Is Wall Street Buying Bernanke's Reappointment?

Includes: DIA, FMCC, SPY
by: The Housing Time Bomb

Obama's reappointment of Fed chairman Ben Bernanke was supposed to be a pleasant surprise for the markets today.

Wall St. barely blinked after the announcement which surprised me because Bernanke has been hailed as the "saviour" of our financial system according to the financial pundits.

Ben has also consistently backed the bankers almost everytime as the Fed scrambles to keep the financial system in one piece.

Does anyone else find this muted response to Ben's second term strange?

Why didn't we see a 300 point up day following the news as Wall St. cheered the reappointment of their fearless leader? The market is always looking for new "green shoots" that can take the market higher. This shoot however was almost completely ignored.

Some may argue that the market already had it "priced in" after such a huge move. My response to this is since when has anything been "priced in" with our market since the lows in March. We haven't seen one significant pullback since this rocket ride started over 7 months ago.

Anything new that even resembles a "green shoot" since the lows has created manic buying as investors look for any signs of an economic recovery.

The silence is defeaning in response to the Bernanke reappointment as far as I am concerned.. The DOW closed up only 30 points for the day despite seeing better housing and consumer confidence numbers.

Its pretty pathetic when the guy who saved the financial markets can only generate a 30 point rally after getting a second term. I mean christ: There was more excitement in Iran after Ahmadinejad's reappointment then there was on Wall St. after Ben's! (scarcasm off)

Is America Ready For a Change?

You gotta ask yourself this question after seeing the muted reaction in the markets today after the Bernanke announcement.

I believe the smartest people on the street are not very confident in Bernanke. You need to ignore what the wizards of Wall St. said on CNBC in reaction to the news. Wall St. is in total spin mode right now because knows that they must restore confidence in order to turn the economy around.

Behind closed doors however, I believe Wall St. looks at where we are economically and wonders if this was the right move. I think Bill Gross and the other big players on the street are horrified when they look at the real economic numbers.

The Fed has dropped money out of helicopters for 2 years only to see the economy continue to fall apart.

The Freddie (FRE) news today regarding its mortgage portfolio was a perfect example:

"Freddie Report:
Mortgage Fundamentals Still DeterioratingLast update:
8/25/2009 9:51:19 AM
By Andrew Edwards

NEW YORK (Dow Jones)--Mortgage financing giant Freddie Mac's (FRE) monthly report showed that whatever improvements there have been in credit markets underlying fundamentals are still declining.

Delinquencies on Freddie's portfolio nearly tripled to 2.95% in July from 1% a year earlier. Freddie holds a portfolio of $2.23 trillion in mortgages and is restricted to buying mortgages from the strongest borrowers. Delinquencies edged up slightly from 2.78% in June.

"July delinquencies showed no improvement whatsoever, and what incremental movement there was, the figures showed accelerating credit weakness," said Jim Vogel of FTN Financial.

The report also showed that Freddie is unwinding its portfolio of mortgage-related investments faster than had been expected by market observers."

My Take:

Folks, if trends like this continue there will be no recovery. Delinquencies have tripled from a year ago. Recovery? Where?

The supposedly "bullish" housing data that was released today via Case/Shiller really doesn't mean anything because we don't know all the facts.

The massive shadow inventories combined with various foreclosure moratoriums make it extremely difficult to guage how large the housing inventories really are.

I am also hearing more and more stories of families that have simply stopped paying their mortgage(for 2 years or more). The banks have reacted by doing nothing. The banks figure its better to have someone in there taking care of the place then it is to foreclose on it, be resposible for upkeep, and then be forced to take the loss on their books.

God only knows how many squatters there are right now that find themselves in this situation.

It's going to take years to figure out the real story here. I would be in no ruch to buy until the banks puke up the real losses. I am sure its much worse then we are led to believe.

Another thing that must be considered when you look at the housing data is it's likely the $8000 tax credit for first time home buyers has highly skewed the numbers to the high side just like "cash for clunkers" did for autos.

The Bottom Line

In my opinion, Wall St.'s support of Bernanke is mild at best. They all know he was part of the Greenspan mess that created this nightmare in the first place.

Bernanke's reactions to the financial crisis are unprecedented, and even the smartest guys in the room don't really know how this is all going to play out.

The Fed has basically orchestrated one gigantic fiscal experiment in response to this crisis.

This has created a lot of uncertianty in the markets, and uncertianty is the one thing that Wall St. hates most.