Tuesday, August 21, 2007

Dow Down 30, S&P Up 1

More backing and filling, it's as simple as that amid guessing over what Warren Buffet might buy, or what the Fed will do next as the asset backed commercial paper market remains seized.

A few positives for stocks included: a bit more nibbling in the financials and continuing interest in tech.

The T-bills surge started to slow today and we'll have to see if that means the 'constipated owl' is starting to get regular again (ie. parts of the credit market unfreezing). I would be inclined to think that a 200 basis point drop in short end t-bill yields doesn't portend good things ahead. That type of near unprecedented capital flight doesn't happen without consequences to wherever that money came from.

Best place to pay closest attention to: the conduit -- or ABCP (asset-backed commercial paper) market. DJ Despite Fed Efforts, Asset-Backed CP Market Still Not Working

A note about foreclosures. This AP story was merely a regurgitation of numbers with little critical thinking.: U.S. Home Foreclosures Jump Sharply in July, Up 9 Percent From June.

Yes, we know foreclosures are going up. Sure it's neat to sensationalize and say foreclosures were up 90% year over year, but the real story is that run rate of 180,000 a month growing at 9 percent sequentially. That translates into significant annual numbers, with no let up in sight as 2005 ARMS continue to reset.

But even if annualized thinking doesn't float your boat, the other major concern with this data is that 180k a month and growing foreclosure activity, while fairly small in the grand scheme of things, has sure led to a gargantuan reaction in the credit markets as the impact of leveraged financial products behind those defaulted mortgages has magnified the intensity of the foreclosures by up to multiples of 10. Who needs fear mongering when you have this levered reality to contend with which has already forced the Fed's hand? Ah so.

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