Commercial Real Estate: IYR, SRS: Pending Disaster

"I've started scaling into SRS because I'm not confident that IYR will make it that much higher." -01/07/09 TheFinancialNinja

"Picked some up below $50. Looking to scale in... " -01/07/09 TheFinancialNinja

This particular disaster is only just getting started.

UpsideTrader is talking about commercial real estate, IYR and SRS:

"An interesting factoid is that much of the existing retail space has NOT been cancelled yet and probably won't be until the second half of 2010, so good news for all you SRS longs or IYR shorts. It's coming, it's just been delayed. The commercial real estate bulls will get their faces raked, it's just a matter of time."

Calculated Risk is starting to get worried:

"And so it begins for CMBS. First the reviews, then the downgrades, followed by the bank write-downs, and then more reviews ..."

Fannie Mae: What Standards?

WTF? Loosen standards?
Unbelievable.

Are there even any standards to loosen? I vote we should suspend mark to market for housing! Giddy up!

Fannie Mae to Loosen Rules for Home-Loan Refinancing (Update2) : " Fannie Mae, the mortgage-finance company under U.S. government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing.

Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases, according to a notice yesterday to lenders posted on the Washington-based company’s Web site. The changes apply to loans that the company owns or guarantees.

The company, which accounts for more than 40 percent of the $12 trillion in U.S. residential mortgage debt, is seeking to break a "logjam" in refinancing and allow more homeowners to take advantage of near-record low interest rates, according to Brian Faith, a Fannie Mae spokesman. The increased flexibility for consumers isn’t large enough to significantly harm mortgage- bond investors and mortgage insurers, analysts said.

"This is not yet the no-appraisal refi wave that many have feared," Matt Jozoff and Brian Ye, mortgage-bond analysts at New York-based JPMorgan Chase & Co., wrote in note to clients yesterday.

Fannie Mae’s appraisal change doesn’t mean borrowers with less than 20 percent home equity can forgo mortgage insurance, the analysts said. That’s because Fannie Mae will likely use automated models to check home values listed on applications before offering to waive appraisals, the analysts said.

The company’s DU Refi Plus program will start April 4."

Risk Reward Favors Short Positions

The market is severely overbought for a Bear Market rally with 42% of all stocks on the NYSE above their 50 day simple moving averages.

Rally in equities from here, especially with "Non-Farm Friday" rapidly approaching... come on really?

At these levels, the risk reward favors SHORT positions.

The CBOE Options Put Call / Ratio has worsened since my post Put / Call Ratio: Top, Not Bottom In Equities.

The CBOE Options Total Put/Call Ratio (CPC) has successfully predicted major market turning points in the current high volatility environment. The 20 day EMA (blue) is an especially reliable indicator, picking tops and bottoms on the NYSE Composite (grey area) with great accuracy beyond extreme values of 0.95 and 1.10 (horizontal black lines).

The current level below 0.95 of the CPC is far more indicative of a TOP in equities than a BOTTOM. This makes a break DOWN and OUT on equities the most probable outcome. This would manifest as a collapse below 8000 on the DOW, 800 on the S&P 500, 5500 on the NYSE Composite and 1400 on the NASDAQ Composite.

Oil: See, All Bubbles are the Same

Oil (WTIC) has put in three consecutive lower highs, $52.95, $50.47 and $48.59. The $40 area has been acting as support. Failure here will result in a near instant test of $35.

Momentum favors the Bears. The MACD has already curled over and triggered a sell signal.

In Smashing the ‘Perpetually’ Growing Oil Myth I said, “If you believe that demand from India and China will send the price of oil and commodities to “infinity and beyond” you’ll end up losing your shirt and your sanity.”

I argued that demand destruction will move the oil price significantly below $100 per barrel:

“Even at $100 a barrel, prices have the effect of crowding out the marginal consumer. In this case, the cost of oil rises just high enough such that it becomes unaffordable to the marginal consumer. The marginal consumer happens to be almost everybody NOT in the first world. Basically prices will settle just high enough to wipe out any consumer surplus for these consumers and thereby severely limit demand to the highest socio-economic echelons in those countries. That level is most assuredly below $100 a barrel.”

Oil was done when the heavily subsidized emerging economies had to start moving closer to paying real market rates. I say ‘closer’, because they are still ridiculously subsidized, and still have a long way to go. I presented the consequences in Oil Drops on Subsidy Cuts in China, India, Malaysia, Taiwan. While everybody is worried about the U.S., don’t forget: The Other Bigger Shoe: The Rest of The World.

Demand continues to collapse and supply continues to rise. The consequence of course is another brutal drop in oil. (EIA Crude Stocks chart here.)

In The Final Bubble: Commodities I posted chart comparing oil to all sorts of major bubbles from the Nikkei to the Nasdaq. The most recent update of that very chart is worth a thousand words.

All Bubbles are the Same. Always. Forever.

Dammit, Why Won't you Learn?

GE Breakdown Foreshadows More Pain For Markets

The bounce from 804 to 875 hit the 50% Fib from the Santa Rally high of 943.

The break down of General Electric (GE) is foreshadowing more pain in the broader market indices...

The 800 area on the S&P 500 (SPX) is likely to be viciously assaulted by the Bears in short order. The Bulltards will make their stand here, and almost certainly get massacred.

Goldman Says Buy Puts as U.S. Stocks May Resume Drop (Update1): "Investors should buy put options on the Standard & Poor’s 500 Index because the benchmark for U.S. stocks may fall back to the 11-year low it reached in November, Goldman Sachs Group Inc. said.

“Dismal” fourth-quarter profits and forecasts from companies as well as waning investor confidence in President Barack Obama’s economic stimulus plan may drive the S&P 500 toward 752.44 in the next month, Goldman strategists said."

Put / Call Ratio: Top, Not Bottom in Equities

The CBOE Options Total Put/Call Ratio (CPC) has successfully predicted major market turning points in the current high volatility environment. The 20 day EMA (blue) is an especially reliable indicator, picking tops and bottoms on the NYSE Composite (grey area) with great accuracy beyond extreme values of 0.95 and 1.10 (horizontal black lines).

The current level below 0.95 of the CPC is far more indicative of a TOP in equities than a BOTTOM. This makes a break DOWN and OUT on equities the most probable outcome. This would manifest as a collapse below 8000 on the DOW, 800 on the S&P 500, 5500 on the NYSE Composite and 1400 on the NASDAQ Composite.

Smells more like TOP than BOTTOM.

NOTE: This indicator as described here completely falls apart for the period BEFORE 2006. It works until it doesn't. Trade nimble. Trade fast.