In our office, we’ve been using the Fusion IQ quant system for so long, we know it inside out. We use it as the basis for our institutional trading and published research (up ~10% for the year).
Subscribers have asked us to include our market and stock commentary — beyond the pure neutral software application. In addition to the tools index rankings, there is also an “S&P 500 Marketometer” — an intermediate term gauge of the S&P 500’s internal health. We use this as the basis of our own market review. As requested, we include our own application of the quantitative equity ranking system. This means in addition to the equity, index and sector work, we upload our own technical and macro commentary, too.
My partner Kevin Lane
is a well regarded technical analyst who built his reputation
recommending Enron and Tyco be shorted long before it was fashionable. He is usually the yin to my yang, bullish to my bearishness. Here is his most recent technical commentary about the S&P500:
S&P 500 Index (SPX) – Daily Chart (1999 to Present)
As seen above the S&P 500 broke through what was once a solid support area (green lines and maroon dotted circle) in the last few days of trading last week and continued falling. This support break was critical as it sent a message to market participants that this corrective phase is not yet over. The next support zone for the S&P 500 now comes into play in the 1,015 to 960 zone (blue dotted lines). At these lower support levels, particularly the 960 level, we would likely see a powerful rally set up as the S&P 500 would hit support while also being deeply oversold and more than likely have absorbed a massive selling purge. These aforementioned factors along with a likely new 10-year high in the VIX (if this lower support level is hit) would suggest negative sentiment had peaked.
Trend, Breadth and Momentum are all bearish; Liquidity is bearish to neutral. The only element that is remotely bullish is Sentiment.
As we said to clients early last week (prior to these supports being violated) market internals and momentum were all very negative and the path of least resistance would remain down.
This still remains the case.
Nice depiction of where the pain is being felt most: click for ginormous version This is obviously having a political effect: click for ginormous version Sources: For Most Cities, Recession Has Arrived BILL MARSH NYT, October 4, 2008 http://www.nytimes.com/2008/10/05/weekinreview/05marsh.html Economic Unrest Shifts Electoral Battlegrounds ADAM NAGOURNEY and JEFF ZELENY NYT, October 4,…Read More
The Sunday New York Times has a very interesting article on Fannie Mae and the current financial crisis. They do a decent job at delving into the complexities of the GSEs, and the many factors that went into the decision making at the senior level of the company. This includes pressure from clients such as Coutrywide CEO Angelo Mozilo, pressure from Congress, and the demands from investors for the company to be more aggressive. Most of all, it looks at the ongoing competitive demands of the market place that Fanny was in.
The key to understanding the GSE story is grasping their role within the bigger picture of the economy and housing sector. While there are some pundits who prefer talking points over reality (Charlies Gasparino, Lawrence Kudlow, James Pethoukoukis, and Jeff Saut all toed the GOP line) I prefer to keep all of my analyses based on the data and facts. Rather than creating historical revisions for partisan reasons, I prefer to keep it reality based. (I’m an independant, and that’s how I roll).
The current housing and credit crises has many, many underlying sources. Its my opinion there were two primary causes leading to the boom and bust in Housing: A nonfeasant Fed, that ignored lending standards, and ultra-low rates.
This nonfeasance under Greenspan allowed banks, thrifts, and mortgage originators to engage in all manner of lending standard abrogations. We have detailed many times the I/O, 2/28, Piggy back, and Ninja type loans here. These never should have been permitted to proliferate the way they did.
The most significant element were the 2/28 APRs, and their put back provision. Just about all of these gave the securitizer/repackager the right to return the loans within 6 (or 12) months if they went into default. Hence, our proposition that the 2002-07 period was unique in the history of finance. If any of these mortgages went bad within 6 months, the undewriter was on the hook.
HOW DIFFERENT WERE LENDING STANDARDS IF YOU ONLY NEED TO ENSURE THE BORROWER WOULDN’T DEFAULT FOR 6 MONTHS VERSUS FINDING BORROWERS WHO WOULDN’T DEFAULT FOR 30 YEARS.
In a rising price environment, 99% of the mortgages were not returned by the securitizers to the originator. From 2001 to 2005, the mortgage firms thrived. However, once prices peaked and reversed, things changed. From 2006-08, Wal Street began putting back mortgages to originators in greater numbers. This led to nearly 300 mortgage firms imploding.
We can blame the lenders, the securitizers, the borrowers, and Fannie/Freddie, but it doesn’t matter much. By the time Fannie and Freddie began changing their mortgage buying rules, the Housing boom was already in full gear, and the crash was all but inevitable.
Some people (especially the political hacks) are focusing their energies in the wrong places. According to a recent investigation by Barron’s, Fannie’s biggest problem was not the subprime mortgages they bought — it was the better quality Alt A mortgages that caused their demise:
“As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.
The latter contention is more than disingenuous. A substantial portion of Fannie’s and Freddie’s credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers’ income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers.
In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.“
Only pure partisans take as gospel the statements of an embattled CEO whose own words are belied by the firm’s balance sheet and P&L statements.
What about the ultra low rates? Consider that the Greenspan Fed maintained a 1.75% Fed fund for 33 months (December 2001 to September 2004), a 1.25% for 21 months (November 2002 to August 2004), and lastly, a 1% Fed funds rate for 12+ months, (June 2003 to June 2004). That was fuel for the fire, and fed the boom even more, sending prices skyward.
And not just here . . . As the central bank for the largest economy in the world, the Fed’s rate action had repercussions in Housing markets everywhere. Rate cuts here richocheted around the world, sending home prices upwards globally.
Stock Market Wizards : Interviews with America’s Top Stock Traders The New Market Wizards : Conversations with America’s Top Traders The Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds Bull: A History of the Boom and Bust, 1982-2004 Historical Perspectives How I Trade and Invest in Stocks and Bonds Reminiscences of…Read More