MARKET COMMENT
For Sept. 8, 2008. Courtesy of Dave Fry.
The automakers and their unions are now in DC trying to extract loans from taxpayers to backstop their poor decisions. The line for taxpayer money is getting as long as waiting your turn at the unemployment office.
“Something was up” with financials were my thoughts during our Friday afternoon podcast since with the overall market weak, and with little supportive news, these stocks were all higher.
Then, as if on cue, Co-host Greg Newton read the item on the news tape of a weekend meeting with a pending announcement from the Treasury regarding FNM and FRE. So, you think there was inside information out on the trading desks and in hedge fund-land Friday? You bet! Even Bill Gross couldn’t answer Bloomberg’s Kathleen Hayes questions whether he had been contacted by the Treasury or Fed. He could have just said yes or no. Instead he chose, “I can’t comment on that Kathleen”. Pimco is buying or selling bonds, stocks and derivatives everyday. You make the call.
So the long rumored, and obviously well-leaked, government takeover occurred. You could argue government actions were necessary since it was their lack of oversight that created the mess to begin with. On the other hand, well, how many hands do you have?
Equity markets around the globe rejoiced at the news bidding up stocks. Yet, other than the government’s theoretical guarantees for big banks, not much has changed in the overall negative economic scene. There are still a glut of unsold homes, mortgages are tougher not easier to obtain, consumers aren’t feeling happy, unemployment is rising and so forth.
Volume was heavy and the short squeeze was on. The NASDAQ was a notable laggard since financials aren’t their thing.
One aspect and result of the government’s action was to strengthen large banks at the expense of smaller ones. Why? Many smaller banks owned a hefty load of FNM and FRE preferreds. They will take write-downs that will negatively affect their book value and ability to compete against the bigger firms going forward. Hence you saw powerful rallies in banks like BAC which will be in position to increase market share by gobbling up smaller rivals. Gee, it’s good to have friends in high places, eh?
Lost in the panic to buy were casualties like WM [off 6%] and LEH [off 13%] where problems continue. They too need to take a number and get in line.
“Take a load off, Fannie
Take a load for free
Take a load off, Fannie
And you put the load right on me”
With some alteration from the Wallflowers “Take a Load Off Sally”.
Every week is interesting but this week is definitely more interesting than others. The “buy banks, sell commodities” theme is getting long in the tooth fast to my thinking. I understand the hot money crowd [trading desks and hedge funds] need to have something to do and trade. I don’t blame them. But even the government can only take things so far.
Many investors were wiped-out today and they’re ticked-off. Smaller banks and pensions plans for example were in the unhappy camp. This article in the International Herald Tribune spells out the compensation the departing CEOs of FNM and FRE are “scheduled” to make. If that happens expect a riot somewhere.
My usual chant “the week’s not over” used in concert with our common use of “weekly” charts takes on added significance now.
Let’s see what happens.
Have a pleasant evening.
Disclaimer: Among other issues the ETF Digest maintains long or short positions in: XLP, UGE, XLV, RXL, XLU, SDP, IEF, TLT, UUP, FXE, DRR, GLD, DZZ, USO, UNG, XLE, DBC, DEE, EFA, EFU, EEM, EEV and FXI.
