A Virtual Smorgasbord
Posted by Larry Doyle on March 2, 2009 4:24 PM |
On the heels of the news about AIG, Berkshire, and HSBC, the equity markets have found no support today and are down 4%. While the malaise of the markets has much of the focus, let’s review a few other items that I see on today’s menu:
1. In regard to AIG, current CEO Edward Liddy and former CEO Hank Greenberg have started some public feuding over the nature of AIG’s problems. Greenberg is trying to make the case that the risks underwritten at AIG occurred after his departure. Liddy responded that the culture, the compensation system, and the division housing the bulk of AIG’s risk all developed under Greenberg. Wow!! When our country is screaming for leadership, we have senior executives playing the blame game and pointing fingers. How pathetic!!
2. In regard to compensation, I spoke with a senior analyst on Wall Street today and he shared that he was asked to prepare a presentation on the overall nature of the problems in the market and consumer finance specifically. He responded that all he needed to prepare were a few brief remarks. In his opinion, all of the problems from point of origination to end investment were centered on a compensation system that front loads reward and backloads risk. Senior management and boards were both negligent and complicit in the process. The individual requesting the presentation from this analyst informed him that those comments would not work for his audience.
The truth hurts but ultimately we need the truth. Dare I say the compensation model in Washington seems to have similar characteristics.
3. My friends at 12th Street Capital shared with me that a 90 Day Moratorium in California for housing foreclosures has been proposed. The expert review of this proposal is that there are a number of loopholes so it will not have its fully desired effect. Another well intended proposal with unintended consequences. Seeing lots of those these days!!
4. In the realm of personal finance, another friend shared with me that he was offered an 80% discount on an upscale hotel room for a 5 day stay. My Mama Told Me….. you better shop around!! There are some fabulous deals out there. That sort of discount is an indication as to the degree of pain in the hotel industry. This type of deal is also an indication as to why a lot of commercial mortgages (and the securities backed by them, CMBS), are trading at such discounts. The hotels will be severely challenged to service their debt.
5. I mentioned in last night’s show that I have serious concerns about the bond market. In today’s trading, stocks are down 4%, corporate bonds are down 1-2%, mortgage bonds are down 1-2%, municipal bonds are close to flat on the day, and government bonds are up approximately .25%. Cash remains king.
6. In an indication as to expectations for economic activity globally, the coal, metals, and paper industries are down 10-15% on the day. There is one industry group up on the day as of 30 minutes ago. What is it? Brewers are up 1%. You can get all of this information plus so much more on the Sense on Cents Market Data tab (located at the top of the page, directly underneath the header).
7. Back to stocks. The fact that we have taken out the 750 level on the S&P 500 and also the 7000-7100 level on the DJIA without as much as a breather or a decent bounce is decidedly bearish. Those levels were considered to be major support in the markets. Having taken them out and closing below them, those levels now become resistance levels.
8. One piece of news that does have a positive bent to it is the fact that the RSI (Relative Strength Index) is now in the high 20s. This index is not dissimilar to the psychological barometer we shared last week. The RSI index does not often get below 25% but it can correct either by an uptick in price or by the market merely marking time. This is obviously of little solace to everybody who owns stocks, but it is worth mentioning.