David Fry's Daily Market Outlook

If you're holding a subprime mortgage either as a homebuyer or lender, you must be wondering why. Greed knows no bounds as homebuyers think they can buy a rising asset on the cheap, and lenders believe they can lay-off these loans indefinitely.

But today, despite all this negative news, investors chose to bid stocks higher based more on M&A activity then any dangers. The pattern is the same as previously where investors, armed with plenty of cash, are able to isolate and ignore problem sectors and push prices higher despite light volume.

In style today were all the markets where "risk aversion" was so dominant two weeks ago, including emerging markets, semiconductors and small-caps.

I have to say the action in the dollar is disturbing, especially as gold fell today. No doubt the decline in the metal will be attributed to declining energy markets. That "should be" just temporary since gold's relationship with the dollar is more significant.

Tomorrow is "show time" for two of "Da Boyz", Goldman Sachs Group Inc. (GS) and Lehman Brothers Holdings Inc. (LEH). It will be interesting to see how the subprime mortgage troubles are affecting them. I would say probably there aren't any problems yet. Pay attention in particular to gains in proprietary trading. This is where their status as a primary dealer really pays.

There's a contagion occurring in the financial sector spreading to homebuilders and anyone connected with mortgages.

We have earnings tomorrow from GS and LEH. Then there will be more inflation data followed by options expiry on Thursday and Friday. In addition there's always the unexpected. So we'll be watching from a safe distance.

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains positions in: iShares MSCI Australia Index Fund (EWA), iShares MSCI Japan Index ETF (EWJ), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF) and streetTRACKS Gold Trust ETF (GLD).