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Wednesday, February 27, 2008

Simply Insane

Yesterday was insane. There honestly is no other word. Allow me to explain:

Home prices fell 9.1% in December. That’s the most on record. Let me say that again. That is the largest decline in 20 years of record keeping.

Foreclosures went parabolic, increasing 90% in January over a year ago and 8% from December. Because of the lag time in the foreclosure process, these numbers essentially capture the mortgage defaults from last July. So you know this number can only get worse.

Produce prices rose 1%, twice as much as forecast. Over the last 12 months, producer prices rose 7.4 percent, the most since October 1981.

Consumer confidence fell to a five year low of 75. That low was made in January 1991 as the U.S. economy was coming out of a deep and painful recession and just as Gulf War I was fired up.

The Federal Deposit Insurance Corp (FDIC) reported that they were expecting a massive increase in bank failures in their Quarterly Banking Profile report. Regulators are bracing for the failure of well over 100 banks in the next 12 to 24 months.

The various ABX Indices continue to hit new lows. All of the ABX series are setting new record lows - below the levels of October and November. In English: Mortgages continue to deteriorate. More and more ‘homeowners’ cannot pay.

Crude broke $100 and $101. With such a fragile economy, that is terrible news. Just terrible.

As I posted yesterday, In A Pop Above Resistance, once the S&P cleared 1367 and 1371 on the monoline bailout chatter, an immediate Bearish posture was no longer warranted for technical reasons. Equities continued to add to these gains yesterday, hitting minor resistance at 1388.

But seriously, the economic, the fundamental news out yesterday was terrible. To rally, even on a technical basis, is just ridiculous. Our traders here come into the office every morning, sit down and look to deploy a full clip of ammo. Since we are all ‘flat’ by the end of each day, we can put our entire buying power to use each day. We are essentially the new ‘locals’ (new because we are on the screen, not in the pits) and as such thrive in these markets as we can ‘turn on a dime’. So these moves are almost a dream for us.

Today we have Durable Goods Sales and New Home Sales. Fannie Mae reports as well.

Honestly, who the hell is buying and going long, overnight? For the long run? I mean, sweet jesus!

Volatility (VIX) has had a nasty habit of hitting the 200 day EMA and thereby marking a high in equities. Volatility has peeled off nicely from the spike to 37. The emergency and other rate cuts seem to have soothed some seriously frayed nerves. Equities have bounced and complacency is back. It won't be long now before the next round of Bull raping time...

Below are all the economic releases in more detail.

S&P/Case-Shiller Home Prices Fell 9.1% in December (Update1): “Home prices in 20 U.S. metropolitan areas fell in December by the most on record, reflecting the deepening housing recession, a private survey showed today.

The S&P/Case-Shiller home-price index dropped 9.1 percent from December 2006, after a 7.7 percent decrease in November. Nationwide, home prices fell 8.9 percent in the fourth quarter from a year earlier, the biggest decline in 20 years of record keeping.

Prices may fall further as would-be buyers hold out for bargains and foreclosures add to the glut of unsold properties, extending the worst housing slump in a quarter century. Shrinking home values and credit restrictions threaten to reduce consumer spending and push the economy into a recession.

December's drop was the 12th monthly decline in a row and the biggest since the group began keeping year-over-year records on the 20-cities index in 2001.”

U.S. Home Foreclosures Jump 90% as Mortgages Reset (Update5): “Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.

Repossessions rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.

Defaults among subprime borrowers and those unable to meet rising payments on adjustable-rate loans drove foreclosure filings to the highest since August and the second-highest since RealtyTrac started keeping records three years ago. About $460 billion of adjustable mortgages are scheduled to reset this year, raising minimum payments for borrowers, according to New York- based analysts at Citigroup Inc.

About $190 billion in subprime adjustable mortgages are slated to reset this year, according Mark Zandi, chief economist of Moody's

More than 233,000 properties were in some stage of default last month. Total filings increased 8 percent in January from December, RealtyTrac said today in a statement.”

Producer Prices in U.S. Increase More Than Forecast (Update4): “Prices paid to U.S. producers rose more than twice as much as forecast in January, pushed up by higher fuel, food and drug costs, signaling inflation may keep accelerating even as growth slows.

The 1 percent increase followed a 0.3 percent drop in December, the Labor Department said in Washington. The median forecast in a Bloomberg News survey of economists was for a 0.4 percent gain. Excluding food and energy, so-called core wholesale prices climbed 0.4 percent, the most in almost a year.

Combined with figures showing consumer prices also rose more than forecast, today's report may prompt the Federal Reserve to consider raising interest rates as soon as the economy stabilizes. Fed officials, including Governor Frederic Mishkin yesterday, have warned that higher prices may stoke inflation expectations.

Over the past 12 months, producer prices rose 7.4 percent, the most since October 1981. Wholesale prices excluding food and energy advanced 2.3 percent in the year through January.”

U.S. Consumer Confidence Declines to Five-Year Low (Update2): “Consumer confidence in the U.S. fell more than forecast in February to the lowest level since the start of the Iraq war as the labor market cooled and the economy faltered.

The Conference Board's index of confidence decreased to 75, the lowest since March 2003, from a revised 87.3 in January, the New York-based group said today. The employment outlook weakened and expectations for the next six months dropped to the lowest level since January 1991, the start of the Gulf War.

Americans are worrying more about the economy because the housing market is in its third year of a slump, employment has dropped, and gasoline and food prices are elevated. That may threaten consumer spending, which already has slowed, and further push down economic growth.”

FDIC: Quarterly Banking Profile: Report Headings:

-Quarterly Net Income Declines to a 16-Year Low
-One in Four Large Institutions Lost Money in the Fourth Quarter
-Margin Erosion Persists
-Full-Year Earnings Fall to Five-Year Low
-Net Charge-Off Rate Rises to Five-Year High
-Growth in Noncurrent Loans Accelerates
-Large Boost to Loss Reserves Fails to Stem Decline in Coverage Ratio

“At the end of 2007, there were 76 FDIC-insured commercial banks and savings institutions on the “Problem List,” with combined assets of $22.2 billion, up from 65 institutions with $18.5 billion at the end of the third quarter.”

FDIC to Add Staff as Bank Failures Loom: “The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

-Out of Retirement: The FDIC is recruiting 25 of its retirees experienced in handling insolvent financial institutions.

-The Reasoning: The agency is preparing for an increase in failed financial institutions as the housing and credit markets worsen.

-What's Next: The FDIC will give an update today on the number of "problem" institutions that regulators are watching most closely.

-The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas.

The agency, which insures accounts at more than 8,000 financial institutions, is also seeking to hire an outside firm that would help manage mortgages and other assets at insolvent banks, according to a newspaper advertisement.

In public, policy makers are debating what role the government should play in trying to stabilize the housing market and minimize foreclosures. Meanwhile, regulators have worked discreetly behind the scenes to closely monitor the growing number of troubled banks and thrifts considered at risk.

"Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.”


Yes and Not Yes said...

I agree completely. After seeing all the bad news yesterday, how can people be BUYING into this sort of environment?

Also, I really enjoy your posts; keep up the good work.

Anonymous said...

I think that a lot of people saw the consolidation patterns (trading in a range, wedge, flag, pennant, etc.) being broken yesterday.

When patterns like this break, fall back to the trend line and stop at resistance, it is read as a bullish sign, IN COMPLETE DEFIANCE OF REALITY.

It does seem like the "smart money" should be closing out their picks in the last 15 minutes, though. Never know when one of those hundred banks is going to go belly up...

Anonymous said...

I agree with the posters, looking at a 60 min or daily/weekly, they were looking bullish. In all honesty, I really thought they were going to drop much further last week after finally braking to the downside out of the last 2 weeks range. But like you I just scalp and dont really care which way it goes as long as it moves.

I am sure you are aware of the lackluster volume on the move up this morning, very weak. So, dont know if this is a pullback to gather support for a higher break up, or just a bull trap. Either way, I agree again, this move up just isnt based on any logic at all. Maybe big money is still caught long and they need a pump up, to get out? Anyhow, great blog! thanks for your work. Back to scalping...

Anonymous said...


Heart attack, depression, WTF is going on? The pressure from all this crap is just building up inside me.
Why do stock prices climb when some of the worst financial news we could expect continues to come out.

Ben Bittrolff said...

The market can stay irrational far longer than you can stay solvent.

Hehe. Markets love inflicting pain.

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