He said flat out that the way he’s going to help solve the deficit issues caused by “too big to fail,” is to hit the bailed out and still broke financial institutions with some new kind of fee, to raise $19 Billion. So the financial lepers, who are only surviving due to a change in mark-to-market accounting, fees from issuance of Government debt, and prop trading, are now going to incur more fees?? As usual, I’m confused. The big boys are gonna get hit with fees from the great one for almost blowing up thanks to liberal mortgage policies enacted mainly under Democrats.
Here in the Empire State it’s almost as if Attorney General, Andrew Cuomo has been elected Governor already, and yet the election is in November. The same Andrew Cuomo who sat at the head of HUD (Secretary of Housing and Urban Development), and worked with fellow Democrats Chuckie Schumer and Barney Frank, to force changes which loosened mortgage application qualification criteria at Fannie Mae and Freddie Mac. This triumvirate pounded the table for lax standards, like, “Hey, why do you need to show a w-2 to prove you have a job and can pay your mortgage?” Cmon. Shouldn’t some people (who work off the books and rely mostly on tips) be able to get a note from their mom or something, that says, “Little Joey over here has a job, and makes just enough to pay off this mortgage.” And, so it went, the rules were relaxed so the joy of home ownership could be expanded to just about anyone. They coordinated this plan with other great Democrats, like Robert Rubin, who championed the expansion of credit for major financials by relaxing the rules on leverage. So, the base of people who would qualify for mortgages, worthy or not, was expanded due to liberal policies, and the ability of GSE's to extend even more credit was also facilitated. I can go into detail but many people liked the brevity of yesterday’s blog, so I will try to keep it concise, and I think you get the point. No single group of actors contributed more to the subprime crisis than the aforementioned politicians. The subprime crisis, which is still upon us, as most of the toxic assets still sit hidden on assorted balance sheets (still short plays-- C- BAC- JPM-AIG)caused the banking crisis, which caused the contraction of credit and subsequently the recession. Now policy is focused on hyper regulation, and the same politicians are in charge of making the rules to fix the problems their initial rules created. I like this game. I predicted that the trickle down effect of most of this policy crap was going to have a pronounced downside effect on markets...you can watch my predictions here.
Good News?
Yesterday it was verified that the elimination of the Homebuyer Tax Credit was going to cause a double dip in housing, with new home applications down 40% in the last May. The expiration of this program had exactly the effect we spoke about, it basically stole sales from the summer months when home sales are typically up, and gave people the incentive to buy early. That credit was the basis for some housing numbers to look decent in Q1, and some of Q2. Don’t expect Q3 or 4 to look anything close to 1 and 2, and don’t be surprised if foreclosures rise again and prices dip, as more foreclosed inventory hits the market. I'd beware the housing stocks, and I've seen short sellers express interest in BZH, DRE, and WRI, as ways to play a potential downturn in Real Estate.
I am sometimes a little to forthright on network TV, and this behavior gets me a huge response (both for and against my views), but the one thing I can assure you is this: When I do get opportunities to talk to the investing public, I am going to say it straight. Some commentators just want to talk about Good News, and somehow yesterdays putrid housing stats were enough to drive the market up 225 points. Up 225, with our new form of democracy (or should I say Obama-cracy!), whereby prospective candidates that challenge Obama’s boys get offered jobs in return for not running, and complicating this whole voter choice thing. In the last week 2 separate candidates, Joe Sestak in Pennsylvania, and Andrew Romanoff in Colorado, admitted that envoys from the House of Obama dangled Presidential appointments in front of them, in return for dropping out of their races. Up 225, with Spain’s mandatory austerity measures by one single vote. Up 225, with France admitting they probably won’t hold their Triple AAA rating much longer.
Up 225, but no one knows why. I hope those ADP #'s are good, that could get us another 200 points easy. I hope markets go up from here, and they may slightly as a light volume up draft could push stocks a little higher. But don’t buy in.
Friends of Fermentation
There’s a group of extremely savvy market participants called the Friends of Fermentation or (FoF), led by esteemed Head of UBS NYSE Floor Ops, and CNBC stud Arthur Cashin. I sometimes, umm…okay often, get to Bobby Vans to secure some space in the general vicinity of the FoF, and they are often kind enough to let us stand next to them. This is a great benefit. Many of the more insightful and plausible theories I craft are based on solid market behavior characteristics I pick up by eavesdropping on this all star crew. Sometimes, I may break my grandfather imposed limit of (2) Manhattans, and the info doesn’t exactly come out in my blog the next morning in the way it went in my head the night before, in a pre-Manhattan state.
But, more often than not, I can translate enough of what I remember, and it is usually somewhat correct. When I break the 2 Manhattan rule, it’s the one time I can honestly say it’s ok to shoot the messenger, he’s probably hungover. 
Yesterday, an intermittent participant in the FoF group noted to me that there may be a short term uptick in Dow-S&P, and NAsdaq, but from a tech standpoint, he thought there were clear signs of the final shoulder in a massive head and shoulders formation. This pattern, when actually formed, usually leads to a massive falloff.
Supposedly the results after this right shoulder formation are much like the end the shoulder attached to your torso. Take a look at your right shoulder right now. cmon. go ahead. Yep, that’s right, what comes after the shoulder is nothing. At the tip of the shoulder you kinda run outta road, it’s either get on the arm express headed towards the hip and other assorted lower regions, or fall off into emptiness. Just letting you know in case you’re into that sort of technical mumbo-jumbo. For me, the only Head and Shoulders I know about is the shampoo I use every morning. Beware the end of the shoulder, and this upswing could be the final approach. I said on CNBC last week that I thought the Bears had lowered the roof from 11200 to 10200,
and I stick with it, but a consolidated trading range with no significant news that keeps stocks in the 10-10,400 range could sound the alarm towards the end of June, and beginning of earnings reporting that the end of the shoulder is coming. Beware this market, it’s tricky.
Cherry on top
To finish off a good ice cream sundae you throw a cherry on top. To finish off a well prepared Manhattan you drop a cherry in it. There are a few cherries to be picked right now for you seekers of overvalued stocks; today I think there are 2.
For those of you kind enough to read the entire note, here’s your reward:
Another sharp shooter I spoke to yesterday put me on the beat of this stock: JOE. St. Josephs-- No its not a pastry maker, or a baby aspirin company. This poor JOE is a real estate company, and as I outlined above, that isn’t exactly the best field to be in right now. On top of that, a majority of JOE's holdings are in the Northwest Florida, the Panhandle, and Gulf of Mexico. YIKES.
It is now being discussed that this oil in the Gulf could flow ‘til Christmas, and that doesn’t bode well for OLD JOE. This JOE play to the short side could be one way to play the cleanup. The longer the cleanup takes the more damaging it is to Poor JOE.
The effects will also be long term on JOE. IF you think that the spill is going to be stopped and the cleanup will be quick, then maybe you go long JOE as it will probably pop. I, for one, think JOE goes lower. Check it out for your self:
The second cherry is a stock I have been watching for two months now, and it continues to demonstrate many of the characteristics of a stock on the brink. After an up day yesterday and a bounce off an intermediate support level of 47, it looks like IOC could break down, 40 could be the next stop to the downside and with any hint of bad news, 30 looks like a place it could free fall to.
It’s seemingly getting easier by the day to spot overvalued situations. At least easier than finding the undervalued ones, you just gotta do a little searching around. The treasures are out there you just have to look. Happy Hunting.
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