Market Discussion

[realcoolhead]

Stay tough, David. I still think your 90-91 recession comparision makes a lot of sense.

Let's look at the bright side: when this is over and we enter another bull run, small/micro-cap will lead the market again and hopefully the Main will outperform by a wide margin. 

[kslifka]

I watched Cramer tonight...and his message sent a chill up my spine.  Obviously the credit markets have been in tank...and for good reason.  So in reality...even though the economy is slowing...the real problem is the financial guarantee insurance and possibility of complete credit melt-down.

http://www.cnbc.com/id/22728371

Game Plan: Feds Need to Buy Mortgage Insurers
Posted By:Tom Brennan
Topics:Housing | Mortgages | Stock Market | Stock Picks
Sectors:Financial Services
Companies:Countrywide Financial Corp | Wells Fargo and Co | Bank of America Corp | Wachovia Corp | Merrill Lynch & Co Inc | Washington Mutual Inc | Citigroup Inc | Ambac Financial Group Inc | MGIC Investment Corp | MBIA Inc

U.S. banks are taking a beating in the market because of the billions of dollars in subprime mortgages they have on their books. And with the insurers who backed the loans in danger of going belly up, there doesn't seem to be a bottom for these stocks. If that ever happened, Cramer said, the entire system would collapse dominoes style.

It's his ultimate doomsday scenario, and he fully believes it could happen if the government doesn't act quickly. But instead President Bush announced plans for a stimulus package that would put a small chunk of change into the pockets of American taxpayers. Washington seems to think that consumer spending might be the jumpstart this economy needs.

Live Vote   
   Do you think Cramer's plan to stimulate the economy will work?   
      Yes, it's much better than what the Bush Administration is working on.   
      No. He's got it completely wrong.
      Not sure. I need to wait and see what the government's final plan is and compare the two.
   
Vote to see results   
Live Vote
   Do you think Cramer's plan to stimulate the economy will work?   * 1182 responses   
   Yes, it's much better than what the Bush Administration is working on.
71%
   No. He's got it completely wrong.
17%
   Not sure. I need to wait and see what the government's final plan is and compare the two.
12%
Not a scientific survey. Click to learn more. Results may not total 100% due to rounding.

But Cramer thinks different. And that's why he laid out his Game Plan for saving the U.S. economy Friday.

The government needs to buy these mortgage insurers – MBIA
MBIA Inc
MBI

8.55  -0.67  -7.27%
NYSE
Quote  |  Chart  |  News  |  Profile  |  Add to Watchlist
[MBI  8.55    -0.67  (-7.27%)   ], PGI Group
Premiere Global Services Inc
PGI

11.22  -0.78  -6.5%
NYSE
Quote  |  Chart  |  News  |  Profile  |  Add to Watchlist
[PGI  11.22    -0.78  (-6.5%)   ], MGIC
MGIC Investment Corp
MTG

14.11  0.62  +4.6%
NYSE
Quote  |  Chart  |  News  |  Profile  |  Add to Watchlist
[MTG  14.11    0.62  (+4.6%)   ] and Ambak
AMBAC Financial Group Inc
ABK

6.2  -0.04  -0.64%
NYSE
Quote  |  Chart  |  News  |  Profile  |  Add to Watchlist
[ABK  6.2    -0.04  (-0.64%)   ] – he said. The insurance covering municipal bonds could be sold to Warren Buffett or the highest bidder. Then Washington could guarantee the loans at 50 cents on the dollar. That way, even if all of the whole $500 billion worth defaulted, it would only cost $250 billion to lift the economy out of this rut.

But most likely no more than half of that $500 billion would need to be covered, Cramer said. More important than just the money, though, is that Wall Street would then have the certainty it so desperately needs.

Add a 100 basis-point rate cut to Cramer's plan, and he figures the Dow would add 2,000 points in two weeks. Should Washington choose to accept his mission, it might prevent what he called "the end of the world – or at least another 2,000-point decline in the market, which in my view is about the same thing," he said.

[terainvestment]

Oh Jesus...can anyone tell to Cramer to resign and going spend the rest of his life on a desert island?
when he says buy, the market collpase...when he says sell, the market shoot up.

I made tons of money being contrarian to what that fat pig ;-) says.

ciao from Italy

[capricho]

Cramer is making two valid points which are, first, that a onetime rebate check is not the solution to the long term problems facing the eroding US economy; and second, that a government bailout to the mortgage insurers ala the S&L bailout and the earlier Chrysler bailout will send a signal that Bush & Co. will put their political ideologies aside for the sake of the economy. What is needed right now is a president on the order of FDR who has the political acumen to create a radical and effective government intervention to combat what appears to be a worsening crisis. Cramer's idea, as crazy as it sounds, makes a certain amount of sense but as long as Bush is driven by a political ideology based on the separation of market and state then there can be zero chance of a major government bailout. Handing out rebate checks will be penny wise-pound foolish as it will not solve long term problems to the US economy but instead may contribute to inflationary pressures that can lead the US into a period of stagflation.

[mbaugh]

I watched Cramer tonight...and his message sent a chill up my spine.  Obviously the credit markets have been in tank...and for good reason.  So in reality...even though the economy is slowing...the real problem is the financial guarantee insurance and possibility of complete credit melt-down.

David, I know you said that you weren't going to comment on the general market for now, but with this issue about the financial guarantee insurance meltdown, what's your opinion on this.  If this situation is not addressed, the markets can take a brutal beating from here.

[kslifka]

Here's a more positive article from Barron's Online about the current financial guarantee insurance problems. 

ABK...which seems to me in bigger trouble than MBI...does report earnings Tuesday before the bell. 

http://online.barrons.com/article/SB120071150488302379.html?mod=yahoobarrons&ru=yahoo

[la-onda]

Shadowtrader:
http://www.shadowtrader.net/videos/sunday012008st.html

[la-onda]

Old Fool Notes – 01/20/08

Friday was not a bad day for the bulls but I sure would not call it a good one.  There were, however, a few big buyers that showed their hand a few times during the day.  We have not seen much from the buyers lately and it was good to see some interest.  The volume was high again at 3.0 billion with a ratio of 1.8 to 1 in favor of the bears.  Not very efficient for a 7 point gain.  The bottoming charts are screaming for the bulls to buy.  At the same time, all of the talking heads say we fall off a cliff.  I guess patience is the order of the day.

The daily chart is in terrible shape and is sitting on support at 2350 that dates back to March of last year.  There is not much support between here and 2000 so the bulls better get on the ball.

The hourly chart probably looks worse.  Since Christmas, we have only had about 30 positive trading hours.

The ratio chart suggests that the option boys are getting a little nervous.  We actually had a positive move on Friday.  Keep an eye on this.

The weekly chart also looks horrible and you can clearly see where my earlier support comment comes from.

The Wilshire got hammered significantly worse than the Naz on Friday.  The small guys have a lot of work ahead.

The P&F chart hit its target on Friday.  I would have lost a big bet on making this target.

I picked up a good sized chunk of INTC and a bit of CSCO for the LT port on Friday.  Also picked up some utilities that are paying nice dividends and a few mutual funds.  Just nibbling with the cash I've been stacking up over in the LT port for the past couple of years.  Fear and nasty news will trump TA anytime.  The bottoming charts are as weak as they have been since 2002 – not quite that bad but getting very close.  We will see.

Charts link below.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

[terainvestment]

what do you think about Asia and Europe crashing today?
I just finished to talk with some people working in banks (fund managers, bankers etc)....they said me the bond market is completely destroyed and the institutional investors, also some banks, are at the edge of collapsing.

this situation is a little bit worrying, which are your thoughts?

[mbaugh]

David, what's your take on the futures collaspe?  I'm a nervous wreck right now!!!!!  With the futures down over 400 points, could this be the day all hope is lost and all faith wiped away from the markets and we have a strong reversal back up. 

If something doesn't happen tonight or early tomorrow morning in terms of Big Ben coming forward or the Govt. doing something, we will be in serious pain.

David, I realize you don't have the answers, but you have a way of seeing things that help calm us down. 

[berloga]

I guess we are trying to understand how serious the economic problems really are and what measures will possibly correct this. Contrarian theory is a nice one, but if the market predictably or foreseeably stays depressed for a year or so, we may be -50% before we know it. I think the idea is not to panic but to decide if are are facing a serious down market.

David, should we put some cash into the short funds, like you've done in the past? Perhaps 25% of the entire capital? This way, hopefully the losing stocks will receive a counterweight...

I am nervous just like anybody else, but I would like to first understand why I'd sell all stocks before/if I do that.

[tokyopua]

Ouch, no question about it, tomorrow is going to be ugly.  FTSE100 was down 5.5% and the DAX30 was down 7.2%.  Seems like the average loss for overseas indices was about 5 to 6%, India was down by 7.4%.

Im only 40% invested right now, but this is still gonna be painful to watch, wish I had put on some shorts but hindsight is 20/20 lol, it really didnt seem well advised to short when we were this oversold.


http://biz.yahoo.com/ap/080121/world_markets.html
       
AP
Stock Markets Plunge Worldwide
Monday January 21, 12:45 pm ET
By Toby Anderson, AP Business Writer 
Stocks Plunge Worldwide Amid Pessimism Over US Stimulus Plan


LONDON (AP) -- Stocks fell sharply worldwide Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.
U.S. markets were closed for Martin Luther King Jr. Day, but the downbeat mood from last week's market declines there circled through Europe, Asia and the Americas. Britain's benchmark FTSE-100 slumped 5.5 percent to 5,578.20, France's CAC-40 Index tumbled 6.8 percent to 4,744.15, and Germany's blue-chip DAX 30 plunged 7.2 percent to 6,790.19.


In Asia, India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Canadian stocks fell as well, with the S&P/TSX composite index on the Toronto Stock Exchange down 4 percent in early afternoon trading. In Brazil, stocks plunged 6.9 percent on the main index of Sao Paulo's Bovespa exchange.

Investors dumped shares because they were skeptical that an economic stimulus plan President Bush announced Friday would shore up the economy that has been battered by problems in its housing and credit markets. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

"We've taken our lead from the Asian markets who have not been impressed by the U.S. There's debate if there's going to be a recession in the U.S. I don't think there's much chance of that though," said Richard Hunter an analyst at Hargreaves Lansdown Stockbrokers Ltd. in London.

Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region's markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4 percent.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

Japan's benchmark Nikkei 225 index slid 3.9 percent to close at 13,325.94 points, its lowest close in more than two years. China's Shanghai Composite index plunged 5.1 percent, partly on worries about mainland Chinese banks' exposure to risky U.S. mortgage investments.

"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said. "I think the impact would be marginal anyway."

Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5 percent to 12,099.30, bringing its loss for the year so far to nearly 9 percent.

Traders also have shrugged off assurances from Federal Reserve Chairman Ben Bernanke that the U.S. central bank is ready to act aggressively -- which means a likely big interest rate cut later this month -- to help the sagging economy.

Some analysts predict that Asia won't suffer dramatically from a U.S. recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past. Excluding Japan, 43 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37 percent in 1995.

But on Monday, uncertainty and pessimism reigned.

In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar. Toyota Motor Corp. lost 3.3 percent and Honda Motor Co. sank 3.4 percent.

Shares of Bank of China dropped 6.4 percent in Hong Kong after the South China Morning Post newspaper reported that the bank is expected to announce a "significant write-down" in U.S. subprime mortgage securities, citing unidentified sources. In Shanghai, the bank's stock declined 4.1 percent.

India's the benchmark Sensex index fell 1,353 points, or 7.4 percent -- its second-biggest percentage drop ever -- to 17,605.35 points. At one point, it was down nearly 11 percent.

The decline hit companies across the board, with power utility Reliance Energy Ltd. falling 16.4 percent. Major software company Tata Consultancy Services Ltd. slid 7.6 percent

"A gloomy U.S. climate has affected the global markets. Even if those markets recover, it will take sometime for the recovery to reach India because today's fall has been so drastic," said Jayant Pai, of the Mumbai investment company IL&FS Ltd.

Still, Pai and others suggested that the declines could lead to a buying opportunity.

"The sell-off today takes us close to the bottom," she said.

Since the start of the year, Japan's Nikkei index has declined 13 percent, while Hong Kong's blue-chip index is down more than 14 percent. Even China's Shanghai index -- which nearly doubled last year -- has fallen 6.6 percent over the same period and nearly 20 percent from its all-time closing high on Oct. 16.

[tokyopua]

If ever there was a good time for the Fed to come in with a rate cut before their scheduled meeting, now would be the time!  Anything above 50 basis points tomorrow could help, and a full percentage rate cut could actually neutralize or even rally the market.  Doubt it will happen, but thats our best hope for tomorrow at this point.

[capricho]

Bernanke is being overly cautious in lowering rates since despite what he has publicly stated he is fearful that a significant cut or series of cuts will fuel inflation and possibly lead to a worse recession to come. At this point I'm convinced the US economy is heading to a stagflation period and there's little the Fed can do about it.

[David Randolph]

All stock markets of the World slumped yesterday (or should I say "crashed"?) while the US was enjoying a market holiday. US stocks trading was closed, but the futures were open and at this time of the day the scenario looks like this:



So, I was wrong when calling a bottom in the $135 area. The market decisively broke down, it wasn't just a trap to capture the weak hands as I figured. I should have acknowledged that the problems were far too serious for we to get away with "just" a 10-15% top to bottom decline on the SPY.

Now, and because I remain optimistic about the long term outlook for the stock market, I find two occasions in history which mat resemble what we'll have now: The 1987 crash and the 1990/91 recession:



In 1987 the market went down 36% from top to bottom and it took 23 months to reach a new all time high (counting from the previous high).

In 1990 the market fell 19.8% from top to bottom and it took 7 months to reach a new all time high.

I say the economic and market situation resembles 1990 more than 1987. Prior to the October 1987 crash there was a steep rise with plenty of public participation ... most people were feeling optimistic about the economy, which certainly isn't the case now. In 1990, the banks were in trouble and unemployment was rising ... people were pessimistic when regarding the economy, like we have now.

As I see the futures now, the SPY will open at around $126, which means a 20% top to bottom decline, like we've had in 1990. By the way, back then the decline phase also lasted about 4 months.

The S&P 500 will open down 4.5% today and it will probably go even lower during the session, it's going to be Hell on Earth. Many stocks, probably with some of the Main included, will nose dive 10-20%. But when you ask me if this is a good time to sell or buy some downside protection I say that I feel it is too late now. I can be wrong again, but since I remain a long term bull and the market is already down 20% from the top, I figure we're close to the bottom.

If the scenario plays out like in 1990, 4 to 5 months from now we'll be at new all time highs, can you believe it? Probably not, I find it hard to believe myself.

Anyway, I want and need to keep focused on the businesses that are represented by the stocks I own. And those won't shut doors or anything like that, people will continue to go to work everyday and create value.

I'm going to write some follow up analysis now. I may even buy the remaining 6.3% of capital in a stock that I've been watching and probably it will trade down to my buying zone today. You know that one well.

I wish you have a nice day today, despite the losses in the stock market. It's just money and that is made over the long run, not by betting in short term fluctuations.