Wow – The Futures are so bright, I've gotta wear shades!
Bernanke made all the right bullish noises last night but what's really got the markets in a tizzy is that the banks are going with my plan to freeze interest rates on sub-prime loans in order to give things time to work out. I proposed this way back in the spring but I guess that's the speed these things work but it was a very simple suggestion that the lenders simply forego jacking up the teaser rates on the loans they have outstanding. This allows people to stay in their homes and continue making payments while the bank suffers perhaps a 4% loss of 2 years' worth of interest on the home, rather than the massive loss they would take if they repossess and write-down homes.
I know – DUH!
So I can now fully endorse this rally as they've just done the smartest thing possible but it does remain to be seen how sweeping these reforms will be as banks are inherently greedy BUT, if C is willing to pay 11% for money and ETFC is willing to pay 12.5% for money then letting their borrowers pay them 3% interest instead of 8% interest doesn't look all too bad to the banks if it means they don't have to become borrowers themselves. This is infinitely more effective than a Fed cut in righting the mortgage issue and I am downright excited about it. Kudos to SuperBanker Paulson who was certainly the right guy for this job as he was able to lay it on the table and muscle the big boys in a way no other government official could and a shout out to the Governator, who got the ball rolling on this last month.
It all comes down to greed now as the plan being bandied about will have 3 tiers of borrowers and some sort of vauge needs test to determine eligablity with only those borrowers who A: Can't afford the new rate and B: Can demonstrate the ability to maintain payments at the current rate will qualify. I would prefer that the extension be given to anyone who is a primary homeowner with perhaps a scale-up over 5 years for people above a certain income/mortgage level but I am very proud of our financial system for taking this major step in fixing this problem.
Sorry there was no wrap-up last night but I was busy doing $10K and $25K Virtual Portfolio reviews but not much happened yesterday anyway other than hahahahaha on oil traders who saw $1Bn vanish before their eyes as even a major pipeline disaster (as predicted) can't save these roaches. Commodities will be interesting today as the world may not end and that means the dollar may come back and hurt commodities despite the raised outlook for economic activity.
As I said yesterday, anything above 13,150 will be a positive sign and we liked Apple's breakout enough to flip to a bull call spread but, unfortunately not enough to dump our open puts so we'll see how that goes today. The Nikkei was up nicely at 15,680 – that's just about exactly 1,000 points off Tuesday's bottom with only a 100-point pullback into the close. The Hang Seng was less certain, flatlining off a 161-point gap up but that's pretty good as they're up 2,000 points since Tuesday! The Shanghai went DOWN, AGAIN on the A side by 2.6% despite a strong, 3% rise on the B shares but still holding that 5,000 level and very likely to pop on Monday if we end up over 13,400 so let's pick up the FXI Feb $195s if they can be had for $15 as we should get a great price to sell the Dec $200s, perhaps $12 on a good run and, if not, there are PLENTY of other calls to sell.
Speaking of bottoms – Mega Kudos to ME for calling Bottom Test Tuesday in the morning! Feel free to use this as a good reason to sign all your friends up for our FREE NEWSLETTER and help spread the word!
We should get some good SOX action today as global leader Samsung looks like they will be somewhat distracted as their affiliates' offices were raided this morning as part of an ongoing corruption investigation. "We will take documents and files that could be relevant to the allegations about the Group's slush fund," Kim Soo-Nam, a spokesman at the Seoul prosecutors office said. This is exactly the kind of "kick the doors in first, ask questions later" style of government we can look forward to in a Guilianni administration! Until that time, we have to put up with BS legal motions by embattled ALLEGED US criminal organizations like FAF who are trying to get away from Cuomo (something about these New Yorkers) by claiming he lacks the regulatory authority to stop them from (allegedly) swindling the public. "This is a meritless motion made in the wrong court," said Jeffrey Lerner, a Cuomo spokesman, in a statement. "First American's vain attempts to raise procedural roadblocks should not distract from the damning facts laid out in great detail in the complaint."
The ECB is keeping the funds flowing in Europe to stave off sub-prime issues over there while Alliance & Leicester Bank got $8.3Bn from CS on pretty good terms to help tide them over this little rough patch. This is another good sign for the banking industry and indicates CS probably is feeling pretty comfortable with their own virtual portfolio now that they have taken their lumps. We'll be wishing we held onto those C calls today but loving our WM play from earlier in the week as that whole sector should be on fire! Europe is up about 1% on average this morning.
While all of our concerns about a slowing economy remain, there is nothing wrong with a slowdown if we can remove some of this existing overhang and nothing at all wrong with a slowdown that finally pops the energy and metals bubble. Remember, houses are a commodity too and look what happened to them. Our economy survived that one (so far) and about 70% of the people in this country were invested in housing. Just 1% of the people in this country are invested in copper, gold and oil and they can afford to take a few lumps.
A quick look at news at home has Ed Zander leaving MOT but the COO is taking over so I don't see much changing there. Personal spending was not so hot and it's the end of the month so we'll be letting our longs run and rolling up our index puts today rather than stopping them out as we could still have little more correction in store. TIF will correct to the upside as they came in with great sales but they should have resistance before breaking up so we can take a look at the May $55s at $3.50 while we wait for a proper breakout.
It's going to be a fun day but let's see if we can hold 13,400 so we can make sure we aren't just spiking outside my 13,300 range. If we can take out 13,500 and hold it we will be in excellent shape momentum-wise but I'm still going to cover a bit into the weekend.
Have a good one,
– Phil
