Saturday, October 25, 2008

Phew, That Was Close

We almost had a bad day yesterday, but with the market down a mere 300 points, we escaped disaster. So what if gains from Monday's 400-point open were eliminated and then stomped on, so what if the NASDAQ plunged below 2003 levels? It could've been worse right?

S&P's chief economist, Sam Stovall, doesn't think things can get much worse. He puts a floor on the S&P at 700, just 175 points below yesterday's close. That's only another 20%! Thanks, Sam. So on top of the 40% we just lost, it can only get 20% worse from here. I'm going to load up on calls immediately.

Retail numbers continue to be horrible, and projections for Christmas remain way too optimistic. Where the year-over-year gain of 2.2% is supposed to come from, I have no idea. This is a "safe" number, a 50% decrease from normal holiday season but not reflective of true economic conditions. "In fact, consumers spent less in every category than they did a year earlier, according to September data from MasterCard Advisors. Shoppers spent 5.5% less on apparel, 13.3% less on furniture and 13.8% less on electronics and appliances." "Consumers are bracing for recession," Ken Perkins, the president of Retail Metrics, said in a report Oct. 9. "Credit will continue to be very difficult to come by through the holiday shopping season, and the jobs market is likely to further deteriorate."

Homebuilders imploded this week. Finally, the market seems reluctant to accept decreasing sales, huge losses, and diminishing revolvers that could get margin calls at any time. This is why we loaded up on Ryland 4/09 puts this week. After their $65 million loss, their revolver is left with less than $200 million dollars. Now competing with huge foreclosure rates (the only reason sales increased last month was the abysmally low prices for distressed homes), where are the new sales going to come from? Vicki Bryan, senior high-yield analyst at bond research firm Gimme Credit said, "Global financial market mayhem and grim economic and housing market data painted the prospect that housing markets may not recover for years. Actually, the housing market will be hard-pressed to recover over the next couple of years even if the economy is stable," the analyst wrote in a client note Friday. "Lending standards for mortgages continue to tighten and mortgage foreclosures are at record levels," Bryan added." Ugly.

So, I continue to stress that things can always get worse. I have no belief in testing lows or market bottoms. I just think things can get bad in a hurry, especially if unemployment jumps. Argentina, Hungary, and Iceland almost went bankrupt this week. Be patient if you're thingking about going long over the next few weeks.


DCNorth said...

Interesting. Was reading Reggie Middleton and he was talking about how the actual organic growth (a legitimate seller and buyer and not a foreclosed property) is somewhere north of comatose! Builders are trying to stay alive for godsakes!

Ax, stop paying your mortgage! Time to get rewarded for being stupid!...haha. Ridiculous really.

DCNorth said...

Hello Ax,

I was also hoping that the market was going to jump a lot more than it did today. I nice euphoric rush that the interest rate cut will lull everyone into thinking that everything is alright with the world and we hold hands and sing Cumbaya...haha.

AX said...

President of Vornadao said the same thing, DC, gonna get rough in CRE. WSM took the big dump today and should only get worse. Was hoping ETH would get up to $22, but never made it. Hope all is well.