Yesterday the durables report came in better than expected, but the pump that produced bled off within the first half-hour - before the market opened.
However, that was not to last. Within the first 30 minutes the market began a relentless rise higher, powered by an invisible force, as if someone has lit a rocket under its butt.
Now let's review for a minute the backdrop here.
There is a hurricane, Gustav, that all major global models predict will enter the Gulf of Mexico this coming weekend, strengthen to at least a Cat 3, and, with a high degree of probability, threaten gas and oil production facilities. UNG, USO and others traded higher on this news (as expected.) High oil prices are usually bad for stocks.
Treasury was auctioning a metric ton of 2-year notes today, which of course withdraws liquidity from the system (you have to pay for those notes in money, you see), which is a net negative, most of the time, for stocks.
And while durables were good, the report was shrugged off within minutes.
So what lit the fuse?
A rumor that Treasury would be "making an announcement" on the GSEs.
CNBC took the extraordinary step of discrediting this rumor - Steve Liesman actually did something honorable today, the first time I've ever seen CNBC do so.
They called Treasury, got a categorical denial, and led with it.
This is the first time I have ever seen CNBC do this on anything approaching a contemporary basis, albeit it was after the ramp job was mostly complete.
Did the ramp go away? Not really. The market probably continued to believe the rumor. After all, has CNBC not been the chief disseminator of rumors for months, including the incessant MBI/Ambac games of months ago? Yep.
Anyway, after the market closed we got the actual truth - Fannie has several top executives leaving, specifically, their CFO, Business and Risk Managers.
"Fannie Mae Chief Executive Officer Daniel Mudd replaced three top managers at the beleaguered mortgage-finance provider as the company struggles to convince investors it has enough capital to weather the housing slump.
Financial chief Stephen Swad, 47, Chief Business Officer Robert Levin, 52, and head of risk management Enrico Dallavecchia, 46, will all leave, according to a statement today by the Washington-based company."
Now folks, you can talk to virtually anyone in the market relating to financial investments and firms. You can read any one of dozens of books. They will all tell you the same thing - when the CFO of a financial company leaves in a situation like this sell any long position you hold and consider going short - to zero.
So why not release this news once the rumor started circulating?
Well, we know the reason for that.
But more importantly - was this rumor intentionally started and circulated so as to prevent the setup for a potentially stunning drop in the market has the truth leaked during the day, and to try to defuse the expected reaction tomorrow?
So Chris Cox, inquiring minds want to know - where are the subpoenas? Where are the investigations? Where are the lawsuits? Fannie was up fifteen percent today, partly on the strength of this rumor. In fact, you can see plenty of price action today that strongly suggests that a lot of the activity in the stock could be directly linked to that.
Certainly, the broader market moved based on this rumor.
And now we know it was absolutely without factual foundation.
So Chris Cox, show us what you got! Issue some subpoenas. Start with Treasury, Freddie, Fannie, and half the traders on the floor in Chicago. Find the jackasses who did this, trace the source (which I bet leads straight to someone who was long futures this morning on that durables release and saw their profit bleeding off, like perhaps an investment bank prop desk?) and drag a few people out in chains and handcuffs.
Just once, enforce the damn law.
Just once, go after someone "big".
Just once, show us that the investment banks, brokers and hedge funds can't get away with running a pair of stocks fifteen to twenty percent in one day on the back of a false rumor and get away with it.
JUST ONCE CHRIS.
I know, it won't happen. That's because neither you, CNBC, Bloomberg or anyone else are interested in an actual level playing field in the markets. You are not interested in people being able to invest and trade with the confidence that our markets are transparent rather than rigged. You have zero interest in whether or not a stock is trading on the fundamentals or even sentiment - no, trading on the "crackberry" is better, and as long as the direction of the move is upward, its all ok.
Never mind that it is the retail bagholder who gets screwed by those events, as he is inevitably the guy or gal who sees the strong move, buys into it, and then it turns out to be total rubbish, costing them 10, 20, 30% or even all of their investment.
But this doesn't matter to you, right Chris?
Just so long as stocks go up, right Chris, even if the means by which they go up is felonious? Just like all the felonious mortgage originations that are still going on? They were all ok as long as they made house prices go up right Chris?
I know, that's not your department, but isn't it all of the same piece?
Screw the American People so "the big and the powerful" can steal from them...... kinda like Citibank "sweeping" credit card excess balances, right?
Is our entire financial system one big ball of fraud?
In other actual news Moody's announced that it is going to review ALL2006 and 2007 Jumbo Mortgage bonds:
"Moody's is studying its rankings on the securities after late payments started increasing more quickly in recent months, according to a statement today from the New York-based ratings company. The bonds aren't all under formal reviews for downgrades, said Thomas Lemmon, a spokesman.
Defaults among homeowners ``across the credit spectrum'' have soared as home prices slump, mortgage rates rise and lenders rein in debt offerings, Moody's said. ``Serious delinquencies'' for prime-jumbo loans in securities rose 72 percent between January and June to 1.7 percent of balances, from 1 percent, according to Moody's. "
This is all that so-called "prime" paper, which normally has a default rate of about 1%. Suddenly, it is defaulting at a rate of nearly double that.
Its nice to know that you can get to 72% higher default rates before a ratings agency will "review" its criteria for these instruments, never mind think about downgrading some of them. Who knows when that will happen.
But heh, everything is all right, yes?
Now here's the next nice tidbit, which went unreported in the mainstream media:
"Wednesday morning, the Department of Labor released its report on metropolitan area employment in the month of July, showing that unemployment continued to increase in a vast majority of the nation's metropolitan areas.
The Labor Department said that unemployment rates showed annual growth in 338 of the 369 metropolitan areas in July, while unemployment was lower in 25 areas and unchanged in 6 areas."
Nothing like refusing to report anything that isn't good, eh?
This morning Harvey Rosenblum of the Dallas Fed (Executive VP) said something on CNBC that truly astounded me - The Federal Reserve is in business to create Moral Hazard. (watch his comments)
Now let's think about this for a minute, and go back to a relatively simple example - a lender makes a mortgage loan to a person who is unqualified, on an objective basis, to pay that mortgage down to completion and take clean title to the house.
Now realize that when a bad loan is made the loss happens at that point in time. Just like a stock you buy that immediately implodes the indisputable fact is that loss has occurred, and we are reduced to arguing over who gets to eat it and when we admit to it.
So if The Fed is in fact "in the business of moral hazard", then we have just had The Dallas Fed admit a truth that is in fact quite uncomfortable for anyone who has a brain and is willing to use it - The Federal Reserve, as a consequence of how its mission is defined and how it chooses to discharge that mission, shifts costs and losses away from those people responsible for them and onto those people who have been and are prudent - that is, the American Public at large.
In short, what Rosenblum admitted - on national television - is that The Fed as currently constituted and operated exists to rob the taxpaying public to cover the losses of wealthy investment and commercial bankers, allowing them to take risks that they would never take were they instead forced to operate in a prudent fashion.
Are you, America, going to allow this?
When do you finally wake up and realize that the Federal Reserve is in fact in business to rob you, and the Dallas Fed's VP just admitted the truth on national television!
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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