Much Ado About Nothing

Yesterday's home sales numbers drummed up a lot of excitement, with call activity zooming to levels not seen in a while. Despite all the hoopla, the rally seemed to lose steam throughout the day. The market is still somewhat overbought, even after last week's decline. It does not appear to me that the market is setup for much upside from here.

The fundamentals underlying yesterday's rally seem shaky to me. Weekly mortgage purchase applications, which are a real time gauge of housing activity, are down to levels not seen in nearly a decade. We are seeing the same type of hangover in housing that we saw after cash for clunkers. In the coming months housing numbers will once again show deterioration. I believe the December numbers will be a disaster, but those will not come out until January.

I am tempted to move to a net short position this morning. However, I realize that anything could happen in a holiday thinned trading environment. A gorilla with an agenda could really push things around and I believe that most agendas these days have an upward bias.


Anonymous said...

Do you know anything about SNV?

Beaten down as much as a lot of financial institutions that I really know are teetering on receivership. However, it appears from the surface that they are much better capitalized.

'ol dawg

Tsachy Mishal said...

Really analyzing and understanding a bank takes an expertise that few have, even though many believe they have it.

This is because the balance sheets are so opaque that one really needs to dig into the footnotes, ratios and filings to figure out what is going on.

I don't have that expertise. I would say that unless you do, treat the stock as you would a lottery ticket and size the position accordingly.

Anonymous said...

It's really based on perception.

I'm no Meredith Whitney, but I believe digging into the footnotes is not needed for these types of plays.

Most of these smaller banks are priced as if they are failing.

I just need to know if they will go under or not, and if they are, at least how much cash do they have to stay afloat for the stock to turnaround in the meantime.

I think it's easy to figure out that a play like CIT was going to do what it ended up doing.

However, it's more difficult to find a play like AIG if you will.

Obviously, there is a serious dislocation between reality and perception. And I think that the street has been saying CRE is the next shoe to drop along with credit card defaults has much to do with these valuations.

I know there will be a ton of money to be made, and at least a good dead cat bounce for people with less patience.

WNR turned around pretty good today.

PJ said...

Anon - Half the banks in the country will go under by end of 2011.

Haven't looked at SNV but if it's trading near zero it's likely a goner.

Anonymous said...

Simply not true PJ..

The reaction the market is having to the small banks is a hangover from the LEH, BSC, WaMU, and INdymac episode.

The FDIC is also like 8 bln below zero.

They simply do not have the money to bail out half the nation's banks.