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10 Notes on the Current Market Fracas

by: David Merkel July 22, 2008 | about stocks: FNM / FRE / XLF    
David Merkel

David Merkel

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1) How to control your emotions when the market is nuts?  Develop a checklist, or at least a strategy that makes you re-evaluate the fundamentals, rather than buying/selling indiscriminately.

2) What, one standard for revenue recognition?  Impossible! Great!  Revenue recognition is probably the most important issue in accounting, and whatever comes out of this will be important to investors.  (If the standard is bad, value investors that watch the quality of earnings will gain additional advantages.)

3) America is too big to fail?  You bet, at least to our larger creditors.  As it stands now, our economy is partly propped up by foreign creditors.  Remember, the mercantilists lost more than they gained.  The same will happen here.

4) Tom Graff is a bright guy, and I respect him.  He disagrees with my view on buying agency mortgage backed securities.  He is worth a read.

5) Dark supply.  There are many people who want to sell homes who have them off the market now waiting for better prices.  There are investors buying properties hoping to flip them.  These are reasons I don’t expect housing prices to come back quickly.

6) When I read this piece on Countrywide, I was not surprised by the existence of special deals, but only by their extent.

7) HEL and HELOC experience will continue to decline.  Face it, on most home equity loans in trouble, the losses will be 100%.  This will only burn out one year after the bottom in housing prices.

8) Fannie (FNM) and Freddie (FRE) have their concerns:

9)  Loser rallies rarely persist, but that is what we have had recently.

10) Along with Barry, I do not believe that banks have bottomed yet.  There are more credit losses to be taken, particularly as housing prices fall another 10%.

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This article has 11 comments:

  •  
    Jul 22 11:43 AM
    I watched WB rally 20% this morning on horrible earnings and thought it might be a short opp...but in this market,I don't trust my instincts anymore.Good article.
    Reply
  •  
    Jul 22 05:53 PM
    Great compilation of information and facts. Notice any correlation to these individuals/entities mentioned and political party affiliation? No comment!!!!
    Reply
  •  
    Jul 22 06:29 PM
    What is up when bad earnings come out...and then stock rallies. Look at American Express ...AXP. They had a small rally as well.
    Reply
  •  
    Jul 22 06:38 PM
    lounge, a bounce on bad earnings tends to happen when lousy results were expected and/or the stock is heavily shorted.
    Reply
  •  
    Jul 22 06:44 PM
    User,I can't agree more,but these earnings numbers are so bad and the guidance also,who has the balls to buy these dogs?
    Reply
  •  
    Jul 22 08:56 PM
    I bot BAC at $27 and it closed today at $32.35. I also hold FNM at $13.80 and I expect it to move into the black soon. Buy when others are selling and sell when they're buying. It still works.
    Reply
  •  
    Jul 22 10:23 PM
    Exactly Zeonman. This is how John Templeton made his living.
    Reply
  •  
    Jul 23 12:03 AM
    Only thing is we might have some wind to take this much higher. IMO Naked short rule enforced (slight government backstop) + record short percentages + very oversold conditions = one hell of a massive short covering rally coupled with a few bottom pickers. A lot of weak shorts will be taken to the cleaners as evident of the last half hour of trading today.
    Reply
  •  
    Jul 23 12:42 AM
    I think it is already enough questioning viablity of the financial sector .The time to be critical was last year .I was...... on Bloomberg TV(Brian Sullivan show).
    The U.S is too big to fail and judging by the actions taken by the Treasury and the FED,so are the FRE and the FNM.In fact their failure (or any key financial institution's failure )would likely implode the U.S economy and then sequentially revert the global economy to the "Dark Ages".
    The mistakes made should have been addressed two years ago..Now that financial sector is addressing the problems with an aggressive assistance from the FED and the Treasury let's focus on the mega vulnearbility of Europe and Emerging economies.U.S assets(stock market) are heading for historical highs if for the wrong reason.
    Reply
  •  
    Jul 23 02:58 AM
    "Only one of the 11 U.S. regional banks to report so far has actually reported growth. Half were worse than expected." (FT, quoting Bloomberg) Why exactly is the United States to big to fail? You think China, Japan, and Russia are going to backstop the U.S. Treasury?
    Reply
  •  
    Jul 24 12:03 AM
    Hell, I exited SDS last Tuesday....got back in on Friday....there'll be more wailing, and gnashing of teeth....MUCH more, imho...

    old trader
    Reply
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