Citibank says: WE ARE DEEP INTO PANIC

Its pet peeve time again: Back in May 2005, we noted that Citibank’s Panic/Euphoria Model has slid into panic mode, despite markets behaving not too poorly.

This week, the market saw the Dow finally climbing above its former January 2000 peak to an all time high; it rose 171 points, or 1.5%, to reach 11,850. The S&P 500 tacked on a 1%, while the Nasdaq rose 1.8%, to 2299. The  Russell 2000 outperformed the other indexes, advancing 2%.

This can only mean one thing to the computers at Citi: WE ARE IN PANIC MODE. Proof is their Market Sentiment Panic/Euphoria Model:

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Panic_citi
Chart courtesy of Barron’s

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That’s right. According to Citibank, we have slipped ever deeper into panic mode. 

I’m not one to tell either Barron’s or Citigroup how to do their business — but this has now reached the point of absurdity. I would like to hear from someone (Tobias? Mike?) how on earth we are in a form of Panic sentiment right now.

Note: I am not saying this measure has no value; But I am suggesting that either the nomenclature  or the  scale (at right of graph) is somehow off.

Since its proprietary, we do not know what this black box measures; The only thing we are faiirly certain of is that it is not accurately measuring Sentiment . . .

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Sources:
Common Sense
Inate
DNA

A Sparkling New High for the Dow
MICHAEL SANTOLI
THE TRADER 
Barron’s MONDAY, OCTOBER 9, 2006
http://online.barrons.com/article/SB116017686346985459.html

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Blog Spotlight: Mish’s Global Economic Trend Analysis

Another edition of our new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked
blog that deserves a greater audience. Expect to see a post from a
different featured blogger here every Tuesday and Thursday evening,
around 7pm.

Second up in our Blogger Spotlight:  Michael Shedlock and Mish’s Global Economic Trend Analysis. Mike is one of the editors of The Survival Report, covering stocks and the economy. He also writes for the Daily Reckoning, and co-edits Whiskey & Gunpowder. He also runs stock boards on the Motley Fool, Silicon Investor, and TheMarketTraders. He is an avid photographer, when not writing about stocks or the economy, with over 80 magazine and book covers to his credit.

Mish_geta

Today’s focus commentary is called Falling Dominoes and addresses the impact of Housing’s decline on the economy:

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The Sentinel is reporting State targeting abusive lenders.

The [Massachusetts] state Division of Banks is cracking down this month on what it sees as abusive business practices by mortgage lenders and brokers.

The agency issued a series of new emergency regulations earlier this month, requiring better documentation from lenders and prohibiting them from pressuring consumers into taking out mortgages they can’t afford or working without their own independent lawyers. It also forced four companies — two of them located Worcester — to close immediately and place all pending mortgages with another, more established lender.

Commissioner of Banks Steven L. Antonakes said in a recent interview that division examiners found a pattern of deceptive business practices by some lenders during their most recent round of company inspections.

"We want to spell out in very plain English to send a message to lenders and brokers that these specific acts, whether they’re very obviously unfair or deceptive, or more subtle, they weren’t going to be tolerated," he said. "And you would put your license at risk by engaging in this kind of activity."

Abusive lending practices can destabilize the entire real-estate market. As an example, he described a hypothetical street containing 10 homes, each worth a certain amount of money.

"If loans were originated for two of those homes, in which the loan was made that the broker knows the consumer has no hope of repaying those loans, very likely the borrower will become delinquent," he said. "In the worst case, the home will be foreclosed upon, and that kind of activity could result in the home being sold for less than its value and before you know it, you have a domino effect."

But the slowdown has also put lenders in a tough position, said Christopher J. Iosua, president of the Mortgage Connection Inc. "When business slows down the way it has in the past six to nine months, new loan originators and those without a strong base of customers do things they probably wouldn’t normally do," he said.

The idea that lenders are doing things they may not have done in "normal conditions" may have some merit for some lenders but when 40% of the loans sold in California before the bust were either stated income loans or pay option arms, I think the idea if more fiction than fact. Anything and everything was done to keep the bubble booming, and that was as I said happening well before the bust.

With every bubble comes fraud. The two go hand in hand and housing is not unique in this respect. We are only beginning to scratch the surface of the fraud that supported this bubble. Lending standards are going to tighten as a result, and will continue to tighten as more and more of the fraudulent activity is exposed. I consider fraud and tightening of lending standards to be two big dominoes that are now falling. Tightening of lending standards was previously discussed in Lending Guidelines / Credit Squeeze and The Blame Game.

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Light Posts Due to Fast Laps

Due to a very thoughtful birthday present from Mrs. Big Picture, there will be somewhat lighter posting the today and tomorrow due to travel — mostly in broad and curvy circles: > Lime Rock CT / Skip Barber UPDATE:  October 5th, 11:14pm This was an awesome trip — I’ll try to do a full update…Read More

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