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U.S. Markets In For Another Lashing

The Fed wasn't directly bailing out the lenders. What it was doing was making loans available to credit worthy investors who were buying the portfolios of the mortgage lenders at firesale prices. The mortgage lenders staved off bankruptcy by giving away equity and the providers of new capital were offered funds so that they could make these investments without having to sell other assets to enjoy the feast. W. Buffett is reputed to be one of the fat cats vulchers who are feeding on their corpses. Vic

There's Just No Need For A Fed Cut

Reducing the Funds rate and injecting reserves into the system allows the Warren Buffett types who have the good credit to buy up the troubled mortgage lenders portfolios at 50 cents on the dollar without having to sell assets of their own to raise the money. That's what is going on now. The otherwise bankrupt lenders are getting their pockets picked by the vulchers who prey on the sick. I'm not saying I feel sorry for them. Some of the lenders are weathering this storm because they weren't leveraged to the hilt. By September the new money will have bolstered the lenders and the Fed will cut rates to prevent triggering more ARM failures because now they will be protecting the new W. Buffett type investors. People who are buying the stocks of these mortgage companies are going to find out that the fundamentals have changed. Vic

A Baker's Dozen Reasons For Continued Market Volatility (Plus One)

The only one of your list that has major impact possibilities is number 11, the hedge fund leverage and the probability that their books are misrepresented since they have a considerable problem of asset overstatment given the current weakness in their mortgage exposure. The value of these mortgage portfolios is currently being reduced unreasonably due to hysteria and they will shortly return to a level reflective of the true failure rate which is modest, not somthing justifying the current panic. The only question then is, have these funds borrowed against these mortgage assets and subsequently lost on the investments made with the proceeds. In some cases I think the answer is yes and these funds are going to go bankrupt. The effect to the economy and the stock market isn't going to be of major impact and a few months from now it will largely be understood and be behind us. Vic

Today's Correction Was Liquidity Driven

The sub prime is providing hedge funds with many problems, such as continuing to hold massive short positions as the market rose, with a cover story that isn't exactly accurate. They will use the mortgage problem as a crutch to make it appear that their losses were outside of their control. My opinion is that the sub prime issue was so diffused that even though it is large, it by itself would have been easily been put behind us. The bigger problems may be something else. Bad loans to the funds that were using them as collateral for other investments is really another issue altogether. The way the speculators have suckered people into investing in hedge funds and the fact that the SEC has allowed them to hide from scrutiny is the real problem. WW

Will Today Be a 'Black Monday'? A Look at the Historical Record

My guess is that the volume being concentrated in a specific issues reflects the fact that many stocks haven't had a lot of hot air pumped into them since the market melt down after 1999. Issues like GE and IBM have risen only modestly from their lows whereas many others have had a good run and are vulnerable for the short run. My bet is they will all be looking good by December. The pessimism is based on factors that aren't going to derail the economy,credit availability, mortgage loans, home building, and the price of oil. Credit availbility isn't going to be a problem for ventures that have a reasonable likelyhood of success. Maybe huge buy outs are in doubt and that maybe for the best since they represents froth and risk to the economy. Home building even at reduced levels is still at a good level. The comparison of very high levels to previous years high levels can produce a conclusion that isn't valid. Mortgage failures are very diversified among lenders and there isn't really any surprise there. Oil prices are a whole in everybody pocket but not one that's going to change anyones living standard by a lot. Vic

The View From Friday's GDP Report

I think the thinking public takes government bureaucrat generated numbers with a grain of salt. The media presents them to us as credible, but even if you believed they are trying to present honest data the practical problem is beyond their capacity. Government doesn't do anything very well is the simple fact. Why isn't there any independent organizations generating data, a cost of living index for example? Vic

Feeling Bearish? Don't Short This Market Yet

The market bears have predicated their negativism on three pilars, the subprime mortgage failures, the slowdown in home sales, higher gasoline prices, and failure of the Fed. to reduce interest rates. Everyone of these is a false justification for assuming stock market weakness. A summer slow down after a good rise is probable and malise going further is unlikey unless more important negative signs appear. The devaluation of the dollar we have eperienced is a powerful counter force. The result is that we can have strong markets because the products of America are cheap and foreign reserves generated overseas will flow into this countries bargain basement. It isn't good for us in the long run because we are just puting a higher price on our stock market with a cheaper dollar debauched by our government irresponsible spending. The rise then is actually phantom. Vic

Questioning a Large-Cap 'Flight To Quality': Small is Still Beautiful

If you are nimble enough to pick the right companies it's certain a small company has more potential. There is an advantage for the large caps usually having less downside risk, again if the choice and timing are right. Large caps often trade sideways for four or five years followed by a spurt that can be a very substantial gain. Many people think companies like IBM and GE fit that description and will deliver exceptional gains over the next two to three years. Vic

ISM Index: Good and Improving

O K, but just remember all this is looking in the rear view mirror. It probably portends a slowdown in the stock market's advance for the Summer and early Fall, but I think the people who will take that as a buying opportunity may be the ones who will take it to the bank. Vic

Week in Review: Financials in Downtrend

What constitutes the finacial sector, Wall St. Inv. Banks, Commercial Banks, Brokers, Insurance Companies? All of the above? Are the risk in the economy common to all of these in the same way? Does the Fed Res work primarily to protect the banking system as it was created to do, or does it work to protect the dollar in opposition to irresponsible government spending? I don't think these are entirely compatable. If it's the latter, then can we assume that the current government reckless spending in a low tax environment is inevitably bad for the banking system, but I don't see the relationship to the other participants who it seems to me are better able to cope with narrower credit spreads. Perhaps other people will comment, giving me some enlightenment. Vic

1Q07 GDP Data Shows Current Rally Rooted in Optimism, Not Profits

Government reported macro numbers are the last thing I will make my bets on. The government can't do anything right much less generate reliable numbers for the entire economy. Most of the time they are putting some spin on whatever they report with some convoluted logic. I'd be skeptical even if some reliable source was producing the numbers for the entire country. There are other sources from industry that we can trust far better. Vic

A Look At the Dow's Streak of Friday Gains

There are a zillion ways to draw statistical information from the market activity. The difficulty is to find any that have predictive ability. It is informative however to gather historical data because we don't always really gather a correct picture of what has been happening without listing the detail.
What I think would make for an interesting examination would be a listing going back to the post WWII area (1945) comparing quarterly the then current PEs, S&P 100 day moving Avr., Fed. Funds rate, NYSE market volume as a percent of it's trailing 12 month moving average. This compilation would settle a few questions and maybe demolish some assumed market wisdom. I guess, to be complete, it would need to be footnoted for unusual major extraneous events that skewed the data short term. (ie the Berlin air lift, fall of nationalist china, Cuban crisis, Kennedy assasination, 911 etc.) Does Value Line have this information available? Vic

Breakout in Money Flows: What Bull Markets Are Made Of

While the up tick, down tick seems like it might tell us something, I think it's a bogus tool. Exactly the same amount of money is moved between buyer and seller in both cases. Investors entering the market are attracted by a cheaper price and motivated by positive expectations and sellers act out of a variety of impulses, need for cash, concern about valuation, or simply reweighting their portfolio. Volume established over a period of time, on the other hand, is a reliable predictor of market direction. Would be buyers are reluctant to buy and sellers are reluctant to sell. Since there are always some that must sell for one reason or another the market moves down and as long as the volume numbers remain below trend you can be as certain as you are going to get about the direction of the market. That's my opinion. Vic

Wall Street Still Doesn't Get It

I think the opinion of individuals taken from pols, whether they are the man on the street or CFOs are not worth much. The view of business insiders tends to be cautious. They tend to focus on problems just like the runners who, even if winning the race, are fearful and looking over the shoulder. To my mind the consumer sentiment pols are especially questionable since the ordinary person forms his vision from the salient stories in the media like the sub prime mortgage defaults and rising gasoline prices. It's typical of the media to hype these pols because they are consistent with their message. The stock market's action very often runs contrary to the drum beat and it seems to be doing that except for the past week which you could interpret as a normal retracement in an upward trend. Vic

Goldman's Chief Economist Now Believes a Rate Cut is Unnecessary

Yes, I made good profits going 180 degrees opposite of Henry Kaufman's public evaluations back in the 80's Vic