I thought the discount rate cut, while it was the right move, came at the wrong announcement time. When the Fed makes a move when the market is closed the sudden gap up benefits are only a win for anyone who bought immediately in the days before. Or it is less pain for those who have been long. But it does have one effect that the public may cheer: it crushes short sellers. The crush on short sellers comes because shares gap up instantly when there is very little liquidity for the bears to get out of their short positions, and they usually cover in case the buying becomes frantic.
Friday we noted the creation of a vulture fund with Annaly Capital Management Inc. (NYSE: NLY) tied in as being the first hints of bottom fishing in mortgage and CDO-land. Monday was orderly trading in the broad market with a slight gain, but that followed a 200+ point gain from Friday. Yesterday there was even a feeling of some nibbling out there in discounted mortgage stocks at huge losses, and then the shares of Accredited Home Lenders Holding Co. (NASDAQ: LEND) were up higher even if they only closed up 1.7% after it got to send some of its loans off the books to vultures. Capital One Financial Corp. (NYSE: COF) shares even traded up today, just a day after issuing an earnings warning from the elimination of its wholesale mortgage operations and layoffs.
Today's close on the DJIA gave a negative close, but it was orderly, unpanicked, and not under a flurry of selling pressure. It may be too soon to declare the worst is past, because only a fool would declare that all the bad news is over and that the last shoe has dropped. But the general feeling of malaise has been lightened up out there from the media to the floor to trading desks.
If you aren't sure about the market in general, the safer bet of tip-toeing is usually back into more defensive stock plays. If you are convinced the worst has been seen in financials, you can always look at that "Mortgage Madness Index" that Jim Cramer created.
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
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