Worrisome Wednesday

It’s up to Ben Bernanke to save the markets!

If that statement doesn’t inspire you with confidence, you’ll understand why, at 3:05 yesterday, with the Dow still at 12,700, I said: "Good time to pick up DIA $127 puts and QID $50s for overnight protection. XXX"  Hopefully we won’t need it as badly as the futures are indicating but it sure is nice to have isn’t it?

Durable goods orders fell 5.3% in January, a big recessionary signal but, like the PPI, this is a snap-back from an unbelievable 4.4% increase in December, when the government was pulling out all the stops to punch up the Q4 numbers.

Durable goods reports are insanely volatile and the WSJ points out that the ISM numbers were up from 48.4 in December to 50.7 in January, a much more likely indication of a bottoming move.  Shipments of durable goods ROSE 0.1% for the month (a GDP component) so we are down but not out…

As a corporate manager, given the fear and panic we were subjected to in January, don’t you think you might have held off a little when you were asked to consider making major equipment purchases?  The Dow plunged from 13,550 at Christmas to 11,634 on Jan 22nd (down 25%) and Durable Goods orders ONLY fell 5.3% – sounds like a market overreaction to me!

Of course we also have the stunning (but expected) decline in home prices as the average American home lost 8.9% in value from the previous year but don’t worry, George Bush is going to send you $600 to make it all better!  As we’ve mentioned before, the administration’s "Free Market" solution is a total disaster as all they have managed to do is allow the Banks to increase their mortgage "crack spreads" from 1.5% last year to 3.5% this month, more than doubling their profits per loan.  Conforming loans are the same price now as they were when the Fed Funds Rate was 5.25% and Jumbo loan rates have actually gone UP almost a full point – good luck with that refi when your home is down 10% in value and rates are up!

While I’m furious at this administrations handling of this mess, I’m just as mad at Clinton and Obama after last night’s debate for their utter failure to steer the debate towards something substantive.  NAFTA and national security are important issues but we are on a pace to serve 2.8M foreclosure notices in 2008, 57% more than last year and the banks repossessed 90% more homes than they did last January, despite all of Paulson’s BS.  These are real issues affecting 9M real Americans who live in these 2.5M homes and I blame the MSM for dropping the ball on this topic.  It’s shameful!

"The loan workout modification programs aren’t having a significant material effect on keeping properties from going back to the banks," said Rick Sharga from RealtyTrac.   Are we going to keep letting the governmnt get away with pretending they care while the situation gets worse and worse – what is wrong with this country?  Are we so beaten down and so defeated that we are willing to accept being brushed off like annoying children by a government that only cares about the polls, not the people.

FNM lost $3.2Bn in Q4 on a sharp rise (50%) in delinquencies and projects the situation to get worse this year.  This should hit the credit card companies and other financials today as well as FRE which, unfortunately, we have!  TOL also announced another loss for Q4 but it was "just" $96M with $245M in write-downs so again, signs of a bottom amidst all the doom and gloom.

Once again Asia had a super morning, blissfully ignorant of our troubles and the Hang Seng jumped 769 points, finishing just under the 24,500 mark while the Nikkei added 206 points, very significantly holding over the 14,000 mark for the first time since Jan 15th (when the Dow was at 12,700).  The Hong Kong government cut taxes to stimulate investment as they put their RECORD BUDGET SURPLUS to good use.  Another big factor in China’s gains was the apparently huge interest in various IPOs that are on the table.  This, of course, boosted bank shares.

Europe was off to a flat start but fell hard on our durable goods numbers and the bad news from TOL and FNM.  Microsoft was fined $1.35Bn by the EU for shenanigans but this is old news and shouldn’t affect them too much.  England’s largest mortgage lender, HBOS, MADE 3.8% MORE MONEY despite taking $450M in write-downs.  Again, this "crisis" is our problem, not the rest of the world’s.

Our boys at BX, who we picked up on Monday, have put together a $2Bn partnership to invest in US oil refineries.  At $1.50 to the Euro, we can expect a lot of M&A activity from across the pond – this was the logic in taking BX in the first place.  Meanwhile, GS is down but not out as they still have their fingers in the same pot.  This morning’s drop will give us another shot to pick them up at $170, so I’ll be adding some $180 calls at the bell for a quick mo play.

We’ll have to watch today’s action and see if we hold Monday’s closing levels but, as usual, there is nothing NEW in this news, you can’t sell off on the same story forever.