This is The Wall Street Digest Hotline Update for Tuesday, January 22, 2008, at 6:00 p.m. EST.
The Bernanke Fed finally woke up, but barely in time to prevent a huge market sell-off today. At the close, the Dow sank 128 points, closing at 11,971, while the Nasdaq fell almost 48 points, closing at 2,292. Oil closed $0.72 lower at $89.85 per barrel, and gold closed $8.60 higher at $890.30 an ounce.
The global stock markets tanked on Monday when the U.S. markets were closed. Global traders lost confidence in the do-nothing Bernanke Fed and the weak stimulus package discussed by President Bush and Congressional leaders. Too little too late is the mantra of Wall Street. Faced with a mounting global crisis and the Dow Futures down 531 points this morning, the Fed cut both the Fed Funds and the discount rate by 75-basis points at 8:20 this morning. The market opened down 464 points.
During the day, interest rates began to rise as the global flight to quality faded. The amazing dollar remained strong, which built confidence in both the U.S markets and the Fed. Gold began to rise when fears of a deflationary market crash faded as stock prices continued to pare losses. The Smart Money, including the CEOs of large corporations, were on the NYSE floor early this morning, ready to purchase shares of their undervalued stocks at the opening bell. Aggressive buying by the Smart Money gave the U.S. stock market a very clear buy signal throughout today’s session.
The Fed helped its credibility a bit today, but the Bernanke Fed almost allowed a global stock market crash. With Fed Funds now at 3.50 percent and the Two-year Note at 2.06 percent, the world is aware that Fed Funds is still 144-basis points too high. Wall Street is telling the Fed to cut another 50- to 75-basis points at the January 30th FOMC meeting.
Let's stay fully invested! The stock market has a long history of impressive gains during election years. The market is oversold, undervalued, and testing support levels. I see a 22 percent move up this year after the January 30 cut rate.
In the U.S., I would continue to avoid the following sectors: financials, brokerages, banks, and the insurance companies. I would also avoid the housing sector. I would not purchase a home or condo, nor would I bottom-fish the housing stocks. The housing market will not bottom during 2008 in most markets.
Stay fully invested! Stock prices in India, Asia and the emerging markets will outperform the U.S. stock market. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, January 25, 2008, at 6:00 p.m. EST.
Wednesday, January 23, 2008
Housing prices to free fall in 2008 - Merrill
According to a Merrill Lynch report, home prices will drop 15 percent this year, and declines will continue in 2009.
By David Goldman, CNNMoney.com staff writer
January 23 2008: 5:24 PM EST
NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.
The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.
By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.
"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."
The current housing crisis and the depreciation in home prices have pummeled the economy, with businesses and consumers cutting back on spending, raising the specter of a recession. "Lower sales and higher inventory for sales are lowering the velocity of transactions," said Fritz Siebel, Director of US Property Derivatives for Tradition Financial Services. "That cannot be a sign of good health for the economy."
But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.
Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.
The report says that the inventory situation only continues to worsen, as homebuilders are now looking at more than a nine months' supply. "The current supply/demand environment does not favor a swift recovery in the housing market, in our view," according to the report.
Yun agrees that the reduction in housing starts will not bode well for the economy, especially in the homebuilding industry, but he believes that the reduction will soothe the housing market by slowing the glut in inventory. "The reduction in housing starts is not stabilizing the economy, but it will stabilize the market," said Yun.
By David Goldman, CNNMoney.com staff writer
January 23 2008: 5:24 PM EST
NEW YORK (CNNMoney.com) -- The worst housing financial crisis in decades is only going to get worse, a Merrill Lynch report said Wednesday.
The investment bank forecasted a 15 percent drop in housing prices in 2008 and a further 10 percent drop in 2009, with even more depreciation likely in 2010.
By contrast, the National Association of Realtors (NAR) expects housing prices to remain flat in 2008. NAR did cut its home price estimate for the current quarter, however, to a 5.3 percent year-over-year decline, which represents the steepest drop in that price measure on record. But NAR sees an uptick in home prices in the last two quarters of 2008.
"Merrill Lynch's figures are way too pessimistic, and they are unprecedented," Lawrence Yun, the National Association of Realtors chief economist told CNNMoney.com. "There is so much variation in local housing markets, and we see stable price conditions for 2008."
The current housing crisis and the depreciation in home prices have pummeled the economy, with businesses and consumers cutting back on spending, raising the specter of a recession. "Lower sales and higher inventory for sales are lowering the velocity of transactions," said Fritz Siebel, Director of US Property Derivatives for Tradition Financial Services. "That cannot be a sign of good health for the economy."
But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report.
Merrill Lynch believes that housing starts will most likely slide another 30 percent by the end of 2008 - a historic low.
The report says that the inventory situation only continues to worsen, as homebuilders are now looking at more than a nine months' supply. "The current supply/demand environment does not favor a swift recovery in the housing market, in our view," according to the report.
Yun agrees that the reduction in housing starts will not bode well for the economy, especially in the homebuilding industry, but he believes that the reduction will soothe the housing market by slowing the glut in inventory. "The reduction in housing starts is not stabilizing the economy, but it will stabilize the market," said Yun.
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