Good Evening Everyone!
Well, today was the same old story: More bad news and higher stock prices. Ahhh... you gotta love the psychology of Wall St. The combination of hope and denial can make investors do crazy things (like buy stocks that are about to fall of a cliff).
Here is a perfect example of the buying insanity that currently dominates Wall St. Take a look a press release from commercial real estate developer (GRT):
"Glimcher sells Kansas mall for $20.5MTuesday January 6, 12:41 pm ET Glimcher Realty Trust sells mall in Kansas City area for $20.5M as part of plan to sell assets COLUMBUS, Ohio (AP) --
Mall owner Glimcher Realty Trust said Tuesday it sold a Kansas City-area mall for $20.5 million as part of a plan to sell off non-strategic properties.The real estate investment trust sold The Great Mall of the Great Plains in Olathe, Kan., to Great Olathe Center LLC. Glimcher said it applied the proceeds toward a $30 million mortgage on the property."
So lets do some simple math here people. They had a $30 million mortgage on a mall that they sold for $20 million. Thats a 33% loss. You would think that (GRT) would get pummeled after this press release right? WRONG! (GRT) rose a whopping 30% today on the news.
This reaction is insane. Why did this dog move higher on the news? Are we supposed to be relieved that they were able to sell a property at a 30% loss? How many others do they have to dump at a similar loss or MORE. Does anyone look at fundementals anymore? IS this an attempt to front run a bailout? I see it as pure gambling and nothing more.
Its price action like this that killed SRS today. We are now down into the 40's on SRS. I plan on buying some more of this very shortly. I can't see this going much lower. However, I have been saying this for days so until I see a break in the trend, I see no reason to front run it. I still believe the REIT's are trading higher based on the premise that we will see further interventions into the credit markets by the government which would theoretically loosen lending as this crisis deepens.
Wall St continues to pump this "credit markets are thawing" thesis since the Fed got involved in the credit markets.
This is a bunch of hogwash IMO, and I see no signs of increased lending. This perception/window dressing has pushed many commercial REIT's and home builders much higher for no other reason other than hope. The reality is housing continue to see no bottom:
"Jan. 6 (Bloomberg) -- Fewer Americans signed contracts to buy previously owned homes in November as credit markets seized up and a deteriorating labor market signaled the housing slump will extend into a fourth year.
The index of pending home resales fell 4 percent to 82.3, the lowest level since the series began in 2001, from a revised 85.7 in October, the National Association of Realtors said in a report today in Washington. Pending sales fell in all four regions.
A financial crisis that worsened in the final months of 2008 deepened the economic recession, extending the slump in home sales and prices. President-elect Barack Obama has pledged to enact measures to ease foreclosures and save or create 3 million jobs to boost the economy.
“The housing stress just doesn’t end,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York."
Oh yeah, those credit markets sure are thawing. Look at all of the homes that are selling! This number was an all time low since this index started in 2001. What a crock.
Here is another example of how things are thawing
Manufacturing continued to severely retract in December:
"Jan. 6 (Bloomberg) -- The U.S. economy ended the year in a steep decline, with factory orders, home sales and service industries all contracting further, reports showed today.
The Institute for Supply Management’s index of non- manufacturing businesses was 40.6 for December, a higher-than- forecast reading that was still the second-worst on record. The National Association of Realtors index of pending home resales fell 4 percent in November, and the Commerce Department said orders at U.S. factories slumped for a fourth month."
Wow the bulls are right! Things are thawing! In fact the economy is starting to sizzle!
Keep in mind here folks that this is December data which means the economy continued to contract despite the "quantitative easing" by the Fed. Don't believe the hype on Bubblevision folks.
Things are not getting better. There will be no second half recovery in 2009. This 40.6 was the second worse number in history preceded only by last month! Remember folks, anything under 50 means the economy is contracting.
What can I say. The Obama hope rally continues. I stayed on the sidelines today.
There was some bad news among the financials today:
There was a S&P downgrade on Wells Fargo debt after the bell today.
BofA's merger with Merrill Lynch is turning into a disaster. Merrill's head guy in the brokerage side just quit today. He apparantly was adored by the 16,000 Merrill brokers. Some are now questioning the viability of this merger including S&P who came out with a statement saying that they were concerned about the developments with the merger today.
The market bounce started to look a little fatigued to me today on the long side. It appears the 930 area on the S&P has been tough to break through which is a bad sign for the bulls. Its also been a problem for the bears because it seems to be holding every time the market comes down and tests it.
I am going to most likely sit on my hands until the jobs number on Friday if we continue to trade like we have the past few days. If we get back up to 1000 on the S&P before the jobs report, I will jump on the short side.