Posted 2007-04-18 17:54
by Karl Denninger
by Karl Denninger
And they ain't very pretty.
First Horizon (FHN)
ETrade (ETFC)
Pulte (PHM)
There were big winners in the earnings department among the money center banks today, as expected. And as expected by an irrational market, it hit anything that had the word "financial" somewhere in its description. Ok. Countrywide was again on a tear - still rumors floating around about them being bought, it seems, although I suspect this one is running out of steam. As I noted in a previous entry, the odds of that are somewhere approaching that of an asteroid impact on New York City tomorrow morning between 11:00 and 11:03 AM. Forget it.
Then you have Cramer, who apparently thinks that the "Subprime thesis" is invalid and is a big part of this drum-banging on CFC. Uh huh. Ok Jim. Pull the other one. This is the guy who calls Vonage dead money after they implode. Niiice. Wanna talk haircuts? Hell, you can't find hair on his head TO cut! What I want to know is this - are you being bribed to pump this piece of dog-squeeze Jim? C'mon, fess up! You know you got your***** in a wringer with the YouTube video (which, apparently, you didn't like being up there - did you send them a DCMA takedown notice?) - so since you've admitted to this sort of unsubstantiated crap in the past, why should anyone believe you're not doing it now? If you have a hint of intelligence you know that the real story here isn't Subprime - its the ALT-A PayOption ARMs and "Liars Loans" - all of which can potentially be PUT back on the issuer! THAT is something that nobody wants to own. But - we've been through this - see the other posting.
Today I started nibbling on SDS - S&P500 Ultrashort (goes up at twice the rate the S&P goes DOWN.) Why? Well, let's see. DOW at a record, but only due to three components - all financials. Where was the market depth? Missing - that's where. I do not believe this is (yet) time to "buy with both hands", but nibbling here certainly appeared to be prudent - so a nibblin' I went. Protected it with a fairly tight trailing stop.
When you hear that "the subprime thing is contained", you know people are not paying attention. Subprime was not for one second even the first act of this play. Those who believe so are making a really big mistake.
Let me put this graph up again
Note that we broke through the last support level in the mid 82 level. That's gone. Below? A black hole.
Now what can stop this? Only one thing - the Fed. And to do it, the Fed must raise interest rates.
And believe me, this has people nervous. Today, none other than Donald Trump showed up on CNBC to pound the table and basically try to demand that Bernacke cut interest rates, predicting a total bloodbath in the building market if it doesn't happen.
Well, he's right. There will be a bloodbath. But Bernacke cannot cut rates, because the dollar will not stand for it. If he cuts rates then foreigners dump our financial instruments as it will send the dollar down further; that destroys the liquidity that makes the market run and BOOM - its over.
But if he raises rates, the banks, builders and everyone related to either goes in the tank instantly. The consequence of this is a deep and long recession.
If he sits, his operating thesis is that things will smolder but not ignite. I don't think so. When you get to a market - and economy - that is teetering so that either a rate cut or a rate hike would bring it down, you have an unstable situation. Sooner or later the slowdown in the housebuilding market has to hit the consumer. How? Employment - how do you not build homes without everyone from lumber companies to stores like Home Depot and Lowes cutting back?
What unbalances the spinning top and sends it careening across the room, and exactly when does it happen?
I don't know - but when you handcuff the Fed and have an economy that is outside of their comfort zone you're asking for it. And if I had to take a bet one way or another, I'd give it 60/40 odds that Bernacke is forced to raise rates by 50 basis points in the next three to six months in order to defend the dollar.
In order for the Bull's Thesis to hold, you have to figure out how you fix the affordability problem in the house market - and you have to do it soon, because all indications are that the spring selling season is dead and buried before it began. And - the currency problem can't get out of hand. And - consumers can't run out of margin (credit line).
That's a lot of "and"s.
Update: Damnit - or is that "dam it". The cracks may be starting to leak water. As I prepare to go to bed this evening looking at the Asian markets is, well, interesting. If you're into sushi I hope you like it bloody. Shanghi is down 3.19%, Hang Seng down 274, Nikkei down 255, Straits Times down 1.85%. All red, and all nasty.
Catalyst? Maybe it was the Dow hitting a "record close" on only 3 of 30 components, and no transports for confirmation. Or maybe it was the dollar being in the tank. Or both. Or...... as I've noted... maybe, about 4:00 AM local time, the Asians woke up in a cold sweat and said "What the f^$@ am I doing here? I'm gonna lose my AZZ!"
We shall see what the morning brings.....
Final update: Word out there is that the Chinese GDP numbers were due to be released at 10:00 AM local and were delayed to 3:00 PM. Investors took this as a sign that the number would be hot and the central bank there may intend to immediately raise interest rates. This, of course, screws the dollar hard, plays hell with the carry trade, and that translates into a BIG selloff. The dollar is going in the toilet - down 73 pips against the Yen tonight alone, now under 118. If the BOC does hike Bernacke may be forced into a rate increase here. It looks like the screw may be tightening on vise...... maybe a lot. I'm off for the night but intend to be at it early in the AM - it promises to be a bloody day for US equities if there's an overseas rate hike out of China in the wee hours.
First Horizon (FHN)
Missed big, 55 cents .vs. $1.67 year ago, and off from expectations of 59 cents. Claims to be exiting non-prime lending entirely!
ETrade (ETFC)
Warned for the year, got chopped up after hours. Blamed volatility
for scaring off customers. Oooook. Gonna do some digging there and
see how their loan performance was..... Tomorrow is going to be bloody in the brokerages. OptionsXpress reports in the morning.
Pulte (PHM)
Not an official report but a big fat warning - expects a loss of 34-38
cents for the quarter, big drops in orders and increases in cancellations. Prices decreased, new orders down 21%. Earnings will be reported on 8/26
There were big winners in the earnings department among the money center banks today, as expected. And as expected by an irrational market, it hit anything that had the word "financial" somewhere in its description. Ok. Countrywide was again on a tear - still rumors floating around about them being bought, it seems, although I suspect this one is running out of steam. As I noted in a previous entry, the odds of that are somewhere approaching that of an asteroid impact on New York City tomorrow morning between 11:00 and 11:03 AM. Forget it.
Then you have Cramer, who apparently thinks that the "Subprime thesis" is invalid and is a big part of this drum-banging on CFC. Uh huh. Ok Jim. Pull the other one. This is the guy who calls Vonage dead money after they implode. Niiice. Wanna talk haircuts? Hell, you can't find hair on his head TO cut! What I want to know is this - are you being bribed to pump this piece of dog-squeeze Jim? C'mon, fess up! You know you got your***** in a wringer with the YouTube video (which, apparently, you didn't like being up there - did you send them a DCMA takedown notice?) - so since you've admitted to this sort of unsubstantiated crap in the past, why should anyone believe you're not doing it now? If you have a hint of intelligence you know that the real story here isn't Subprime - its the ALT-A PayOption ARMs and "Liars Loans" - all of which can potentially be PUT back on the issuer! THAT is something that nobody wants to own. But - we've been through this - see the other posting.
Today I started nibbling on SDS - S&P500 Ultrashort (goes up at twice the rate the S&P goes DOWN.) Why? Well, let's see. DOW at a record, but only due to three components - all financials. Where was the market depth? Missing - that's where. I do not believe this is (yet) time to "buy with both hands", but nibbling here certainly appeared to be prudent - so a nibblin' I went. Protected it with a fairly tight trailing stop.
When you hear that "the subprime thing is contained", you know people are not paying attention. Subprime was not for one second even the first act of this play. Those who believe so are making a really big mistake.
Let me put this graph up again
Note that we broke through the last support level in the mid 82 level. That's gone. Below? A black hole.
Now what can stop this? Only one thing - the Fed. And to do it, the Fed must raise interest rates.
And believe me, this has people nervous. Today, none other than Donald Trump showed up on CNBC to pound the table and basically try to demand that Bernacke cut interest rates, predicting a total bloodbath in the building market if it doesn't happen.
Well, he's right. There will be a bloodbath. But Bernacke cannot cut rates, because the dollar will not stand for it. If he cuts rates then foreigners dump our financial instruments as it will send the dollar down further; that destroys the liquidity that makes the market run and BOOM - its over.
But if he raises rates, the banks, builders and everyone related to either goes in the tank instantly. The consequence of this is a deep and long recession.
If he sits, his operating thesis is that things will smolder but not ignite. I don't think so. When you get to a market - and economy - that is teetering so that either a rate cut or a rate hike would bring it down, you have an unstable situation. Sooner or later the slowdown in the housebuilding market has to hit the consumer. How? Employment - how do you not build homes without everyone from lumber companies to stores like Home Depot and Lowes cutting back?
What unbalances the spinning top and sends it careening across the room, and exactly when does it happen?
I don't know - but when you handcuff the Fed and have an economy that is outside of their comfort zone you're asking for it. And if I had to take a bet one way or another, I'd give it 60/40 odds that Bernacke is forced to raise rates by 50 basis points in the next three to six months in order to defend the dollar.
In order for the Bull's Thesis to hold, you have to figure out how you fix the affordability problem in the house market - and you have to do it soon, because all indications are that the spring selling season is dead and buried before it began. And - the currency problem can't get out of hand. And - consumers can't run out of margin (credit line).
That's a lot of "and"s.
Update: Damnit - or is that "dam it". The cracks may be starting to leak water. As I prepare to go to bed this evening looking at the Asian markets is, well, interesting. If you're into sushi I hope you like it bloody. Shanghi is down 3.19%, Hang Seng down 274, Nikkei down 255, Straits Times down 1.85%. All red, and all nasty.
Catalyst? Maybe it was the Dow hitting a "record close" on only 3 of 30 components, and no transports for confirmation. Or maybe it was the dollar being in the tank. Or both. Or...... as I've noted... maybe, about 4:00 AM local time, the Asians woke up in a cold sweat and said "What the f^$@ am I doing here? I'm gonna lose my AZZ!"
We shall see what the morning brings.....
Final update: Word out there is that the Chinese GDP numbers were due to be released at 10:00 AM local and were delayed to 3:00 PM. Investors took this as a sign that the number would be hot and the central bank there may intend to immediately raise interest rates. This, of course, screws the dollar hard, plays hell with the carry trade, and that translates into a BIG selloff. The dollar is going in the toilet - down 73 pips against the Yen tonight alone, now under 118. If the BOC does hike Bernacke may be forced into a rate increase here. It looks like the screw may be tightening on vise...... maybe a lot. I'm off for the night but intend to be at it early in the AM - it promises to be a bloody day for US equities if there's an overseas rate hike out of China in the wee hours.
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