August 23rd, 2007

Markets ride the Cyclone

Posted in Money by ed

The Cyclone is a famous rickety hair-raising old rollercoaster at the beach on Coney Island. Here in Brooklyn, New York.

The Murdoch Industrials are still down 900 points from their 14,121 high in July, but they’ve been bouncing this week on bits of good news and/or rumor.

Here are three people writing as to why it may not be safe to go back in the water yet:

Yesterday morning: Todd Harrison, a local-legendary trader and founder of Outlines the recent hair-raising news stories.

This morning: Bill Gross, head of the massive bond house in California known by its acronym PIMCO. Gross is certainly one of the most influential people in the bond business. Talks about the crisis of confidence re asset-backed securities and focuses on the mortgage/housing business.

And this morning: David Callaway, editor-in-chief of the very mainstream (part of the Dow Jones media empire soon to be consumed by Rupert Murdoch’s News Corp.). About the recent “injections” (addictive?) of credit by the central banks.

This morning the CEO of the biggest mortgage originator, Countrywide (CFC), said that the $2 billion Bank of America is infusing into his company is very nice and will keep it out of bankruptcy for sure, but will not prevent the housing crash from pulling economy into recession.

A snapshot yesterday from a respected options analyst who writes at Minyanville, John Succo:


What the option market is saying…
11:00:45 AM

There is a huge dichotomy in the marketplace.

On one hand, the market in general is being bid back up while government officials try to reassure investors as to the soundness of the financial system. Some of the same officials that originally didn’t see a problem.

On the other, investors are paying prices in options on bank stocks and other financials that indicate bankruptcy.

We can’t have both.

This is not a “wall of worry”. I have never seen option prices this high in big captitalization financial companies. (emphasis added)

Take what you want from that.

Either the stock market in general is going to correct massively, or the buyers of this protection are really making a mistake.


And finally, from Jumpin’ Jersey Jim Cramer, a relatively CALM assessment of the mortage and housing business, on video.


MY OWN TWO CENTS, based on awareness of how vast the universe of structured finance securities is, and of how confidence in the methodologies used to rate and evaluate them has been shaken, and on watching the mortgage business get dismantled daily, is that the worst is far from over. Recession, asset deflation (houses mostly), prolonged credit contraction. The Dustbowl returneth … But what do I know.

Cyclone sign says, “Hold on to your wigs and car keys!”

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