Friday, August 31, 2007

Dow Jones Up: Mission Accomplished!

Stocks appeared poised for a strong opening this morning ahead of a speech by Federal Reserve Chairman Ben Bernanke and the introduction by President Bush of policy proposals to lessen the pain for struggling mortgage borrowers.

—The Wall Street Journal

No, I am not making this up: stocks are set to rise in part on news that President Bush is going to announce a plan to help subdue the mortgage crisis.

As further explained in this morning’s online version of the Journal,

Mr. Bush…is expected to introduce a plan to reduce some of the pressure on squeezed homeowners by, among other things, changing the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages, according to media reports. The president is scheduled to speak at shortly after 11 a.m. Eastern time.

While we here at NotMakingThisUp never venture short-term opinions on the direction of stocks or bonds—let alone the ups and downs of pre-opening futures trading—we can’t help but wonder at Mr. Market’s heightened expectations for what the nation’s CEO will do to solve the sub-prime crisis.

Hope that Mr. Bernanke and Mr. Bush's words will calm the waters helped to push shares of mortgage lenders higher early on. Countrywide Financial, the nation's largest home lender and a company that has been hard-hit by the credit and housing turmoil, jumped 6% in overseas trading.

If history is any guide, we suspect tomorrow’s newspapers will report something like the following:

When the President and his team received word of the 100-plus point rise in the pre-opening Dow Jones Industrial Average on their Blackberries on the way to the announcement, they immediately declared “Mission Accomplished,” turned around the motorcade and drove back to the White House.

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Alex Khenkin said...

Jeff, you're laughing, but Mr. Bush almost destroyed my nice little short position in PLUG with his "hydrogen vehicles" few years back. It all worked out in the end, though. Consider this a gift from the President for those still long Financials, they have a chance to dump their shares into strength today.
Small Investor Chronicles™

Ryan said...

I really wish the government would quit bailing out failed businesses, it seems it can only hurt us in the long run. Message appears to be, engage in whatever high risk behavior you want, because if you get completely toasted, so long as enough people would be affected, we (the federal government) will make it all better. Were these lenders and borrowers competely ignorant of the risk? And if so, why would anyone dump more good money after bad (see countrywide up 6%).

smithycroftman said...

Remember the scariest words in the English language are "We're the Federal Government and we're here to help you".
Now although I'm no conspiracy theorist, well apart from the Moon Landings and the Gold Manipulation obviously, but there seems to be a pattern here of announcments being made premarket Fridays. I guess those month end reports from the hedge funds won't be as bad as expected.

Kyle said...

Moral hazard abound... I agree with Ryan. Whatever happened to "free markets". I wish the world had more people like Milton Friedman.

wcw said...

I will say, reading that The W was going to opine on things made me think twice about some of the things I've done lately (sell my ZN calls, cover some shorts, start building some long semi positions, that sort of thing). When that man is bullish, I really really really want to be short.

I consoled myself with the thought that if he's reassuring the markets, he's probably worried. If The W is worried, I want to be long. If only the man posted his trades real-time, I could just fade them.

Perchance to dream.

stocksystm said...

Bush's plan to ease the fallout from mortgage defaults is really a warm-up for what is coming...a massive multi-hundred billion dollar bail-out of epic proportions next year. This bursting bubble is going to severely impact the collateral (housing) that backs our ponzi-based economy. A recession is a 100% certainty.

whydibuy said...

As noted on the housing bubble blogs, this " bailout " announcement will only exaserbate the default problem. Shaky borrowers will hear " government bailout " and promptly cease payments altogather and await a handout that'll never come. But the foreclosure notice will. Its another hollow political plan that has no real intention of being executed ala the NOLA rebuild plan that has done nothing with New Orleans 2 years later. How can It? What does Bush think lenders will do? Just accept not getting paid? That money is lent out for retirement plans, pensions and savings by people who expect to get their monthly payment. I guess Bush thinks they'll be just fine in not receiving that check in the mail. Short of giving every overextended homebuyer taxpayer money, there simply is very little the gov can do for someone who makes 40 k but has payments of 45 k. But it sure gave a relief rally to wall street knowing that big dady federal gov is on the job.