Busy morning ahead so just a short post.According to this, the Lone Star purchase of Accredited Home Lenders is off. I don't know if it true because all I could find on Yahoo Finance was a couple of articles saying the deal was in trouble.
There is precedent for concern in the market when deals get canceled. Since all things sub prime are such a mess now though I am not sure that this deal falling through (if that is what has happened) could make it worse but we'll know soon enough.
The special on Fox News yesterday, this Ben Stein article and other places try to offer solace by saying how few sub prime mortgages there are and how few of them are in trouble. Unfortunately for the markets that isn't the aspect of this that matters. What does matter, IMO, is how the risk is concentrated amongst the holders of this debt.
While I don't think this is the end of world it may not be the end of the selling either.
9 comments:
AFAIK the Lone Star/Accredited deal is off but the rumour mill has made LEND one of my more troublesome (and expensive) shorts so I'm neither dancing a jig nor singing a dirge at this point.
It is not the end of selling but the big infusion of cash last week will probably make everyone high for a few days at least.
Off to SmellA to visit relatives; don't let the markets fall overboard.
Lot's of bearish thoughts. Here is a link to an interesting bullish post by Bill Cara:
http://www.billcara.com/archives/2007/08/saturdays_commentary_chat_0811.html#more
He follows this up with a more recent post opining that the bull will be around until mid-Oct. Food for thought. JCarr
JCarr. what's your take about cara being "all over the map", i kind of think that he is, i never know if he's talking to traders or folks like most here who are not, hard guy to interpret, as straighforward as he is in the post about the bull he also adds
"Until then, I expect more of the same wildly gyrating market action. " He strikes me as someone who is truly gifted but one has to expect a lot of confusion and obstinate ego along the way. Ironically, Roger does not live up to his blog as being "random." In the midst of chaos I find his repetition and contained ambition reassuring. Maybe it's good for blog readers to gossip about their favorite blogs. LOL, which i'm never sure what this overused tag means.
"rally this week? can I ask if you are factoring in the Fannie news?"
Roger,
Goog follow up question.
Actually No I did not factor in Fannie news and I did not factor in Accredited Home Lenders either apparently.
None the less I'm sticking to my prediction but thinking monday could get a little bit rough.
Sentiment is low and I am one who believes professional traders can manipulate the market in the short run. Kinda like trying to make all those puts as close to worthless as possible at options expiration. Yes sometimes they fail, but I think they succeed a whole heck of a lot.
However, the Fannie news and Accredited Home Lenders news makes me even more convinced this decline will be deeper and longer than I expected, but You have to expect powerful rallies to rattle the bears as well.
You just have to expect Mr. Market will try to confound and emotionally destroy all traders and then do your best to stay rational and focussed.
That is why i is best to just buy and hold most of the time. However once or twice a decade buy and hold does not work so well and I think we are beginning one of those times.
I expect a 5-9% snapback rally up move by end of month.
disclosure- long on margin
tomk, how's your sentiment model working out?
I have a lot of respect for Ben Stein, but he does not recognize the extent of this problem yet.
It is not just subprime but also Alt A which roughly doubles the size of the problem. Junk bonds for corporate take overs etc also need to get added to the mix - another increase.
this causes a more significant credit crunch. Ben is thinking about the relative size of the problem which is a second big mistake (first was under estimating the problem). It is always the second derivative that affects stock prices. It is not the growth a company experiences , but the CHANGE in the growth rate that matters.
This credit crunch will change the second derivative from positive to negative. That is a big difference.
For you nonmathematicians it is like being on a ferris wheel. If at the 11 o'clock position and you are headed higher thinks look phenomenal. But when you are at the one o'clock position things still look phenomenal which is what fools many people. But now you are headed down.
You always need to consider the second derivative with stocks. Unfortunately this credit crunch has caused the second derivative to go negative and this will not change any time soon.
There is uncertainty in the markets, which will lead to more selling. I still say Dow 12400-12600.
No problem, just ride it out or go cash. Have a plan.
Harry Browne said it best in 1981:
"If you have opinions about the future you should act on them. But it's a mistake to confuse opinions with knowledge".
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