The markets could not find much of a footing yesterday as nothing but negative news flashed across the computer screens. While it could have been worse (the Dow was down 300 points at one time), the rebound was not enough to calm traders’ nerves.
Even oil dropping below $60/barrel had no supporting effect, because it is a sign that all global economies are slowing down sharply and quickly. GM was the weakest of the Dow stocks as the debate continued as to whether they will be able to make it through this year.
Going back to the ever growing cookie jar was AIG. Many had guessed a few months ago that the opening $80 billion rescue package was just that: an opening number. Good guess, because now they are dipping back in for another $50 billion or so.
Then the news focused on the loan modifications. Lead by Fannie and Freddie, other banks like Citigroup, BofA and JP Morgan Chase jumped on the band wagon by trying to contact millions of borrowers and offering them anything from halting foreclosure, extending mortgage terms and/or reducing rates.
If you think this is done primarily to help borrowers, you could not be more wrong. This is strictly a self serving act of survival, because a loan that somehow performs is still an asset, while a non-performer is a liability. Banks are inundated with bad loans, so anything that can be done to stop the flood of new foreclosures, is a balance sheet enhancing endeavor.
On it went to lousy earnings and hedge fund issues. The latter is interesting in that volatility may increase quite a bit towards the end of this week because of increased selling. Why? Hedge Funds typically offer investors four windows a year to redeem their holdings. This Friday is the last one for this year and may lead to more unloading of assets if redemptions all of a sudden soar.
The bear continues to be alive and well, and being out of the market is the best place to be.