The Christmas Ease
Will we have a recession? Maybe. It most likely depends on housing....
A stock market like this is like a drug addict that needs more drugs. As we discussed at MIM3, the economy really needs an ease - actually many eases, in my opinion - to have any chance to revise an overindebted consumer who is about to get hit with $3,000,000,0000,000 (man, that's a bunch of zeros) of ARMs resets.
Remember, many ARMs are set to LIBOR, so if 2 year notes move, it may not be a big deal for the consumer in ARMs unless they ease. Which, as Stephanie Pomboy of Macro Mavens pointed out at MIM3, the Fed eases, on average, about 6 months after their last tightening. I wholeheartedly agree. So could we have an ease before Christmas? Absolutely. I cannot, for the life of me, come up with a reason for anything else. Just take a look at Libor and imagine for a second what the consumer with a loan attached to this index plus 200-250 basis points is going feel like when the new payment polls come in...
The economy, led by the 'Creep of Wall Street' is clearly slowing. Will we have a recession? Maybe. It most likely depends on housing, and their numbers are such garbage to me I can't figure 'em out anyway, except that earnings are going away.
So we celebrate! Stocks rally with bonds and we are all sooo happy. Like I said, I am grudgingly long large cap value and growth and especially long Treasuries for an ease.
One last thing that came from a breakout question at MIM3: What about the mid-August high and October low I was calling for? Well, that is quite the consensus, but with the vol complex collapsing, a huge move seems unlikely. Not advice folks, just my humble opinion.
By the way, I have an eye on the exit door if anything smells fishy to me in the BKX. To me, that is the key to the market. Unless it folds, I hang. When it goes, I go. Period. It will tell, like Sun Trust (STI) Monday and the mortgage guys, that the key - housing - to the market is finally catching up to us.
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