The Wheel that Squeaks Gets the Grease

By The Greek:

Mamma Greek always says, "the wheel that squeaks gets the grease." So forgive us for perhaps over-squeaking this morning.

(Article interests NYSE: XLF, NYSE: TOL, NYSE: HOV, NYSE: LEN, NYSE: NYX, Nasdaq: QQQQ, AMEX: QLD, AMEX: DIA, AMEX: DOG, AMEX: SDS, AMEX: SPY.)

Your favorite Greek's mother has been preaching incessantly to me and the rest of my siblings about the need to make sure others are aware of your efforts and achievements. This theory does not match up with humble standards set by even higher authorities, but don't tell Mamma.

This morning, we received enough confirmation of our prescience to proclaim ourselves perhaps the next Nostradamus. Really, it's scary. We're referring to much of our commentary within our "Week Ahead" piece this week, which was entitled "Another Bank Bites the Dust."

Without a doubt, the most important prediction this week was this one, "Have you noticed that nobody looked toward the Fed during the most recent financial sector debacles, whereas in the past the Fed was on the hook to cut rates or be cut itself. Despite crashing commodity prices, the market has now accepted inflation risk and a 2% Fed Funds rate. Also, with the government take-over of Fannie and Freddie, mortgage rates have backed up, so why would the central bank risk fueling inflation concerns now. Therefore, there is good reason for the Fed to resist a rate cut on Tuesday at its scheduled FOMC meeting. Rates are accommodating already, and the dollar is strengthening. Despite some frantic and naive voices finding microphones on Monday morning, we expect the Fed to hold rates steady on Tuesday." The Fed kept rates steady yesterday, despite Treasuries pricing in a likelihood of it.

Housing Starts Soften

August Housing Starts were reported this morning running at the slowest annual pace since 1991, right around the "Saddam Sell-off," as Peter Lynch likes to term it. Starts were running at an annual pace of 895,000, comparing against the consensus view for 950K. Permits were even worse, running at a very weak 854K. However, if you read "The Greek's Week Ahead" you were not at all caught offguard today. We wrote, "This data could support the case against home builders, built from the previous day's measure of builder sentiment."

The day earlier Housing Market Index actually improved a couple points, to a still meager 18, from 16 in August. That poor August report offered nice insight into the starts data. More importantly, we've been pointing toward the housing stocks potentially giving back some recent profits, and they have this week. We said, "In the early afternoon, the National Association of Home Builders will publish its Housing Market Index. Housing stocks like Toll Brothers (NYSE: TOL), Hovnanian (NYSE: HOV), Lennar (NYSE: LEN) and others have benefited recently as capital flows have found beaten down cyclical names, or those outside of the financial sector for obvious reasons. However, this report could give investors some reason to cash in. At the same time, value seekers may find opportunity to take early long-term stakes as a result. Our favorite has always been TOL, and we're pleased with the league leading stock chart as a result."

Mortgage Bankers Association - Mortgage Activity Report

We said, "Look for the regular Mortgage Bankers Association take of mortgage activity to show a pickup on recently lower mortgage rates." This morning's report from the MBA offered news of just that. In the week ended September 12, the MBA's Market Composite Index showed a mortgage activity pick-up of 33.4%, driven by the Refinance Index's jump of 88.1%. The MBA offered as reasoning, the dramatic decrease in mortgage rates following the conservatorship of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

Morgan Stanley (NYSE: MS)

A very nervous Morgan Stanley reported earnings last night, two days ahead of schedule. MS management did so for good reason; financial market pressures played a significant role in undoing MS peers Bear Stearns (NYSE: JPM) and now Lehman Brothers (NYSE: LEH), which we should now refer to as Barclay's (NYSE: BCS). Barclay's is satisfying its hunger by picking up still edible pieces of Lehman sort of like City Harvest picks up untouched food from restaurants and feeds the homeless.

Our week ahead piece told you to expect MS shares to move exactly as they have, and we suspect you could make money on that kind of advice... Specifically, we wrote, "Watch out, one of few Wall Street survivors, Morgan Stanley (NYSE: MS) is due to report earnings on Thursday. We expect the shares will back up into the report, so if the news is not so bad, you might even get a pop here." As far as backing up, Morgan Stanley (NYSE: MS) shed 23% of its value from Friday's close through Tuesday's. The stock was positive in the aftermarket last night, but bad news folks, indiscriminate selling and the fact that the actual report did not appease the market had the sharks are circling. MS is down about 14% as of 9:50 this morning. Even so, MS beat estimates and saw at least one analyst raise estimates this morning.

Reuters reported that the company is seeking a merger, which sounds similar to Merrill Lynch's (NYSE: MER) move with Bank of America (NYSE: BAC). Such talk lends to market fears though. The good news for MS and all investors is that the SEC is expanding the naked shorting rule to all stocks. Expect a major pop now in the market. I cannot understate the importance of this move.

Folks, after a cheery thanks to Mamma for the advice, we're cutting this article short to write another very critical piece immediately. Please see our disclosure at the Wall Street Greek website.