Where is the Market Going?

Where is the market going? Well traders seem to fear more to the downside than the up. At least they are paying more for protection against the former than the latter.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAIJo685vdz4

Now I cannot blame them. The market increase has been rather spectacular. Much more of a climb much sooner than most economic recoveries after a recession, and it was the worst recession since the Great Depression. Go figure. I know the market was down drastically in March, but for good reason. It is the massive run-up that has me scratching my head.

That Fiscal Thingy

There is little I can say that can add or better summarize what is said in this linked piece, though I have to say it has me a bit worried on where the market is going over the long term. I for one am giving serious thought to moving to another country. Seriously, I love the U.S., but if it is screwed fiscally for the rest of my life then, well, why would I waste the rest of my life dealing with the problems? The world is big and there are places not in our pitiful state. Nonetheless, this is where I seem to be stuck for now, so I am going to continue to focus on it (and keep my passport up to date).

The best you can say today is that the U.S. is skating on fiscal thin ice. How far can we go before our lenders cut us off? Are we going to devalue our own dollar to screw our lenders? Will health care years from now make this the end of days for the U.S.? All legitimate questions. No answers here as the jury is still out. Nonetheless, they all present reason for pause.

http://www.nakedcapitalism.com/2009/07/america-fiscal-train-wreck.html

Do other countries fear America could go as California. I doubt it, but when our a (formerly) financially vibrant state is about to go under, they cannot be happy that it is happening. Giving out IOUs and getting a credit downgrade next to junk is not a confidence builder. How can the most populous state and biggest economy state get a near junk rating? Not hard to answer the question. Better question, how did we let ourselves get here? Either way, this must be a positive for the long term market - not.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFtGuPKB2uWE

http://www.calculatedriskblog.com/2009/07/s-increases-loss-estimates-for-alt-and.html

Seven More Down

I took the weekend off, so forgive me if this is old news. The FDIC closed seven banks on Thursday (usually Friday but that was a market holiday). now without doing a lot of research I believe this is the most closings in one week since the S&L crisis. Certainly the most for the past several years. Now that has to be a good sign for the market?

Founders Bank, Worth, IL Millennium State Bank of Texas, Dallas, TX The First National Bank of Danville, Danville, ILThe Elizabeth State Bank, Elizabeth, ILRock River Bank, Oregon, ILThe First State Bank of Winchester, Winchester, ILThe John Warner Bank, Clinton, IL

http://www.calculatedriskblog.com/2009/07/fdic-bank-failures-by-week.html

Here is Another Good Market Sign - Rising Foreclosures

I have reported here on real estate market conditions, both residential and commercial, on a regular basis. The commercial side is just getting started on its bad news and I reported on it last week, so let me focus on the residential side again. For one thing, option ARMs (those adjustable rate mortgages that give people options on how much to pay - even an option to pay LESS than the monthly interest) are peaking late this year and next. And, apparently, subprime losses have still not bottomed out.

http://www.calculatedriskblog.com/2009/07/s-increases-loss-estimates-for-alt-and.html

For another, prime and jumbo mortgage defaults are on the increase. These are high value mortgages that cause a lot of pain. For a third, homes are under water at record amounts so there is jingle mail. And for a fourth, unemployment is still mounting. So banks, including (by FDIC closures) local and regional banks, are in a world of hurt for months to come. Yep, that bodes well for the market.

http://www.calculatedriskblog.com/2009/07/la-times-another-wave-of-foreclosures.html

And as I mentioned last week, commercial real estate is not doing well, not well at all. There exists many billions in refinancing need in CRE and the credit simply is not there. Yep, that bodes well for the market.

http://www.calculatedriskblog.com/2009/07/dc-office-market-vacancies-increase.html

http://www.calculatedriskblog.com/2009/07/cre-half-off-sale-in-san-francisco-and.html

So after all these very positive market signs I have to admit that I am mostly on the sidelines in my investments. There is no clear direction. I truly believe the worst is not behind us but the markets have solidly punished my expectations for a few months. Either way, I look at fundamentals and simply shake my head. I do not see the 2 + 2 that supports the markets recent rise or it staying there (and yes I know it is a fair amount off its recent peak). Let me know if you think otherwise.

Disclosures: None.