Friday, February 16, 2007

Mid Afternoon Musings

I'm back from early day running around.

Dow dip of just a tenth of a percent is decent considering another day of bad economic news. It does seem as if those matters of the dismal science just don't matter much these days - things like falling real estate construction, foreign capital outflows, weak consumer confidence, etc. Though it maybe it's not that one cares but that expectations are brewing that the Fed will come to the rescue with an interest rate cut sooner than many think? 10 year t-note up 5 ticks today, bring the yield down to 4.69%. Whatever the reason for the market's non reaction and complacency (VIX stuck down near 10) to some pretty big negatives in the economy, the resilience of the bulls is nothing short of stupendous with the Dow regularly hitting all time highs and the S&P 500 getting closer to lifetime highs again as well. And perhaps as Zen Trader has thoerized there may be a lot more to go.

I've covered markets since 1981 and still remember going on air in 1982 with the breaking news of Dow-1000 finally being broken for good. Skepticism about the Dow's level even then was easy to find. That's why I keep an open mind on this stuff. There are so many reasons why the stock market should be gettng hammered hard right now, but the market is now only a few hundred points from Dow 13k. so while I'm well aware of the copious warning signs, I still find the evidence Zen is presenting as compelling and worth considering. It pays to be skeptical, don't get me wrong on that, but I still have fond memories of talking heads on FNN in 1989 predicting a triple digit Dow. Just recently at my parent's house I found an old Bob Prechter magazine pretty much predicting the end of the stock market in 1992 to coincide with the ending of some grand super-cycle bull phase started in 1792 that was supposed to come to an end. It was fun reading. He pulled out all the stops, even examining fashion trends, etc.

The point is, it is one thing to be skeptical, but quite another to actually short the market too early, or even just stay away from the market and miss the opportunity to build portfolio gains. And mind you, we're not talking internet, or concept stocks in the Dow, we're talking names like Boeing, UTX, etc that have brought on huge returns since the market rebounded last year. When the right time comes to short the stock market, it will be the opportunity of a lifetime, now isn't that time yet but let's hope we can figure out when that time is a little bit ahead of the crowd.

OEX expiration and sell program troubles for the bulls would kick in if OEX fell to 665 or below... still seems comfortably above that mark.

A variety of subprime stocks are on the rise today, including LEND and NFI with 2% gains and NFI with a 4% rally. Here's a few grafs from a Dow Jones story:
NEW YORK (Dow Jones)--The poor performance of subprime mortgage loans,especially those made in 2006, will not have a major fallout in the rest of the capital market, analysts at Goldman Sachs said in a conference call Friday.The total amount of likely losses in the subprime sector is "unlikely to holdmajor risk to capital markets in general," said Jan Hatzius, an analyst with Goldman Sachs.That's because the size of the subprime market is very small compared to thesize of the much larger capital market, he said.For instance, an estimated $290 billion worth of foreclosures would add up to just 1.6% of the total market capitalization of the equities market, Hatziussaid.Also, the deterioration in the subprime market has not spread to other assetclasses, like autos and credit cards. "Overall credit card charge-offs are at historic lows," said Mike Swenson, one of the Goldman analysts participating inthe call.

Can you believe they would forget to leave out the impact of swap derivatives tied to all that subprime mortgage paper?

Mark next Wednesday on your calendar. It's AT&T vs Microsoft in the U.S. Supreme Court.

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