PPI today was 1.2% and Core PPI was 0.4%. Inflation is high and you could pretty much forget the FED cutting interest rates any time soon. This news should create some downward force on the markets today. Dow is down -24 as I speak and Nasdaq is down -.5. Oil is edging up,
This should continue to put pressure on the mortgage markets. As I see the premarket trades, Accredited Home Lenders (LEND) is trading up. This is probably due to take over rumors by Goldman Sachs. I do not think that is possible and LEND now should be considered a prime short right now. The best way is to take advantage with PUT options rather than borrowing common shares.
Countrywide Financial should be shorted on any strength such as today. The underbelly of CFC is being exposed and the WSJ and Marketwatch.com is hot on its trails. Excellent posts at Yahoo message boards at least for the time being is a refreshing change from the usual BS that goes on at that site. Keep up the good work guys!
Google and BIDU appears to be good short candidates today. I believe BIDU will retest the 200 EDMA if the market conditions continue to detriorate based on the PPI numbers. The death spiral of the equity markets will continue today.
Good luck trading.
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2 comments:
I found you site today very interesting. Good Luck, and hope you can do this full time in the near future.
I agree the sub-prime lending will spillover into prime borrowers who are over-extended - no one is safe. Too much lending to unqualified buyers.
I am not a trader, I buy and hold long on mining stocks, but lately have been feeling uneasy on the sector. I now am not sure if even miners will advance due to liquidation of assets? I think anything is possible and that lenders will liquidate their assets to cover these bad loans. (gold?)
Maybe I'm wrong (probably) but can't think of any reason why gold stocks are treading or going down during this crisis.
Laura, thank you for your kind comments. I truly try to stay as objective and informative as possible. I sure do enjoy this blog.
I think the markets are being too short sighted and perhaps too hopeful that the uptrend will continue. We have ignored the warning signs of deteriorating core fundamentals of the US economy for the past 2 years. One of the worrisome aspect of our economy is that it is highly leveraged to debt. From top to bottom starting with our governement and rising federal deficit spending down to the consumers.
I do not think that the housing market bubble has yet started to burst. The problems with low interest rates and "easy" money is that it creates rampant speculation and unscrupulous lending practices which has contributed to the yield curve inversion and rising inflation.
Now, I do not think any one sector will be safe from the bear market, if does head that way from the correction. Mining sector has had tremendous run up within the past few years and it has definitely topped. It doesn't mean they won't do well in the future, but in the current environment, prospects may not look that favorable.
Like you, I have seen gold and oil trade down in response to our current subprime lending melt down. I don't think subprime lending issues are solely to blame. For too long our economy has been propped up by the "EASY" money created by Alan Greenspan's accomodative monetary policy post 2001 era. This had the effect of sustaining the economy due to housing boom. Once the easy money is gone, which is happening right now, we will see the fall outs from the housing bubble. Gold and oil tend to trade inversely to the economy and inflation. Rising inflation and the threat of recession can have the effect of rising gold prices and oil trades down in anticipation for manufacturing slow down (idea being slow economy will have slowing demand for oil- makes sense). Gold, however is directly proportional to possiblity of stagflation (an environment of high inflation and slow to negative GDP). We are in real danger of that happening if the current trend continues.
Lenders will not liquidate gold to cover their bad loans. Most likely scenario is that many mortgage related banking and lending concerns will be bankrupt and out of business within the next two years. Remember, Gold is a finite entity and cannot possibly cover the entire risks in the market. Believe it or not there is a whole market for risk arbitrage for this exact thing. I know Goldman Sachs and Bear Sterns for example are licking their chops at the opportunity to buy these bad loans for pennies on the dollar. They will serve to at least hold up some of the liquidity in this market.
Again, Gold going down in midst of our mortgage crisis is alraming and is not related to anything more than the fact that we are going into possible stagflation. Also, it is also showing the limitations of gold due to their inherent limited liquidity in the market place when compared to stocks. Also, people are hedging against gold. As the economy slows down, and the inflation is headed upwards, gold will lose their value.
I am concerned about our economy right now.
Good luck.
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