Yesterday, the first trading day after black Friday, the Dow lost over 220 points. Treasury yields dropped to 2005 levels. Questions about sub prime exposure of the largest banks in the nation were raised after HSBC bailed out two SIVs. The same day, Internet shoppers were busy at work for the most part, looking for deals!
After the market closed Citi pulled a rabbit out of the desert worth $7.5 billion, consumer confidence took a nose dive and our never ending foreclosures just got worse, showing a 4.5% increase over the previous quarter. Mayors meeting in Detroit noted that more bad news are spreading into big cities: the Dow closed 215 points higher!
At the end of the day, we still don't know how much Citi, JP Morgan, Bank of America and the other players stand to loose from their exposure to sub prime loans.
Countrywide is borrowing so much money from the Atlanta Federal Home Loan Bank ($51 billion last quarter) that Senator Schumer of New York wants to know how safe are the loans used as collateral. Fannie and Freddie are not faring any better!
While mortgage rates remain low, strange things are happening: rallies that follow depressing economic news and meltdowns after very strong economic performance news. The key is this type of environment is to remain focused. Short term distractions such as the ones seen recently should be ignored.
Write to John Palla at jpallaa@gmail.com
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