Monday, July 19, 2010

The Battle for S&P 1100 Rages On

The market was pretty tame today after Friday's violent sell off.  
We are now pretty much left in no mans land.  The market has been pretty much trading on technicals recently and the big move higher followed by Friday's sell off has many investors confused as to where we head next.

The way I see it, if we don't break 1100 in the very near term we are likely to drop back down to the 875 area on the S&P.

The economic data continues to be bad.  IBM had a disappointing earnings report tonight.  The data that concerned analysts the most was the future bookings number which was very soft.  It came in at $12.8 billion versus the $14 billion that was expected.

This is a very ominous sign because tech was supposed to rebound strongly in the second half according to the "bubble analysts".  How anyone can come to such a conclusion is beyond me.

Most of the softness was seen in Europe.

Texas Instruments reported a 42% surge in revenue but the stock sold off after hours when the news was released.  The problem we have here folks is you just can't meet earnings in a market that's priced for perfection..

Stocks rose 69% from the lows last March and the market is now starting to realize during this recent pullback that the earnings just simply aren't going to be there in the second half of this year.

The market is always looking ahead and it obviously doesn't like what it sees right now. 

I still can't get over the fact that we couldn't bounce on the Goldman/BP news last week.  This was the most bearish price action I have seen in the market this year.

I mean how could stocks not rally when Europe stabilized, BP stops the largest oil spill in history, and Goldman settles a lawsuit that could have potentially taken down the firm and possibly the rest of the crooks on Wall St?

I can't get that day of trading and the susequent sell off on Friday out of my head.

We also got this piece of news on housing this morning:

"U.S. home builders' index falls to 15-month low

PROVIDED BY MarketWatch - 10:00 AM 07/19/2010

WASHINGTON (MarketWatch) -U.S. home builders were increasingly pessimistic about their business in July after home sales dried up when a federal subsidy expired, according to a monthly survey released Monday by the National Association of Home Builders.

The NAHB/Wells Fargo housing market index fell two points to 14 in July from a downwardly revised 16 in June. It's the lowest since April 2009, the NAHB said. All three components of the index fell in July. Economists were expecting a two-point drop in the builders' index to 15 from June's original reading of 17, according to a survey conducted by MarketWatch."

Quick take

Just another sign that housing is doomed.  I spoke to a mortgage broker over the weekend who was telling me about a critical change in FHA lending.

I won't get into the details but basically FHA is going to force buyers to come up with 6% in cash in order to qualify for a loan which is up from the current 3% that is required today. 

This law was supposed to go into effect this summer but it's been pushed back until the fall.  This is going to take another huge chunk of buyers out of the housing market once this rule is put in place.  Could this be delayed again?  Of course.  Just some food for thought.

The Bottom Line

A pretty quiet day folks.  All eyes are now on the Fed and it's fight against deflation.  This will determine the next big move in the markets. 

Will the Fed pull a P Diddy and yank another $3 trillion wad of cash out of their empty wallets and go on another debt spending spree in an attempt to defeat deflation?


Will they pull a Scrooge and let the balloon pop as they allow the powerful forces of deflation to come in and wreak havoc on prices.

I for one see them pulling a P Diddy because this arrogant group of narcissist's believe they can defeat deflation despite hundreds of years of history proving that it can't be done.

Its simple:  You can't spend your way into prosperity.  Without a thriving private sector the economy is doomed.  Throwing money to the bankers in an attempt to keep a credit bubble blown does nothing but help the financial elite in this country.

The zero rates are great for Wall St.  I mean who wouldn't want to borrow at zero and buy the long bond at 4% and pocket the spread?  The problem is this same game does absolutely nothing for the rest of the people of this country.  It ROBS the prudent savers who have now lost their ability to earn yields on CD's.

There is only winner in the game of easy money and it's Wall St.  If it helped the rest of us then unemployment wouldn't be at 10% as well as a U6 of 16+%. 

The whole financial system has turned into a complete fraud.

I mean let's put the Goldman fine into perspective:

Goldman earned almost $5 billion dollars in Q4 of 2009.  This means the $550 million dollar fine levied against them after helping create the largest financial fraud in history is about 10% of one quarter of earnings.

10 frickin percent.  Are you kidding me?   If that doesn't tell you who is in charge of this country then I don't know what will.

Wall St will cry for another Ponzi style spending spree from the Fed because they have no chance to survive without it.  My guess is they will find a way to get it.

This will result in more "unintended consequences" that will create even more chaos moving forward in our financial markets.

The saddest part is it will be our children that will be the ones left to clean up this mess.

Disclosure:  No new positions taken at the time of publication.

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