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Yesterday's session was another roller coaster as the bottom fell out of the market halfway through the day while many analysts pointed their fingers at reports of Russian troops massing on the Ukraine border; the fact is that anxiety is the boogeyman these days. I liked the pockets of buying, especially into the close, but the bias is to the downside, and we are nearing a pivotal test of support; an exponential 50-day moving average. As observed in the chart below, this marks the third time that the Dow has fallen below the 200-day moving average, however it has continued to keep climbing.

For the Dow Jones Industrial Average that magic number is 16,294.

After the close, there was a slew of earnings announced including results from Disney (NYSE:DIS), which blew everyone away. However, even names that beat struggled a bit, reflecting a fading appetite to buy, rather than take profits into good news.

Stop Whining Main Street, Regulations Are Hurting You, Too

We must get the government out of the nanny state business and as the middleman in all areas of commerce. That's what's making life more expensive. The government is bailing out banks with taxpayer dollars, but you still can't buy a house.

President Obama took corporate America to task for not liking regulations and told them to stop whining. Instead, he says Main Street should be excited about getting benefits out of this powerhouse economy. Unfortunately, those regulations amount close to $15,000 per household in compliance costs that obviously are passed through, as much as possible, in the chain of doing business in America.

Moreover, what does President Obama say to people who want to own homes and cannot because new regulations have effectively put up a roadblock?

Most recently, the Senior Loan Officer Opinion Survey on Bank Lending Practices survey, taken by the Federal Reserve, show a picture of a nation where more people want to own a home, and more banks want to lend the money, but new rules are making it impossible. On January 10, 2013, the Consumer Financial Protection Bureau issued final regulations based on the Dodd-Frank Act, which requires all creditors to determine a consumer's "ability to repay" (NYSE:ATR) a mortgage before making a loan. Also, approved was the "qualified mortgage" (QM) standards. Consequently, homeownership is currently at a 19-year low.

Loans approved by FHA, VA, and the USDA are eligible for purchase by Fannie Mae and Freddie Mac, but are exempt from the 43% debt-to-income rule. In addition to meeting the following additional requirements:

Demand is Strong

Demand for mortgages on prime residential mortgages All Respondents
Banks Percent
Substantially stronger 2 2.8
Moderately stronger 35 49.3
About the same 29 40.9
Moderately weaker 5 7.0
Substantially weaker 0 0.0
Total 71 100.0
Click to enlarge


  • Negative amortization
  • Interest-only payments
  • Balloon features
  • Payments with deferred principal
  • Loan terms exceeding 30-years

Note: Demand at large banks was reported up 58.3%, moderately stronger than medium-sized banks, and 5.6% moderately weaker than smaller banks.

Banks Easing Loan Standards

A. Credit standards on prime residential mortgages have: All Respondents
Banks Percent
Tightened considerably 2 2.8
Tightened somewhat 2 2.8
Remained basically unchanged 50 70.5
Eased somewhat 17 23.9
Eased considerably 0 0.0
Total 71 100.0
Click to enlarge

Note: Standards at large banks was reported at 38.9%, and eased somewhat, while 2.8% tightened considerably.

So, if demand is climbing and banks are making it easier, what's the problem? The new rules are simply making it harder:

  • Large Banks - 22.2% say approval is lower to various degrees
  • Smaller Banks - 50% say approval is lower to various degrees

Borrowers with FICO scores greater than 680 (ATR/QM) have made the approval process more difficult at 63.5% lending organizations:

Borrower FICO Score equal or less 680 Large Banks Other Banks
Banks Percent Banks Percent
The approval rate is much lower than it would be otherwise be 1 2.8 1 2.9
The approval rate is somewhat lower than it would otherwise be 7 19.4 16 47.1
The approval rate is about the same 28 77.8 16 47.1
The approval rate is somewhat higher than it would otherwise be 0 0.0 1 2.9
The approval rate is much higher than it would otherwise be 0 0.0 0 0.0
Total 36 100.0 34 100.0
Click to enlarge

Borrower FICO Score greater than 680 Large Banks Other Banks
Banks Percent Banks Percent
The approval rate is much lower 0 0.0 0 0.0
The approval rate is somewhat lower than it would otherwise be 7 19.4 15 44.1
The approval rate is about the same 28 77.8 18 53
The approval rate is somewhat higher than it would otherwise be 1 2.8 1 2.9
The approval rate is much higher than it would otherwise be 0 0.0 0 0.0
Total 36 100.0 34 100.0
Click to enlarge

Without housing in the mix, the economy can never get back its equilibrium.

According to an article in today's NYT, the US is producing a full $800 billion less annually than it would in a healthy economy, and the biggest missing part is $239 billion that housing usually produced when conditions were better. Below are the areas that we are not as prosperous as we could be:

  • $239 Billion- Housing
  • $178 Billion-Durable goods
  • $120 Billion- Business equipment
  • $74 billion- Non-durable goods
  • $189 billion- State and federal government spending

Businesses are reluctant due to a lack of faith about future demand, while would-be homeowners are reluctant because of a lack of faith about the future of the economy. In the meantime, those looking to step up to the plate are thwarted by those same regulations that businesses are whining about.


When it comes to policy, the pendulum swings, and it generally swings wildly from too little, and then too much, and that might be the case these days. In the end, this would be a non-issue if big banks were allowed to fail, rather than sharing their misery with Main Street, even though they have not been sharing those Fed dollars. However, it does look like banks want to lend, and as soon as rates edge higher, they will have to go back to banking 101.

Today's Session

The market will open modestly lower, but angst is growing rapidly as there are fewer and fewer good things to cling onto. The downward bias will snare a few names that should be higher based on earnings and guidance, but the biggest news of the morning could be Walgreen's (WAG) making an acquisition that could have led to lower taxes, but skipping to keep their headquarters in Chicago.

I'm scratching my head over this as it seems the company is trying to appease the White House and its phony claims that such actions are unpatriotic rather then find ways to enhance shareholder return.

There are scores of companies lining up to do inversion deals in a logical attempt to escape the most burdensome corporate tax policy in the world.

I'm putting together a list of stocks I consider strong buys, but no need to force the issue until the market settles. Near term challenges include Russia and questions about the Fed, but longer term the inescapable malaise that's haunted the nation is getting worse. I'm going to comb through the NBC/WSJ opinion poll and write it up for tomorrow's commentary, but the data is heartbreaking. Americans are losing faith in America.