DOW -200 (-1.5%)
S&P -11 (-.75%)
NASDAQ -65 (-2.5)
RUSSELL -17 (-2.4)
THE STORY:
If I had been blogging for the last year, you would have seen some posts back in late Q1 that talked about the sub-prime story. There were smaller companies that were going bankrupt left and right (LEND, NEW). It then morphed into a monster story in the middle of Q3 when the sub-prime issue trickled UP to the big boys. Citigroup (C), Merrill Lynch (MER), Capital One (COF), JP Morgan (JPM), and Bank of America (BAC) have had capital equity losses ranging from 20-50% since July . Countrywide (CFC) has dropped about 80% in the same time frame. Between Q3 and today, we have been waiting for the "other shoe to drop." If you take a look, you can see an entire closet full of "other shoes" (the most recent being today's $15 BILLION write down by MER). The entire financial sector (XLF) has been hammered.
It seems like every week, there is another dip shit analyst that is talking about "further concern over the sup-prime and credit issues." Further concerns? These guys are complete assholes. The concerns started back in the beginning of 2007, and they will continue until the cycle runs its course. It isn't news worthy when another analyst wakes up and smells the bear market. The people who were stupid enough to buy a home way over their pay-grade, and the companies stupid enough to let them, will all have to try to dig themselves out of the grave. This will continue to have huge implications in the market.
Think about it for a moment. How would you dig yourself out of this situation? You bought a house and the payment fit your budget... barely. Then two years later, your rates are adjusted and your payment goes up by $800. You can't refinance because you already did that last year to pay for Christmas. You can't sell it because it has been devalued by $10k since the housing market dip. Where does the other $800 come from. It comes from your gym membership, your clothing fund, your video games, movies and music. It comes from the $50 per night restaurant you love so much. Forget about the renovation on the bathroom upstairs. What matters now is that you can STAY in the house... not fix it up.
Now take all of the money you aren't spending on those items and multiply it by 25 million people. We are talking about billions (if not trillions) of dollars that will not be going to Crocks Shoes (CROX), Lowes (LOW), and PF Changs (PFCB). Mix that in with Bernake making further inflationary decisions, and $100 oil (OIH), you have a dying market with no currency value. IT IS GOING TO TAKE SOME TIME (or Mexico is actually going to have to pay back the money we let them "borrow" over the last 65 years... whichever happens first).
The flight to quality continues to grow with gold (GLD, GDX) prices breaking $900 per ounce. This is an indicator that big money players are heading for cover. I am betting on $1000/oz by the beginning of Q2. Corporate write downs continue and consumer confidence numbers keep falling. If you are bullish on the market, stop it.
2 comments:
Ok, sorry but these numbers mean nothing to me. Can you please esplain?
The numbers in my market wrap posts will be the movement of the broad market averages (Dow Jones, etc) over that particular week. They are the numbers that they talk about on the news. "The Dow was down 100 and the Nasdaq was down 12... blah blah blah." I will also deliver some commentary. This week was a little heavy because it was the first one and I felt the need to give a little background on why we are entering a bear (down) market. I welcome ALL questions and comments on these posts as trading is my passion. I also welcome critiques on this topic... there are always improvements to be made. I would love it if this became a forum for healthy discussion and learning.
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