and 50 day SMA
-- The 20 day SMA is now increasing
Bottom line: the markets are lining up for a rally.
From U.S.Treasury - Daily Treasury Yield Curve
Standard & Poor's on Thursday changed its outlook on General Electric Corp and its finance arm to negative because of concerns about funding at its capital unit, and said there is at least a one-in-three chance it will cut GE's credit rating from the top "AAA" in the next two years.
"In addition, fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade," the rating agency said. "We will continue to monitor GECC's success in executing on its funding and liquidity plans in light of capital market turmoil."
Hedge Funds closing is a major reason for the big sell off we have seen in September, October and November. According to Yahoo! Finance: Hedge Funds Close at Record Rate:
The number of hedge funds liquidated in the third quarter rose to 344, which is more than three times the 105 liquidations in the third quarter of 2007. It's also 77 more than the previous record of 267 liquidations in the fourth quarter of 2006.
The data also showed that 693 hedge funds were closed in the first nine months of the year versus 409 in the same period last year. That's an increase of 70% and represents nearly 7% of all hedge funds, according to HFR.
Indeed, in the third quarter, the number of hedge funds closing shop exceeded the number of funds launched for the first time since HFR started tracking this data in 1996.
At this rate, hedge fund liquidations are on track to reach 920 for the full year, the report said. That would outpace the 563 liquidations last year, and could top the previous record of 848 in 2005.
From Bonddad: Today's Market
-- Prices are right at the top of a downward sloping channel-- Prices have been increasing since the end of November
-- The 10 day SMA is rising, it has crossed the 20 day SMA and it is about to cross over the 50 day SMA
-- Prices are above the 10, 20 and 50 day SMA
-- The 20 day SMA is now increasing
Bottom line: the markets are lining up for a rally.
From U.S.Treasury - Daily Treasury Yield Curve
Commercial Real Estate
From Calculated Risk: S&P Negative Outlook on CMBS
"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we're expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come 'out of pocket' to bring their payments current," he said.
Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor's internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we've seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.
Unlike with residential real estate, commercial owners are much more willing to "walk away" from their properties. As we've discussed before, many commercial properties were purchased with interest reserves - and those reserves are currently covering the negative cash flow. When the interest reserves run out, the owners will probably default.
So Long SRS, there is no specific reason for commercial real estate to recover in a couple of weeks. It is $300 just a few weeks ago, and now it is record low. See the charts below:
"Now that the U.S. is officially in a recession, and since commercial real estate performance typically tends to lag U.S. economic developments, we're expecting property values to continue to drop and loans with marginal cash flow to default with increasing frequency," said credit analyst James Manzi. "We believe that borrowers with negative equity have little incentive to come 'out of pocket' to bring their payments current," he said.
Evidence of this malaise appears to be mounting: The delinquency rate has been increasing significantly, and Standard & Poor's internal reporting measures show an acceleration in the volume of troubled loans, especially large loans. "Any current change in property prices is hard to measure accurately because of the marked reduction in transaction volume during 2008, but estimates we've seen indicate a decline of roughly 10%-15% from the peaks of early 2007. And the gap between offered prices and asking prices, in our view, signals that valuations must decline further to restart any meaningful trading activity," said credit analyst Barbara Duka.
Unlike with residential real estate, commercial owners are much more willing to "walk away" from their properties. As we've discussed before, many commercial properties were purchased with interest reserves - and those reserves are currently covering the negative cash flow. When the interest reserves run out, the owners will probably default.
So Long SRS, there is no specific reason for commercial real estate to recover in a couple of weeks. It is $300 just a few weeks ago, and now it is record low. See the charts below:
Crude Oil Tumbles 10% to below $37!
From Market Watch: Oil Futures Tumbled 10% to end below $37 a barrel
Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand. Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.
Crude tumbled below $37 a barrel Thursday to their lowest level in at least four years, underscoring the market's preoccupation with a sharp slowdown in oil demand. Year to date, oil prices have fallen 59% and are 75% since their record level above $147 a barrel in July.
Oil for January delivery fell $3.84, or 9.6%, to end at $36.22 a barrel on the New York Mercantile Exchange. Earlier, the contract hit an intraday low of $35.98 a barrel on Globex. The January contract will expire at the end of trading on Friday. The February crude contract, which showed greater trading volume, fell $2.94 to end at $41.67 a barrel on Nymex.
"Below $38, we don't see anything until the $25 level," said Edward Meir, an analyst at MF Global. OPEC agreed Wednesday to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day.
OPEC can cut supply as much as they want — but as long as demand drops even more sharply, prices are unlikely to rise. And demand for oil has crumbled amid the global economic downturn.
This action might be triggered by Margin Calls, even it is very oversold, but since it breaks the $40 support, there is no support level until $25. How long will oil stay low? Until the economy starts to recover and global demand starts to increase again. Will the dollar movement have anything to do with oil price?
This action might be triggered by Margin Calls, even it is very oversold, but since it breaks the $40 support, there is no support level until $25. How long will oil stay low? Until the economy starts to recover and global demand starts to increase again. Will the dollar movement have anything to do with oil price?
Bay Area Home Prices $350K to 8-Year Low: High in-land foreclosure sales
From DQ News: Bay Area Median Home Price Sinks to 8-Year Low; Sales up over '07 Again
The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month, lowest since Sept. 2000. The prices have been dropped for 12 consecutive months. That was down 6.7% from $375,000 in October and down a record 44.4% from $629,000 in November 2007, and was 47.4% below the peak median of $665,000 reached last year in June, July and August.
The median price paid for all new and resale houses and condos combined in the nine-county Bay Area fell to $350,000 last month, lowest since Sept. 2000. The prices have been dropped for 12 consecutive months. That was down 6.7% from $375,000 in October and down a record 44.4% from $629,000 in November 2007, and was 47.4% below the peak median of $665,000 reached last year in June, July and August.
Last month 47.6% of all homes that resold in the Bay Area had been foreclosed on at some point in the prior 12 months, up from 44.0% in October and 10.1% a year ago.
A total of 5,756 new and resale houses and condos closed escrow in the region last month, the second-lowest for a November since at least 1988. That was down 24.4% from 7,613 sales in October but up 12.3% from 5,127 sales in November 2007.
The Bay Area's more expensive counties - Marin, San Francisco, San Mateo and Santa Clara - saw their share of total Bay Area sales fall again, to 35.0%, compared with an historical average of 43%. Those four counties were also the only in the region to log year-over-year sales declines in November.
Before the credit crunch hit in August 2007, 62% of Bay Area sales were financed with jumbos, then defined as over $417,000. Last month just 23.0% of purchase loans were over $417,000.
The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $1,625 last month, down from $1,767 the previous month, and down from $2,963 a year ago. They are 51.5% below the current cycle's peak in June 2006.
Manufacture Sector Continues to deteriorate
From Calculated Risk: Philly Fed: Manufacturing Sector condition "continued to deteriorate"
The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, improved from -39.3 in November to -32.9 this month. The index, which fell a dramatic 41 points in October, has remained near its current low reading for the past three months, and expect continued declines over the next six months.
The current employment index fell for the third consecutive month, decreasing four points, to its lowest reading since September 1982.
From Bonddad: Manufacturing tanking hard
This is a significant decline which happened quickly. It indicates the slowdown is extreme, sharp and very sudden.
Mortgage Rates & Weekly Unemployment Claims
From Yahoo! Finance: Mortgage Rates Fall; Unemployment data still weak
Mortgage giant Freddie Mac on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19%, down from the year's previous low of 5.47%, set last week. On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments. The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates -- the lowest since the 1960s and down from 5.3 percent Tuesday.
However, the interest rate is still around +7% for jumbo loans. Moreover, low interest rates does not spur new mortgage applications, instead refinance increased dramatically. From the Big Picture: Fed's Rate Moves fail to spur Home buying:
Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims. The 4-week moving average was 543,750, an increase of 2,750 from the previous week's revised average of 541,000.
Mortgage giant Freddie Mac on Thursday reported that rates had fallen to the lowest level on records dating back to 1971. Average rates on 30-year fixed-rate mortgages dropped to 5.19%, down from the year's previous low of 5.47%, set last week. On Wednesday, some mortgage brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments. The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates -- the lowest since the 1960s and down from 5.3 percent Tuesday.
However, the interest rate is still around +7% for jumbo loans. Moreover, low interest rates does not spur new mortgage applications, instead refinance increased dramatically. From the Big Picture: Fed's Rate Moves fail to spur Home buying:
Jobs data from the government, while better than expected, was still sobering. The Labor Department on Thursday said its tally of initial jobless benefit claims fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. The new tally was slightly below economists' expectations of 558,000 claims. The 4-week moving average was 543,750, an increase of 2,750 from the previous week's revised average of 541,000. Another slight improvement was seen in the number of people who continue to receive jobless benefits, which declined to 4.38 million from 4.43 million the previous week, still remain near the highest level since 1982. Economists expected a slight increase to 4.45 million.
From Calculated Risk: Weekly Unemployment Claims
Leading Indicators Fall in Nov.
From Yahoo! Finance: Leading indicators fall in November
The New York-based Conference Board on Thursday said its index of leading economic indicators fell for the second straight month, dropping 0.4 percent in November. That was slightly better than the 0.5 percent decline economists surveyed.
The index is designed to forecast economic activity in the next three to six months based on 10 economic components, including stock prices, building permits and initial claims for unemployment benefits.
Based on revised numbers, the index has decreased 2.8 percent in the six months through November, the worst drop since 1991, when the economy was in a recession.
Wednesday, December 17, 2008
Year-End Bear Market Rally
From Bonddad: Today's market
We broke the critical technical resistance today, as we ended up higher than 50 DMA the first time since September 3rd, that’s the longest stretch since August 2002. Now both 10 DMA and 20 DMA are edging higher.
Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
How high can we go? Santa Rally until Obama takes office in January? Can Obama's $750 billion stimulus plan (in two years) help us out of the recession?
From Afraid to Trade: SP500 Fibonacci Price Clusters and Confluence Chart
According to Yahoo! Finance:
Many of the signs of a bottom have been evident in recent weeks, noting:
1. Cash levels in 401(k) accounts reached an all-time high in October, a sign investor sentiment hit extremely bearish levels, a contrarian indicator.
2. As of November 2008, the 10-year return for the S&P 500 matched its worst performance in history. Because of mean reversion, bad (or, in this case, awful) 10-year returns typically lead to positive 10-year returns going forward.
3. Treasury Yields Falling to zero — and negative for short periods — is a sign of panic among investors who would rather lock in a quantifiable loss vs. risk putting money to work in "riskier" assets.
Is Nov. 20 the bottom? Still I think we are at Eillot Wave 4, a bear market rally right now before it turns down again.
We broke the critical technical resistance today, as we ended up higher than 50 DMA the first time since September 3rd, that’s the longest stretch since August 2002. Now both 10 DMA and 20 DMA are edging higher.Stocks have shown advances since their Nov. 20 low. Trading has been less volatile than it had in the previous three months. In the past 54 trading days, 18 had moves of at least a 5 percent. In the previous 53 years there had been only 17 days with moves greater than 5 percent.
Since Nov. 20, the Dow is up 18.2 percent, the S&P 500 is up 21.4 percent and the Nasdaq is up 20.8 percent.
How high can we go? Santa Rally until Obama takes office in January? Can Obama's $750 billion stimulus plan (in two years) help us out of the recession?
From Afraid to Trade: SP500 Fibonacci Price Clusters and Confluence Chart
According to Yahoo! Finance:
Many of the signs of a bottom have been evident in recent weeks, noting:
1. Cash levels in 401(k) accounts reached an all-time high in October, a sign investor sentiment hit extremely bearish levels, a contrarian indicator.
2. As of November 2008, the 10-year return for the S&P 500 matched its worst performance in history. Because of mean reversion, bad (or, in this case, awful) 10-year returns typically lead to positive 10-year returns going forward.
3. Treasury Yields Falling to zero — and negative for short periods — is a sign of panic among investors who would rather lock in a quantifiable loss vs. risk putting money to work in "riskier" assets.
Is Nov. 20 the bottom? Still I think we are at Eillot Wave 4, a bear market rally right now before it turns down again.
Subscribe to:
Posts (Atom)