The Mortgage Mess Continues
Oct 20, 2010
Posted by Jody Eisenman | Filed under Uncategorized
It was a tough day of you were long stocks. First, the currency wars heated up with an unexpected tightening by China. This set commodity prices into a tailspin. Then the NASDAQ and the tech sector were hit by disappointing numbers from Apple and IBM. Still, the market started its’ familiar rally late in the morning, until the next leg of the mortgage mess hit. As I stated last week, http://www.jodyeisenman.com/2010/10/the-mortgage-mess/, there may have been shortcuts taken when packaging mortgage products. Today, major institutional investors PIMCO and BlackRock are joined by the Federal Reserve Bank of New York in suing Bank of America. The suit alleges that the Countrywide Financial Unit of B of A failed to service loans properly and used misstatements and faulty appraisals to induce investors to buy their bonds. When the mortgage market collapsed, they lost billions. They are now demanding B of A repurchase $47BB of these mortgages back. I’m not a lawyer, but it would seem to me that this will probably be litigated in the courts for some time.
By the end of the day, the stock market got crushed, with the Dow losing 165 points to fall back below 11,000. B of A closed at $11.80, which was its’ lowest close since June of 2009. On the bright side of the financials, Goldman was up about 2 percent on better than expected earnings. However, pretty much everything else got crushed. There were about 5 times as many declining stocks as advancing ones on the NYSE. Of the 30 stocks that make up the DJIA, only one closed up (INTEL), and that was only by two cents. As I have stated, the market looked somewhat extended to me last week, but I think the depth of the decline today took many traders by surprise. I think the next few days could be crucial for the market. On a technical basis, the DJIA has risen pretty steadily until today. There is support at around 10,700 to 10,800. If we break through these levels to the downside, it could get ugly pretty quickly. On the other hand, if we stabilize, this could simply be a much needed short term correction in a continued bull market. Of course, what happens with the US dollar and the upcoming midterm elections could throw a monkey wrench into mix.
