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Archive for the ‘subprime’ Category

Once again, Greenspan proves he is an idiot.  If there were puts on Greenspan, I’d be buying hand over fist.

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Greenspan Favors Government Bailout for Homeowners Dec. 16 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said he favors spending U.S. government money to bail out mortgage borrowers who risk losing their homes because they can’t make payments.

Greenspan, speaking on ABC’s “This Week” program aired today, said cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest rates on mortgages.

“Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said. “It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”

Greenspan’s suggested approach differs from that of Treasury Secretary Henry Paulson, who negotiated a freeze on the interest rates of some subprime mortgages without pledging any government money to help homeowners or banks.

Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh, said Greenspan’s proposal for a cash bailout might cost “hundreds of billions” of dollars and would be counterproductive.

“It is not a good idea for the government to bail out people who make mistakes,” said Meltzer, the author of a 2002 book on the early history of the Fed. “The markets are beginning to come to grips with this and bailing them out is a mistake, not a small one but a big one.”

Odds of Recession

Greenspan, who was Fed chairman for almost two decades until Ben S. Bernanke took over early last year, repeated that recession risks are rising.

“The probabilities of a recession have moved up to close to 50 percent — whether it’s above or below is really extraordinarily difficult to tell,” Greenspan said.

In a Dec. 13 interview with National Public Radio, he said the economy is “getting close to stall speed.” On Nov. 7, he told a conference in Sao Paolo that the chances of a recession were “less than 50-50.”

U.S. economic growth will slow to 1 percent in the fourth quarter as consumer spending cools and the housing slump enters its third year, according to a survey of 63 economists by Bloomberg News taken Dec. 3 to Dec. 10. The world’s largest economy grew at a 4.9 percent pace from July through September.

Consumer Spending

Spending, which accounts for more than two-thirds of the economy, will grow in 2008 at the slowest pace in 17 years as higher fuel costs and falling home values limit consumers’ buying power, economists predict.

President George W. Bush announced this month that Paulson and other members of his administration had reached an agreement with the mortgage industry to help as many as 1.2 million homeowners avoid foreclosure when their adjustable-rate mortgages jump to higher rates.

Working with Paulson and the government’s housing regulators, lenders and the companies who manage home loans agreed to freeze some adjustable mortgages at current rates for five years. Others will be given help refinancing or qualifying for loans backed by the Federal Housing Authority.

The Paulson plan would be less “intrusive” than Greenspan’s cash approach, Meltzer said.

“This seems to me to be destroying an effective financial market,” he said. “When financial-market participants take great risks and they gain, they win. If they lose, the government picks up the losses. It is not a sensible system and not one that can survive.”

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Government initiative to slow down the housing meltdown will probably fail and make matters worse. I suspect the intent of plan by the US govt is to keep a bunch of homes from being placed on the market all at once and depressing prices.

As far as I am concerned, most borrowers should suffer the consequences of being foreclosed on. If they were too dumb to read the contract or understand it and were too cheap or lazy to hire a lawyer to interpret it for them and explain it to them, then they deserve to have their lives ruined (I know, I’m a cruel, heartless bastard). I mean, buying a home is *only* the biggest, most expensive purchase that most will ever make in their lifetime, and to claim that they signed hundreds of pages of legal documents without reading them or understanding simple terms like adjustable rates is ludicrous.

Today’s 25bp cut to the Fed Fund rate and Discount rate was clearly considered to be too little by the market. Boo hoo. Wall Street didn’t get what it wanted.

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But don’t you worry, considering that Bernanke is a bitch to Wall Street, I suspect the Fed will reveal a ‘surprise’ 25bp cut to the discount rate before the next FOMC meeting.

 

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I stand by my view that the market will form a short term or intermediate term top in the early Nov period. A break of 3 day lows at 1529 would confirm my view.

The Nov monthly PP is surprisingly high (1538). My expectation was that PP would come in at 1520 or so. The pivots are as follows:

R2=1624

R1=1587

PP=1538

S1=1500

S2=1451

By the looks of things, I think Nov would at be become a month of churn with a slight bias to the downside. Given that we closed at 1549 yesterday, we are a mere 11 points above PP. I personally don’t think the market can hold this pivot unless it rockets directly to 1587 within the coming days. As such I expect a test of S1 and potentially a poke to S2 (although this is less likely) before the market tries to rally to PP or R1 near month end. Therefore, I suspect a good time to buy would be the late Nov period just in time for the customary Santa rally.

I’ll have a chart up by the weekend.

For now, I’ll leave you with this interesting chart of the SPX. (Click to enlarge)
spx2144.png

Update: Holy shit. Minutes after typing this up, Exxon Mobil’s report comes out and spooks the markets. Talk about odd timing. (Also BKX, Gaming stocks and in fact everything is getting fucked.)

Update:

My Nov guess.

ss8793.png

If 1500 doesn’t hold, I think 1450 will hold and be a good long entry point. It would also be the 62% retracement. However, how the bounce gets treated will decide whether the market will go to new highs or retest Aug lows.

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I could not be more wrong again about 5800 being ‘near’ the bottom. It dropped like a hot rock to 5600 and has pierced the trendline extending from the 2003 bottom.

It ‘looks’ like exhaustion selling, but I can’t find it in me to step in front of a freight train by buying. I’m scrapping my plan of buying the eminis as I suspect the US might go for a possible washout move as well.

Back on the sidelines with my cash. Preserve your capital at all costs for the next low risk trade.

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Update: Wow! Talk about selling exhaustion. I bought some panic (against my own advice) and put 20% of my cash to work, 5% on the QBE at 25.85, 5% on BNB at 18, and 10% on ANZ at 25.85. I’m wary of buying any more right now, but I can’t rule out another sharp retest. Maybe the short term bottom is in. Long term: it’s lookin bearish.

Hope I don’t regret my purchases.

Update2: Just to let you know, I sold BNB at the near close for 19.5 and half of ANZ at 26.85.  Small profits to make up for my losses when I sold MFS and CGF a week or so ago.  So I’m 5% QBE and 5% ANZ.  QBE reports early next week, so I’ll be dumping it by the end of Friday regardless of whether it goes up or down.  I know QBE tends to surprise to the upside rather than the downside, but given its precarious technical situation, I’ll be hopping off it.  Hope we get some follow through buying tomorrow.

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Carry trade Update:

AUD/JPY Carry trade is still intact despite its ugliness. See chart below. Channel support.

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It appears the rally is stopping short. Bears are gaining momentum it appears and they have everything going for them. Looks like the interim bottom turned out to be only a short term bottom.

Of note is the All Ord’s pathetic excuse of a rally. Might as well call the Aussie market dead for the coming months.

The bulls are gonna have a rough time. Sidelines or day trading is the best way to go for now.

By the way, the Fed Reserve needs to cut rates or the US economy is going to go down the gurgler. It needs to cut before it’s too late.

Update: It sucks to be long right now. In the short term, the chart looks like we’ll get a swing up by Monday or Tuesday, if the market gaps down slightly and flushes out the weak hands.  I’m getting positive divergences on the hourly, but if we bounce, I’d be looking to probably short if ESU7 fails to get above 1470s. It could get ugly. SPX has reached what I deem as strong support at 1428-1437, and it is at 1433. There should be some sort of a reaction. If there is none, we are then going straight for the sub 1400 region, perhaps 1360.

Reminder people: Bears are fucktards.

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The market has somewhat confirmed that we’ve made an interim bottom, and so we’re still cruising along on the upside. What’s fascinating is the late day surges. Seems the market is conditioning short sellers to cover at the end of day to anticipate this pattern of late jumps, as well as encouraging buyers to buy dips all day long to profit from the late day moves. This conditioning will eventuate in tears for everyone involved.

The SPX should continue to move up to tag 1495 -1500 before getting the chop. I certainly hope it can rally to there, as my investment portfolio is suffering bad and I need to get out on a good rally :(. We should have around another 3-4 days of upside movement. See my original forecast from a few posts ago here:

spx12367.png It’s coming along nicely.

I reiterate, I don’t believe we’re near a major bottom yet. A major bottom would only form once 1425-1437 region is tagged, or if 1386 is tagged. Either is equally likely to me. Until then, play these upmoves with caution if you’re a swing trader and perhaps position yourself for a short swing in the week(or weeks) ahead. If you’re a day trader, then strategy is for the coming days is to continue to buying the dips and take quick profits.

Same goes for the All Ords, it looks like we’ve made a temporary bottom by retracing 62% from the March bottom so the All Ords is due to test 6190 to 6216 region (I suspect the market will do a false breakout from the last swing high of 6190 to 6216 and fall again to suck in impatient bulls). If the market fails to even touch the 6190 area, then I’ll get worried. That being said, we’re very close to the 200 EMA on the All Ords, and it’s an area the bulls will defend vigorously so now is not the best time to sell.

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BNB, MBL sucks. Rather than playing the oversold bounce. I don’t wanna get my balls chopped off for buying something that I’ll probably regret later on. If I was a long either of these, I’d have emotionally capitulated yesterday, which suggests that we might get a bigger bounce in the coming week, but like I said, I’ll back off let the pros play the bounce.

I’m gonna have to turn off this sector for quite a while. I thank Greenspan for the subprime mess that he made.

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