Socialism to the rescue!

by Larry Levin


Hurray! The big brother plan to "rescue" the mortgage mess helped drive the financials higher today, which pushed the S&P substantially higher again. Who says tinkering Socialist aren't good for business? (Said with tongue firmly implanted in cheek.) I can hear the Ringley Brothers Barnum & Bailey theme music now as a carnival barker shouts out, "Step right up folks and watch Hillary Clinton, George Bush, and the rest of our circus clowns in Congress save the day."

The problem with politicians on both sides of the isle is that when the feel they "must do something," they end up making the problem worse. The President's plan is to freeze interest rates for as long as 5-years to help some subprime borrowers. But how is that going to help properly price the subprime debt, which is one of the main problems to begin with? What happens to the owners of these loans (pensions, insurance companies, 401k's, money managers, etc) who bought this stuff for INCOME? I guess their investment has just been stolen by the Fed's. It will only make matters worse as I see it today, in my humble opinion.

Hillary laid out her plan yesterday on CNBC. As you may be thinking, she wants a government bailout, without calling it a bailout. When Maria Bartaromo asked her "Where will the money come from?" Hillary responded, "Where it always comes from - the budget." That means your wallet folks. Hillary went on to say she wants "Shared responsibility." Hmmm, I don't recalling "sharing" in any of the subprime borrower's income, so why should they share in mine in the form of higher taxes? Can you see how politicians make matters worse now? No matter, it makes them all "feel" so much the better for it because they "did something."

Unlike yesterday, today's reports were pretty bearish. Target Corp's shares were pummeled when it said it expects December sales to be "well short" of its prior view. This could be a sign of a consumption slow down. And according to the Mortgage Bankers Association, the rate of loans entering the foreclosure process during the third quarter, as well as the percent of loans in the foreclosure process during that time, were at the highest levels in the history of the Mortgage Bankers Association's quarterly delinquency survey.

Adjustable-rate loans are performing "much, much worse than their fixed-rate counterparts," said Jay Brinkmann, the MBA's vice president of research and economics. Subprime ARMs accounted for 43.0% of all new foreclosures during the third quarter, even though they make up just 6.8% or all loans outstanding. I guess buying that $2-million house with a $50,000 income and an ARM wasn't a good idea after all, eh?

The percentage of loans at some point in the foreclosure process was 1.69% of all loans outstanding, up from 1.40% in the second quarter. Said another way, 98.31% of all loans outstanding are NOT in the foreclosure process.

But the latter point doesn't matter. If you're a subprime borrower dial 1-800-555-HOPE for your free money guide. If you're a non-subprime taxpayer, however, dial 1-800-555-PRAY for your free money DONATION instructions.

Moody's Investors Service said it had analyzed MBIA's direct exposure to residential mortgage-backed securities (RMBS) more closely recently. The agency said it now thinks the bond insurer is more likely to face a capital shortfall than previously expected. "Additional analysis of its direct RMBS portfolio leads Moody's to believe the guarantor is at greater risk of exhibiting a capital shortfall than previously communicated; we now consider this somewhat likely," the agency said in a statement.

If this were to snowball into a large problem and spill over to other companies, we won't be hearing "Release the hounds." We'll be hearing, "Look out below!"

Real Time Trading Signals*for

Trade Date: 12/6/07

E-Mini S&P Trades*
(before fees and commissions):

8:38 VA Sell 88.00 = +.75, -1.50, -1.50

9:36 VA Buy 88.00 = +.75, b/e,b/e

10:27 ID VA Buy 01.75 = +.75, +.50, +.50

10:52 FT Buy 2.75 = +.75, +2.50, +.75

1:08 ID VA Sell 95.25 = -1.50 all

2:13 FT Buy 04.00 = +.75, b/e

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 8:34am at 768.1 = -.6 & -.6

2) Buy @ 9:35am at 772.8 = +.5 & +1.0

3) Buy @ 9:55am at 776.2 = -.6 (1 lot)

4) Buy @ 10:21am at 775.9 = +1.0 (1 lot)

5) Buy @ 10:39am at 776.5 = +.7 (1 lot)

6) Buy @ 11:10am at 777.8 = b/e (1 lot)

7) Sell @ 12:06pm at 778.8 = b/e (1 lot)

8) Buy @ 1:33pm at 784.0 = +.4 (1 lot)

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