Bond Yield Rises, Oil Rises, Mortgage regulators and Lenders Get Grilled by Congress, Stocks Fail to Follow Through

It only took 24 hours for the investors to rethink the "dovish" comments by the FED. As I have said yesterday, there was no "dovish" statement by the FED yesterday. I believe that the investors got irrationally exuberant yesterday. As have been the norm lately, an apparently perfect bullish set up failed to materialize. We discussed yesterday that many bears got trapped on March 14 break below 12,000 on the DOW on strong volume only to have the stock roar back up. So it is not surprising that yesterday's follow through on the NASDAQ was met today with tepid response. I would probably give this market until tomorrow to continue to follow through on strong volume. Many of the prior leaders continue to charge up on tepid volume like Google, BIDU, ISRG, AAPL, but volume continues to lag. Additional drag on the technology sector was apparent due to the weak Motorola earnings report. We need to keep in mind that earnings will drastically slow down for many companies going forward and yesterday's FED led rally is nothing really to cheer about.

OIL jumped more than $2 to end the day at $61.92. Oil should continue to gain steam ahead of continued rise in usage and ecalating tensions in the Middle East. With all the drama with subprime mortgage, people have forgotten about the Middle East issues. Iran continues to remain defiant and the development in that region needs vigilance. We cannot be off our guard. Rising oil can only mean further pressure on inflation, the media cannot spin that one.

Bond yields rose today and dollar regained some luster today as reassessment of the FED statement yesterday is probably bringing traders down to earth. We are still in a unmoderating inflation environment, slowing US economy, and housing problems. I do not think a rate cut will do this economy any good at this point. Instead of focusing on inflation, the greater market and the FED needs to stand up and start facing the possiblity of stagflation if the interest rates do not come up. I used to be against interest rate hikes but I see the utility now not because I am now bearish on the economy, but the threat of unbridled rise in inflation is the single most important concern on our economy and our standard of life. Many would argue that if we do not cut interest rate soon, there will be a massive credit crunch leading to abrupt slow down in the economy and lead to recession. But I think some short to intermediate pain in the form of a recession to wash out the credit excess that has created this problem is infinitely better than the alternative which is stagflation. The prospects are real. i am working on the nuances of why stagflation is possible in the near future.

Today's investigation by Senate Banking Comittee headed by Senator Dodd was the most eye opening event that I have seen in a long time. The complacency and utter fradulent behaviors of the subprime lender was astounding. In the words of Sandor Samuels of Countrywide Financial, I am paraphrasing, they have no fiduciary responsibility other than getting the loan to the people that need them. As long as Countrywide can make money, they have no moral obligation to make sure that their actions do not contribute to the overall downfall of people, country, and the economy. I think it is too late for this company and for many lending institutions. Countrwide also finally admitted that over 60% of their mortgage applicants cannot qualify for a regular indexed loans which means that they are "subprime" even though Countrywide has repeated in the past that the subprime loan only consists of 7% of their entire portfolio. They are lying and they know it. That is why the insiders continue to dump the shares and the institutions are secretly dumping shares right now. The stock is propped up by phantom buy backs on more debt and disingenuous analyst ratings to get the "retail" investors to buy into the BS while they dump the shares. Some may point out that the recent liquidity crunch faced by Fremont and Accredited Home Lenders by the hedge fund was a testiment that this economy can handle this crisis, as the companies testified to the congress today. But you have to laugh at that logic. Accredited got funding, or a "pay day predatory lending loan" at 13% with warrants to make sure that the Hedge fund is covered in all angles. The Hedge fund did not loan them the money out of goodness of their heart. They loaned Accredited money so that they can divest their 4% stake in the company, collect the 13% loan interest, gain 3million shares of warrants, and then they can short Accredited to hedge against them. This type of loan will only allow Accredited to stay afloat long enough for the Hedge fund and institutions to dump and get out while the retail is enticed again to hold the bag. It is very sad that people just don't understand the game.

I am waiting for the next shoe to drop in this market, that is why I am short.