Reference the home mortgages and financial companies, the following comes via Bill Bonner at Daily Reckoning.

"In order to head off potential problems, the largest mortgage originator in the United States, Countrywide Home Loans, has begun sending out letters to thousands of borrowers who have been making only the minimum payments on the company's popular PayOption adjustable-rate mortgages.

"The letters explain that 'this is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly."

I have some friends who had a D.C. condo on an interest only mortgage that increased it's monthly payment from $900 to $1900 a month last January. They soon refinanced with a fixed rate and their income level (with three residences)had no problem meeting payments. But what happens when the rest of the population encounters this?

Not a pretty picture.

BTW...some of us are monitoring Sandisk (SNDK) looking for the anticipated pullback. Should we chalk the stock's recent upward strength to a "missed opportunity"? Or is there still a play here?
Please don't read anything other than curiosity in my questions.

In southern California, I know mnay people in the lending / real estate industry and who own home improvement companies (vinyl windows) and they all make a pittance of what they did before. Many in the financial sector have lost their jobs and others expect to be doing something else.

The bottom line is that the end to the real estate / refinancing bubble will have deep rooted effects that I have really not heard anyone mention.
1. Unemployment, and not limited to construction related labor, but to financial services, and other categories.

2.Consumer Spending. Many people on the coasts bought luxury items because they felt rich due to the appreciation of their homes. This bull market was really fueled by debt and paper gains. I would expect things like boats, Harleys and other toys to be sold off, further reducing the demand for these companies new wares. Home Improvement Stores will be hit even harder than what it appears they are now, they are over-built and need a robust housing market to sustain the same store growth that the street expects. People don't buy as many cars, etc...

What is going on here? Why is the market going up with only three companies (XOM, C, JNJ) down for the day at the moment 730 am pst. I think more and more that Bill is right when he says that this market is being manipulated.

Re: "The letters explain that 'this is an early message to alert you that, based on your current payment trends and potential future interest rate changes, the monthly payment you will be required to pay may increase significantly."

Countrywide (CFC) is by far and away the best comsumer mortgage company I've done business with over the years. They give the outward appearance, through deeds and action, of being very consumer-oriented. I recently read an article about management's plan to "call-in" the ARMs of a lot of their customers by offering fixed-rate replacements.

Has anyone initiated a research of the company's technicals/fundamentals with the idea of inclusion into the Cara 1-250 index?

The dollar is up against the major currencies today, negating yesterday's losses.

The housing bubble was the easiest call since the tech bubble, maybe easier.

That's why we all made fortunes on it. Right?

Rick S,

"What is going on here? Why is the market going up with only three companies (XOM, C, JNJ) down for the day at the moment 730 am pst."

I chalk it up to "dumb money" in a low volume market. IMO, the current buyers are those that tend to follow the advice of the CNBC taking heads. Personally, I've observed that volume dries up in late August so I ignore the tape until volume (smart $$) returns after Labor day. To me, there have been no positive changes on the macro front, just deteriorating fundamentals. The trends in place before low volume set in are the ones to count on....I think :)

rick wrote....

What is going on here? Why is the market going up with only three companies (XOM, C, JNJ) down for the day at the moment 730 am pst. I think more and more that Bill is right when he says that this market is being manipulated.

From what I see in the market action...it looks manipulated. Recently it seems the most the Dow is "allowed" to go down is about 50 points before it gets supported. My question is.....How long can they keep "manipulating" and what is the purpose. This reminds me of Enron and WorldCom and we all know how that ended.

Re: What is going on here...

Market has to be pushed one way or another after the opening...

Since it did not drop - they push it up (with help of day traders ... and.. being one of them - I am forced to play this...)

If the market does not drop soon - people will start chasing this and the S&P will probably go to either 1310-1316 or else will go on to make a slightly new higher high... 1350-1360

If Oil drops tommorow this would provide more fuel.

Though seems a tad overdone here - but someone sure wants to buy this a.m. to protect this 1300 level....

Quite a battle going on here!

So who will win???

In support of my "volume" thesis:

http://tickersense.typepad.com/.shared/image.html?/photos/uncategorized/nyse_volume.jpg

Note the highest volume period this year is associated with the market declines in May/June.

So the question is, when the volume returns, will the current trend continue/accelerate or will the previous declining trend reestablish itself? I'm betting on the latter for my planning.

Another thing that has bothered me lately is all the talk about the 4-year cycle low due this fall. Just wondering if all the talk about it puts a contrarian market move in play? Helene Meisler on RM addresses this issue in her column today.

glenn-mp:

I thought the 8 year cycle low was supposed to roughly bottom at the end of August this year.

If so - the internal low has already been set in July.

Also as far as I know there has never been a recession following an 8-year cycle.

If I was a position trader/long-term investor I would not want to get scared out of buying quality companies when they get trashed with next quarters earning reports... despite all this "recession" talk.

And who knows - maybe this really is '1994' and the bottom is already in - and EVERYONE Missed it in July! A retest of it in October would be a nice 2nd chance.

IMHO - tradesman

From Bloomberg News today quoting Chicago Fed economists Jonas Fisher and Saad Quayyum in a Chicago Federal Reserve Bank Study: The study stated that the surge in the US housing market has everything to do with gains in wealth and the introduction of innovative mortgages and little to do with speculative fever that characterizes bubbles. They said Americans became wealthier as the economy benefited from investments in computers and software, and that new mortgages that give risky borrowers access to credit or require no down payments also boosted demand. "The recent high rates of residential investment appear to have been driven mostly by fundamentals and not unusual loose monetary policy or speculative building. The risk to the economy from some kind of rapid deterioration in the housing market is lower than some people may think." They also said that an aging population also means that record high homeownership rates are here to stay, and that because the homes sales gains had sound underpinnings, they implied that the economy won't suffer as much pain from the current downshift as it had from previous corrections.

Tradesman,

Re. "Though seems a tad overdone here - but someone sure wants to buy this a.m. to protect this 1300 level....
Quite a battle going on here!"

Can you educate us, how can we identify the above?

Thank you.

Tradesman,

I follow Jeff Cooper (RM) and Carl Swenlin (Decision Point) for the 4 (8?) year cycles. Their work points to Oct/Nov for a possible cycle low.

I like your point about cycle lows and recessions. It would seem that most recessions create the cycle low once the trough is in. Makes you wonder what the markets COULD look like over the next 2 years. Or, perhaps as you say, the bottom is already in! I'm not buying into the recession thesis just yet.

As to the FED study cited by Alan, i find it hard to believe their conclusions....but time will tell.

a late august market. since wednesday afternoon, the indices have gone nowhere (the DIA ten minute chart shows this clearly) and have carved out a narrow range. the type of market that hacks away at option premium.

however, in this game, the absence of volatility implies its return. looking at stochastics, i'm guessing that the tossed tennis ball is getting close to the ceiling.

transports holding up well arguing against my thesis.

Re: What is going on here...

The proverbial "they" (just who are these people???) are keeping this market afloat until after the mid-term elections. Then "they" will blame any significant 2007 fiscal collapse/downturn on those "da*n democrats" And we the people shall fall for this "urban myth" hook, line and sinker. I'm not keen on this idea of "market manipulation"; however, I do in agree with a previous commentator that the proliferation of day-trading may be partly responsible for this unsettling market volatility. (guilty? yes, adrenalin rush? indeed!)

Oratier, I've got some news for you too. Peter Grandich in an August 16 commentary stated that Bernanke admitted there was a PPT for the stock market. This was news to me since I never read it anywhere else. And if true, I would think this manipulation would be illegal.

Ursus...

I'm just day trading....
I don't use a lot of indicators - mostly gut instinct - like buying todays open.
I only use indicators to decide whether to keep a day trade open.

One thing I do look at is price points - and how things behave around certain numbers.
So I was just commenting on how we have been playing a game around 1296 then 1298 and now 1300.

Lately every breakdown fails after a few points.
and every breakout fails after a few points.
A lot of patterns are useless lately- like - will the head and shoulders between 10:45 12:30 signify a rollover? I don't know and I don't care - I find these patterns useless in anything but a trending market.

There is a lot of "gamemanship".

We've been stuck here for almost 4 days now.
This can't go on forever.
Either we rollover and die - or another round of latecomers push us up to test the high.

Ursus - sorry I probably have not answered your question - but there are probably a lot of other knowledgable people who could talk about - buying pressure, tick momentum, trin, prem etc...

Well as I type we just rolled over...

back to work...

alan,

for discussion's sake, how does a fed desk buying S&P futures compare to currency interventions? or treasury market involvement?

one point to consider, i guess, would be that the government own that paper so they have a right to devalue it or defend it.

but they don't have title to the S&P. shareholders do.

pretty interesting post about the article from the chicago fed. thanks

(Please delete my previous post)

Re: "Oratier, I've got some news for you too. Peter Grandich..."

http://www.resourceinvestor.com/pebble.asp?relid=22870

Isn't this not unlike those Stock Market "circuit breakers" we read about every so often?

On another post, someone made mention to the iresponsibility of the fed in keeping the price of gold down to increase the perception of strength in the US economy and $. As a result China and other countires are buying it on sale. If this is true, this is irresponsible beyind belief. I know no political party wants an economic downturn on their watch, but long term this is scary.

Oratier, active market purchases of the S&P would be a much different animal than circuit breakers, which supposedly are like a time out for those with animal spirits.

glenn-mp

Thanks.. used to follow Carl Swenlin - but never heard of Jeff Cooper - so I'll check him out briefly.

I try to read as few things on "market calls" as possible now. I used to follow web-sites like Carl's.

Problem is - if let's say everyone is calling an October bottom - it never happens or is shallow - as everyone has already acted on this "market call" - everyone bought in advance - or everyone is waiting - and the bottom never happens so they all pile back in etc...

Better to make your "own market calls" and trade your plan. If your wrong admit it - and reverse.

I sometimes read Clif Droke though, as he is not as well known - but has an uncanny ability to sort through the noise. I may be wrong but I thought according to him 8 year cycle bottoms in 2 weeks or so.

---

btw... I guess Fed's Moskow - thought things were getting a little too far ahead of themselves...

tradesman

Re? "For those who dismiss manipulation, remind them how long some claimed there was a stock market plunge protection team, only to be laughed at for even suggesting such a group existed, then to hear FED Chairman Bernanke admit it in recent testimony."

I like to study hard data, before accepting such a controversial statement as the above. Can anyone provide a transcript of Mr Bernanke's testimony containing the above discussion? Or point me to the appropriate website.

BTW... I don't consider market specialists or program trading BOTS doing market sweeps to stop out narrow stop-loss orders and such as market manipulation. Let's call it bargain-hunting. And over the years, as part of the momemtum trading collective, I've help contribute more unearned income into the pockets of discount brokers than I ever hope to recover during this phase of my trading career(?).

Bill could further assure his position in the stock traders' blog hall of fame by designing a system that allows the little people to deal directly with the markets, bypassing the brokers (more sophisticated than DRIPS hopefully)!

O wrote.....

"I like to study hard data, before accepting such a controversial statement as the above. Can anyone provide a transcript of Mr Bernanke's testimony containing the above discussion? Or point me to the appropriate website."

........Here is a starting place....

Ben, come clean about the PPT!
Submitted by cpowell on Thu, 2006-07-27 12:08. Section: Daily Dispatches
By John Crudele
New York Post
Thursday, July 27, 2006

http://www.nypost.com/business/come_clean__ben__business_john_crudele.ht...

Federal Reserve Chairman Ben Bernanke revealed that the secretive Plunge Protection Team meets several times a year, but he dodged a congressman's inquiries about what the group does and whether minutes are kept of those meetings.

Re "........Here is a starting place...."

http://www.gata.org/node/4276

Thanks,
However, after reading the article I've arrived at the conclusion this so-called PPT has all the characteristics of another "urban myth" or at best inconclusive evidence that group's mission statement is the same one suggested in the article.

Re: "students of the market -- but who really are just seeking entertainment when they access public media."

Interesting quote. I sincerely believe that during these periods of market uncertainty which, by the way, are as necessary as uptrending and downtrending periods accurately highlight the fact that we are all and forever shall remain students of the Markets. I'm reminded of Peter Lynch's(Magellan Fund) famous quote: "At the height of the Magellan Fund sucessful run, only fifty (50) percent of the fund's investors made money." What happened to the other 50%? Still learning the market?