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Stocks Show Signs of Life, But Credit Woes and "Bottom" Calls Linger

Posted Dec 03, 2008 05:13pm EST by Aaron Task in Investing, Recession
Stocks rallied for the seventh time in eight trading days Wednesday, with the Dow up 2% to 8592, the S&P higher by 2.6% to 871 and the Nasdaq up 2.9% to 1492.

Maybe there's something to this "Thanksgiving Rally" after all.

Of course, the one down day in this recent period was Monday's huge header. Still, since hitting 11-year lows on Nov. 20, the Dow is up 13.7%, the S&P 500 higher by 15.8% and the Nasdaq is up 13.4%.

Major averages were boosted by strength in online retailer Amazon.com amid reports of strong "Cyber Monday" sales, plus buyout offers for SanDisk and Constellation Energy.

In addition, homebuilders like Hovnanian rallied after the Mortgage Bankers Association reported a surge in refinancing and mortgage application activity in the latest week as mortgage rates declined following the Fed's plan to buy $600 billion of debt and mortgage-backed securities from GSEs.

In a separate but related development, financials generally were goosed (literally and figuratively) by a WSJ report that Treasury "is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new home loans" to as low as 4.5%. (Another day, another new bailout.)

In a related but separate story, long-dated Treasuries reversed an early decline and rallied, sending yields on the 30-year bond down to 3.17% while the yield on the 10-year note hit 2.66%.

The "Treasury bubble" was further inflation by another batch of dismal economic data including:

  • The Fed's Beige Book: "Economic activity weakened across all Federal Reserve districts."
  • ISM Services: Fell to 37.3 in November, the lowest level since records began in 1997.
  • Challenger Grey: Layoffs soared 148% in November to 181,671, the largest monthly level since January 2002.
  • ADP: Estimates 250,000 private sector jobs were lost in November, the most since November 2001.

In the something's gotta give department, continued demand for Treasuries, the Port Authority's inability to find bidders for its debt offering, and weakness in commodities and producers like Freeport-McMoran and Schlumberger are continued sign of risk aversion (and stress in the hedge fund community), even as the stock market is showing some zeal.

Recent history has shown the credit market to be a better harbinger of future moves in asset prices than the stock market. Similarly, the persistence of "bottom" calls - today from Legg Mason's Bill Miller and Wells Capital's James Paulsen - suggests the real bottom remains in the future and the stock market will soon hit another air pocket, if recent history is any guide.

34 Comments

ANTHONY
ANTHONY - Wednesday December 03, 2008 05:38PM EST

800 BILLION GOES A LONG WAY IN THIS MARKET,,AS A MATTER OF FACT "YOU CAN BUY "10% GIVE OR TAKE.. TODAY..AND IF YOU LEVERAGE THE 800BILLION ELEVEN TO ONE....YOC CAN BUY THE "WHOLE KITTEN KABOUDLE..."EXCUSE MY SPELLING IVE BEEN OUT OF SCHOOL SINCE Lame Brain Johnstone

georgeg
georgeg - Wednesday December 03, 2008 05:46PM EST

The bottom is not in yet. The FOOLS we ellect can not make up their mind on loaning money to the Car Industry let alone fix the core issue of Housing. HOLD ON TO YOUR PANTS they want to see us all naked , to see our real botttoms.

ANTHONY
ANTHONY - Wednesday December 03, 2008 05:48PM EST

WOW 4.5 % MORTGAGE, MAYBE I SHOULD BUY TWO,,,,,LETS SEE TACK ON CLOSING COSTS,TITLE TRFR, TAXES,CLOSING CSTS,LENDER FEES, TITLE INS, ELECTRIC ,HOUSE INS, OIL. COUNTY TAX,SCHOOL TAX,MAINTAINCE, REPAIRS, TELE, CABLE .. OTHER. NEXT YEARS COUNTY SCHOOL INCREASE...... LET SEE ,, TOO BAD LOOKS LIKE I CANT BE DONE .I NEED SOME LOW LOW COST, LOW LOW TAX HOUSING,, STATUS QUO WONT WORK FOR ME ,,

__A_YAHOO_USER__
__A_YAHOO_USER__ - Wednesday December 03, 2008 05:52PM EST

Once again, I say that we reach the bottom already last October 28, 2008.......When the Dow Jones registered 8,200 it was breach below this point five times and everytime it happened an immediate recovery has come five times as well above 8,200 borderline.......It indicates the most of the bad news ia already price into the market....The option is way up.....that is the trend......Peter Cordillio of New York based stockbroker, A Chief Economist of Avalon Partners Stockbroker, saying and stated that: Most of the HEDGE FUNDS ARE NOW LESS AGGRESIVE IN SELLING AND MOST OF THE INVESTOR LOOK IN TE FUTURE....In this context a rally to way up is the only option, way ahead of economic recovery........Which means a BUY SIGNAL is about to come.......... To get the context a Buy. Signal has been given.....................................So buy a Christmas Rally will start soon .. My guess is Monday 8 of December a Pearl Harbour Attack.....Buy on that Day..........make a good profit for Christmas........Good Luck..........

ANTHONY
ANTHONY - Wednesday December 03, 2008 05:56PM EST

"SHOW A MAN HOW TO BUY A HOUSE "AND HE CAN REST FOR A DAY.."GIVE HIM A HOUSE"AND HE CAN REST AD INFINITUM

Mark
Mark - Wednesday December 03, 2008 06:24PM EST

johnny ike :this is just a wild guess, but is it possible that your entire life savings is in the stock and that all of your advice is just wishfull thinking? i feel for you man!

tony
tony - Wednesday December 03, 2008 07:18PM EST

Johnny Ike is not far off, but the real bottom is closer to 7100. Your almost there just hold on tight. However this auto bail out goes, half of the people won't like it, hence the extra drop in the market. After this, all the bad news will be out, no where left to go but up.

tony
tony - Wednesday December 03, 2008 07:21PM EST

The bottom is closer to 7100, sorry. Hold on Johnny Ike.

DigitalPassion
DigitalPassion - Wednesday December 03, 2008 07:34PM EST

Hi Hank, thanks for encouragening me to buy stocks before Santa rally commences. Say, can you bail me out of the potential tax implications that you created on me? I could use that money to buy the stocks. Friggin idiot. I don't know when or how high it's gonna bounce. But I know the bottom is WELL below 7100.

DigitalPassion
DigitalPassion - Wednesday December 03, 2008 07:37PM EST

Ike listened to a stockbrokers. LOL... or should I say Rolling Off the Floor Laughin' My Ass Off ??? I have a stockbroker too. He's broke now.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Wednesday December 03, 2008 08:06PM EST

Who wants to be a shareholder? Grotesquly bloated executive compensation is proof that executives are not held accountable to the shareholders. Also consider higher asset classes such as preferred stock and company bonds. The desparity between the value of those things and common stock is now too broad. Common stock value has been sacrificed disproportinaly to support the higher asset classes. Until this changes, common stock ownership is not a good idea. This means the stock market has further to fall. When shareholders get no respect, why be a shareholder? Stocks aren't going up.

Yahoo! Finance User
Yahoo! Finance User - Wednesday December 03, 2008 08:11PM EST

Johnny Ike is more delusional than former Iraqi Information Minister Mohammed Saeed al-Sahaf.

Yahoo! Finance User
Yahoo! Finance User - Wednesday December 03, 2008 08:14PM EST

Dont miss the Rocket. According to an expert, 40% rally ( from 7500 ) is coming - meaning it is going to 10500. Or are we in the midst of the rally already ? All the bad news is priced in.

Bruce
Bruce - Wednesday December 03, 2008 08:25PM EST

The efforts by the government to intervene and inject printed money into the patient at each illness has worked many times. But consider that in those previous illnesses, you did not have the synchronized implosion of all elements of Debt World going on while trying to revive the patient with injections of debt! In the past, the injections of debt came from a still building supply of "healthy" medicine. Now that supply has turned poisonous and we're treating the patient with what made him sick in the first place. The effort to fix the prices of homes by having Treasury take our tax money and fix house prices is probably the best idea they've come up with. But housing could bottom the middle of next year and it still may not mean a bottom in the stock market. Everyone seems to underestimate the knock on effect in Debt World. Everything has been weaved together and slowly built up into a house of cards. Subprime was the top card and now we have a train wreck getting started. Artificial price controls on our houses is like placing some twisted rails under the already fallen engine. It may not stop the rest of the cars and caboose from wreckage.

ANTHONY
ANTHONY - Wednesday December 03, 2008 08:42PM EST

RCA GONE,EMERSON, MUNTZ, SYLVANIA,ENRON,STUDEABAKER, MANY BANKS GONE . LEAMAN GONE, CALIFORNIA ALMOST ,PA SELLING, LOUISIANA DESTITUTE,,HARLEY DISAPPEARING, OLDS,PLY MOUTH , YUGO, HOUSING DROPPING, WALL MART STREET DOWN 50+%... HEALTH INSURANCE COSTS GOING BALLISTIC, FORCLOSURES UP, BANKRUPCIES UP . FOOD HIGHER. DEALERSHIPS CLOSING, REITS SLUMPING DIVIDENDS DISAPPEARING,,, ETC ETC ETC ETC ..."NOW DO YOU SEE A TREND "..IDONT LIKE BEING SO OO NEGATIVE BUT" .FACTS ARE FACTS ,NOTICE ALL THE ABOVE WERE/ ARE IN THE USA ,I WONDERHIF ANY FOREIGN COMPANIES ARE GOING BELLY UP.. AND IF SO WHO..

Yahoo! Finance User
Yahoo! Finance User - Wednesday December 03, 2008 08:43PM EST

Rocket will explode when the baby boomers that rode it down sell like there's no tomorrow. I sold at 13500, so I'm not taking that ill fated rocket ride. Sleeping like a baby waiting for the real bottom well below 7100. Sorry Tony.

Mickey
Mickey - Wednesday December 03, 2008 09:27PM EST

About picking the bottom, only "The Shadow" knows! If financial managers were so smart, they would have retired long, long ago with millions of dollars stashed away in their gold plated vaults. Unfortunately, the "me" generation, and anti-war hippies have been running our country for the last twenty years, and consequently we are reaping our just rewards. If it feels good, do it just doesn't work in the corporate world.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Wednesday December 03, 2008 09:41PM EST

IF YOU THINK RECOVERY IS AROUND THE CORNER........My prediction several years ago, that the housing market would be the single most devastated sector of our economy came true with a vengeance. Jobs will always dictate prosperity, but not jobs at taco bell or walmart. GM will be cutting many many jobs soon, maybe even all of their jobs if the anti-union people get THEIR way........face it, the party is over for most of us working class people here in the USof A. The next several years will continue to be the ThirdWorldization of America, adjusting to these new low wage realities, with or without a token recovery. When we have most people, mostly due to envy, rejecting the idea of help for our U.S. auto industry and it's workers who make very good economy-boosting wages, you know it's not a good sign for the future of our Country.....GET READY FOR THE GREAT DOWNSIZING OF AMERICA, with yet another stock market crash that will make 2008 and 1929 seem like a picnic.......keep dreaming if you think recovery is just around the corner, we can be great again one day, but for now........our glass is INDEED half empty......we must face THAT and begin the leak repairs, HELPING OUR AUTO INDUSTRY SURVIVE THIS ECONOMIC HOLOCAUST IS A GOOD PLACE TO START. We helped out WallStreet........now lets help out SideStreet.

Christopher
Christopher - Wednesday December 03, 2008 11:35PM EST

It's sad that people don't want to help the big 3. If they go under our economy tanks further, think it's bad now? Wait until they go under. In all reality this government owes the big 3. During WW2 they shut down all their plants and operations to build for the war effort. America would have not risen without them. Don't forget your old friends... you might need them again.

Tom
Tom - Thursday December 04, 2008 05:12AM EST

I agree with Johnny Ike about the bottom being in. We all have a stake in this regardless how much we have tied up in stocks. Not sure about the exact "buy"date but I do see many signs e.g. the large divergence between bonds and equities. There was a similar divergence but in the opposite direction prior to the market beginnig its current slide in the late 2007.

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