Today's Greek Coffee - For Whom the Market Bell Tolls
In Greece, old souls like myself like to drink a Greek coffee in the afternoon, after siesta. It helps drive the passion that drives them to squeeze the lemon of life for all the juice it has.
It's become clear that the tone of the second quarter's earnings season is much different than that of the first. In Q1, the key driver of stocks was the strong earnings reports from the large-cap multinationals. This time around, Caterpillar (NYSE: CAT) and others ran up ahead of their reports only to surprise the market with weak results, some of them anyway. It may be time to pay the piper for CAT, or at least take profits! Heck, investors couldn't even count on the mystical earnings magic of Google (Nasdaq: GOOG) this time around.
Subprime mortgage woes are nothing new at this point, but Tuesday's report from Countrywide Financial (NYSE: CFC) still shook the market. As I sat and watched the company's well-bronzed CEO speak on CNBC after Q1, talking about the opportunity before his firm as weaker competitors disappeared, I thought for sure the guy had spent the last three months on a Mediterranean beach, where I know from experience that the troubles of the world have a way of evaporating in the sunlight. But the market bought into his argument back then. In fact, it bought into the arguments of many who charged the woes of subprime were contained, including Fed Chief Ben Bernanke. The problem was not that subprime issues would spread, though they have spread to the owners of mortgage-backed securities that have since been marked down. But that wasn't it. For prime borrowers, it was more an issue of the same set of factors impacting another set of borrowers. Sure, it should take a little longer, but we all know Americans do not live within their means, not even prime borrowers. Wait until unemployment increases; then we would really see some blood on the street.
I think back to January when I was out on a limb arguing that the housing market was headed for a double dip. My loyal readers and I felt like crazy-eyed preachers on the corner of 42nd and 8th screaming "the end is near!" That's how far the herd had drifted from reality. Now everyone is screaming, "the end is here!"; everyone that is, except us. No, we're busy looking ahead.
On Tuesday, Countrywide Financial reported earnings and promptly dropped some extra weight, losing 10.5% in a hurry. Angelo Mozilo, the company's CEO stated that prime home equity borrowers were behind his company's troubles. Prime, subprime, what's the difference anymore?! It seems Moody's (NYSE: MCO) and Standard & Poor's weren't sure, having only recently downgraded a good bit of debt and announcing that their models needed to be updated to reflect a higher level of corrupt mortgage brokerage activity in the modern marketplace. No kidding! As a result of today's news, Tuesday's biggest losers were led by lenders Fremont General Corp. (NYSE: FMT) (-18%), Accredited Home Lenders (Nasdaq: LEND) (-15%) and IndyMac Bancorp (NYSE: IMB) (-5.4%).
I will try to say this as humbly as I can now... HELLO!!! Late last year I was talking about the very same excesses that are a notorious yet common commodity for market bubbles. So, how could the Greek know it, and the models of the most important rating agencies not? Sometimes human logic is lost you see, usually when you become comfortable with models and the daily routine. This is why we say financial market navigation requires a bit of science and a bit of art. Still, nothing bothers me more than incompetence, and its common place in our society. Why must things first explode for people to notice there's a problem? We should be better than that.
So the new concern that the prime market might have caught the contagion troubling subprime is now frightening the talking heads, or headless chickens. They're concerned it might dry liquidity and cause risk spreads to widen in the credit market. That means, say goodbye to your little private equity premium friend. If that happens folks, then stocks have to give back some ground.
It was only a few months ago that we anxiously awaited Monday morning for the latest round of private equity buyouts, and began anticipating what might go private the following week. Please refer to our article from weeks ago, "The Greek's Week Ahead - When the Liquidity Dries" for some detail as to what might happen next. And I quote, "Liquidity, now as abundant as Chinese investors, may soon face drought conditions. I'm positively certain this argument will find criticism, sort of like how global warming does, and I'm absolutely sure people will forget I mentioned it when they can't find buyers for their Dow shares down the road."
Thank you for your interest. We hope you will continue to support our advertisers and tell your friends about the Wall Street Greek. (disclosure)
It's become clear that the tone of the second quarter's earnings season is much different than that of the first. In Q1, the key driver of stocks was the strong earnings reports from the large-cap multinationals. This time around, Caterpillar (NYSE: CAT) and others ran up ahead of their reports only to surprise the market with weak results, some of them anyway. It may be time to pay the piper for CAT, or at least take profits! Heck, investors couldn't even count on the mystical earnings magic of Google (Nasdaq: GOOG) this time around.
Subprime mortgage woes are nothing new at this point, but Tuesday's report from Countrywide Financial (NYSE: CFC) still shook the market. As I sat and watched the company's well-bronzed CEO speak on CNBC after Q1, talking about the opportunity before his firm as weaker competitors disappeared, I thought for sure the guy had spent the last three months on a Mediterranean beach, where I know from experience that the troubles of the world have a way of evaporating in the sunlight. But the market bought into his argument back then. In fact, it bought into the arguments of many who charged the woes of subprime were contained, including Fed Chief Ben Bernanke. The problem was not that subprime issues would spread, though they have spread to the owners of mortgage-backed securities that have since been marked down. But that wasn't it. For prime borrowers, it was more an issue of the same set of factors impacting another set of borrowers. Sure, it should take a little longer, but we all know Americans do not live within their means, not even prime borrowers. Wait until unemployment increases; then we would really see some blood on the street.
I think back to January when I was out on a limb arguing that the housing market was headed for a double dip. My loyal readers and I felt like crazy-eyed preachers on the corner of 42nd and 8th screaming "the end is near!" That's how far the herd had drifted from reality. Now everyone is screaming, "the end is here!"; everyone that is, except us. No, we're busy looking ahead.
On Tuesday, Countrywide Financial reported earnings and promptly dropped some extra weight, losing 10.5% in a hurry. Angelo Mozilo, the company's CEO stated that prime home equity borrowers were behind his company's troubles. Prime, subprime, what's the difference anymore?! It seems Moody's (NYSE: MCO) and Standard & Poor's weren't sure, having only recently downgraded a good bit of debt and announcing that their models needed to be updated to reflect a higher level of corrupt mortgage brokerage activity in the modern marketplace. No kidding! As a result of today's news, Tuesday's biggest losers were led by lenders Fremont General Corp. (NYSE: FMT) (-18%), Accredited Home Lenders (Nasdaq: LEND) (-15%) and IndyMac Bancorp (NYSE: IMB) (-5.4%).
I will try to say this as humbly as I can now... HELLO!!! Late last year I was talking about the very same excesses that are a notorious yet common commodity for market bubbles. So, how could the Greek know it, and the models of the most important rating agencies not? Sometimes human logic is lost you see, usually when you become comfortable with models and the daily routine. This is why we say financial market navigation requires a bit of science and a bit of art. Still, nothing bothers me more than incompetence, and its common place in our society. Why must things first explode for people to notice there's a problem? We should be better than that.
So the new concern that the prime market might have caught the contagion troubling subprime is now frightening the talking heads, or headless chickens. They're concerned it might dry liquidity and cause risk spreads to widen in the credit market. That means, say goodbye to your little private equity premium friend. If that happens folks, then stocks have to give back some ground.
It was only a few months ago that we anxiously awaited Monday morning for the latest round of private equity buyouts, and began anticipating what might go private the following week. Please refer to our article from weeks ago, "The Greek's Week Ahead - When the Liquidity Dries" for some detail as to what might happen next. And I quote, "Liquidity, now as abundant as Chinese investors, may soon face drought conditions. I'm positively certain this argument will find criticism, sort of like how global warming does, and I'm absolutely sure people will forget I mentioned it when they can't find buyers for their Dow shares down the road."
Thank you for your interest. We hope you will continue to support our advertisers and tell your friends about the Wall Street Greek. (disclosure)
posted by The Greek | 10:54 PM
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