If you are like me, you are probably getting pretty tired of reading bad housing news day after day, so today it is nice to bring you some good news on the housing market, as mortgage applications rose last week for the first time in three weeks.
According to the Mortgage Bankers Association, the week ended May 2 saw a 15.6% jump in the association's index of mortgage applications. The index takes into account both new purchase as well as refinance loans.
It is a good sign for the housing market, which is entering into its peak buying season. Perhaps this is the moment we have been waiting for, when buyers are finally ready to come back into the market and sweep up some heavily discounted houses. Home prices have been steadily falling for the past year, but signs are starting to point to a possible stabilizing early in 2009.
The Federal Reserve's overnight rate that was reduced to 2.25% just yesterday, and sent the Dow flying 420 points into posititve territory, gave a good chunk back today. The DJIA falling 293 points to 12,099.66 means that Bernanke's magic bullets were a very short-term fix to what ails us.
Not even some positive earnings reports and falling oil prices could sustain the markets run-up. The following stories were posted by my colleagues:
This has to be very discouraging to the folks in Washington DC, and on Wall Street. There is no telling what tomorrow will bring but you can only cut so far before there is nothing left to cut, and you also have a dollar that won't buy much.
But one day is meaningless in the grand scheme of things, and reduced interest rates and increased stability in the financial sector has historically given way to a stronger stock market six months out. After all, that's when the presidential elections will take place and those are the high stakes games to keep your eyes on. For that reason, I expect still another rate reduction before too long so that there is time for it to take effect.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns.
The Federal Reserve will almost certainly announce another rate cut on Tuesday. The only open question is how much it will be. According to MarketWatch, "After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such a move, compared with 88% previously."
If the Fed cuts less than .75, the markets are likely to sell-off quickly and brutally.
But, there are several reasons that the rate cut may disappoint investors. First, some Fed governors have said that inflation remains a worry. Wheat prices have tripled in ten months. The cost of food and other agricultural commodities are likely to rise. Metal commodity prices are moving up, making component costs for businesses like the car industry sky-rocket. Oil is above $100 a barrel, and that's making its way into the gas and diesel markets.
The Fed may also decide that its best way to help the economy is continue to lend money directly to banks. The size of the current facility is $200 million, but that could go up.
The cut may only be half a percent. That may be the right decision, but the market will almost certainly not see it that way.
Douglas A. McIntyre is an editor at 247wallst.com.
On Saturday, President Bush warned that the government must guard against going too far in trying to fix the troubled economy. "If we were to pursue some of the sweeping government solutions that we hear about in Washington, we would make a complicated problem even worse -- and end up hurting far more homeowners than we help."
"Democrats know that wait-and-see is not a responsible strategy for an economy that is teetering on the brink of recession," said Senate Majority Leader Harry Reid. "The president continues to convince himself that inaction is the cure-all for the economic problems hurting hardworking Americans." Democrats intend to strengthen the economy with measures dealing with housing, energy efficiency, and renewable energy.
President Bush said the recently passed program of tax rebates should begin to lift the economy in the second quarter of the year and have an even stronger impact in the third quarter. But he urged caution about doing more, particularly about the crisis in the housing market.
Oil prices have continued to rise today, jumping to as high as $109.70 earlier in the day, and currently sitting at $109.62.
Fueling today's charge is, once again, the weak dollar. Yesterday, the euro set yet another record high against the U.S. dollar, moving up as high as $1.5464.
Also bringing money into oil today was a report from the International Energy Agency stating that demand for oil is going to remain high, due to growing demand in emerging markets, most notably China. Along with China, India continues to keep high demand. Both countries are going to remain large consumers as a result of the fact that they have fuel subsidies that reduce incentives for conservation.
Is the declining dollar just a longer cycle than we have seen before or are there fundamental global economic forces at play, and why? How did we get to where we are now? What does the future hold? How are emerging markets like Brazil, China and India affecting the current situation?
It's not just a longer cycle. Since January 2001, the dollar has lost 64% of its value relative to the euro. There is a conscious U.S. policy to aid companies that export and to help the oil industry – since a weaker dollar causes oil prices to rise.
How did we get to where we are now?
The mechanisms for weakening the dollar are the opposite of the ones strengthening it. U.S. policy was to increase debt -- it sits at $9.4 trillion -- to cut taxes by $1.3 trillion, thus boosting the Federal Budget deficit, and to spend a huge proportion of the Federal budget on wars -- $2.4 trillion worth. If an objective credit analyst were to scrutinize the U.S. balance sheet, it would conclude that it was in bad shape – not unlike third-world countries in the late 1970s. Thus the dollar is not seen as a good store of value and it has plummeted in value.
When the Federal Reserve finishes up its two-day meeting this afternoon, it is widely expected that we will be in store for at least another 50 basis point cut, and possibly more. In anticipation for another cut, oil prices have moved higher today, picking up $0.59 to $92.23.
It was just last week that the Federal Reserve made the decision to step in with an emergency 75 basis point rate cut, but the consensus on Wall Street is that another rate cut is coming today, with the intended goal of putting a curb on America's slowing economic landscape. Oil traders appear to be banking on news of lower rates, and that has resulted in today's upward move in oil prices.
Since America is currently the world's largest oil consumer, any economic slowdown occurring in America will definitely have an impact on global oil demand. As recession fears have become more widespread since the start of the year, oil prices saw a 10%+ correction, falling from a recent $100 a barrel down to nearly $85 last week.
As the Federal Reserve starts this week's meeting today, the question that the Fed will probably be asking is not whether to cut interest rates again, but just how much of a rate cut they should make in order to help fight off a possible recession.
Last week the Fed announced a surprise 75 basis point rate cut in an attempt to soothe concerns over an American recession, and now the question is, what can we expect this time around? Since the outlook of another rate cut seems to be all but a forgone conclusion, the question becomes, what level rate cut will we see?
After last week's cut, the Fed rate is now sitting at 3.5%, and most analysts are expecting to see that drop by a half percentage point to 3% when the Fed announces it sdecision tomorrow afternoon. Some are even starting to wonder if we could see another 75 basis point drop.
The vice chairman of the Fed says that there is a great deal of debate within the body about cutting rates. Based on a speech by Donald Kohn, Reuters writes that "hints at a split between policy-makers that critics find worrisome, because it raises doubts about how far the Fed will be prepared to cut interest rates to shield the economy from a slumping housing market, increasing the odds of a recession."
Stated more directly, it is not clear whether concerns about inflation or recession will govern the actions by the Fed in the early parts of 2008.
If the Fed leans toward viewing inflation as the greater of two evils, the half point cut that investors expect later in the month may end up being only a quarter point. No one can guess what that will do to the market. It would be hard to quarrel with the fact that it could push the Dow down 250 to 500 points, at least temporarily. Sectors like housing and automotive could fall even further.
Debate at the Fed may have a modest effect on the economy, but it could be the undoing of the stock market.
Douglas A. McIntyre is an editor at 247wallst.com.
The dollar has once again set a new record low against the euro today, with the euro moving as high as $1.4966 earlier in the day. In Asia, the dollar also fell sharply, falling to below 108 yen, marking a two and a half year low against the yen.
The dollar has definitely been in trouble lately. The current slide really gained steam back in August as the market started to realize the effect the subprime mortgage crisis was going to to have on the economy. The dollar has been in a literal free fall ever since.
The dollar is not only reacting to the mortgage concerns, but recent interest rate cuts by the Federal Reserve are also adding to the dollar's weakness. So far this year, the Fed has already cut rates twice, and as Wall Street continues to gauge the impact of the mortgage crisis on the overall economy, analysts now expect to see at least one more rate cut in the near future.
The stock market rallied yesterday after word of the Fed's rate cut spread, but don't expect to hear that type of news again any time soon. Most economists think yesterday's rate cut of 1/4 percentage point to 4.5% will be the last one until at least next Spring and by then some already are predicting that rates will go back up.
When the Fed announced the rate cut, it said that the economy was "roughly" balanced, with the risks of higher prices (inflation) and slower growth about equal -- in other words, in a neutral position. The Fed is not leaning toward a rate cut or rate increase for the next meeting in December. We may have a better idea of what the Fed is thinking when Fed Chairman Ben Bernanke testifies before Congress's Joint Economic Committee on Nov. 8.
But most economists believe we are on the high side of what Bernanke sees as an acceptable inflation rate -- between 1 and 2%. The Fed's preferred inflation measure rose to 1.8% in August and Commerce is expect to release a similar rate for September. Yesterday's GDP growth rate of 3.9% surprised many economists, but they don't expect it to last.
It reduced the largest component of a car's cost -- health care -- to something that is a lot more like what the other guys, its rivals, have.
To me this is crucial because right now, with the Fed cutting interest rates, you should have been buying these auto stocks. But the raw inputs -- namely, health care -- were too high.
No longer.
Currently the earnings per share estimates for GM for next year are in the $3s, some high $3 and some low $3.
You just got a huge boost to those numbers from the bottom-line side. I think the Fed's rate cuts are going to help the top line because the auto companies can then offer the cut-rate financing that brings people into the showroom.
I would buy this stock off this deal if the stock stays around current prices because the possibility of a 4 handle on the earnings makes it worth the taking.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in any of the stocks mentioned in this post.
Many analysts and traders will cite fundamentals or technicals to explain why the market might or might not rally from this level. In the end, it all comes down to sentiment and market dynamics.
In these volatile times, traders are known for rapidly switching from euphoric optimism to gloomy pessimism. For evidence of this you simply need to watch Cramer for several weeks in a row. I've found that in any given longer-term period, Cramer has a huge tendency to "flip-flop" on his opinions of companies, industries, and the overall market. But he's not to blame -- nearly all of Wall Street's short-term players are like this.
Truth is, the most recent downturn in the market (excluding Thursday and Friday) was much more than noise, and I firmly believe that the Fed cutting rates saved the market, at least over the short term (futures were pointing way down for Friday before the Fed raised).
However, I think the market has to rally if Monday is an up day. Why? Because Wall Street players, which had been so powerfully negative on the market over the last few weeks, will have to shift their position on the markets and increasing their "net-long" exposure. In doing so, they will likely be forced to cover some shorts and add to some longs -- increasing demand for stocks. I believe that this factor was a primary cause of the rocketing market on Friday and, from who I've spoken to, many funds have no adequately adjusted their net-long exposure and are waiting for a "confirmation move" on Monday.
If you are like me, you are probably getting pretty tired of reading bad housing news day after day, so today it is nice to bring you some good news on the housing market, as mortgage applications rose last week for the first time in three weeks.
The Federal Reserve's overnight rate that was reduced to 2.25% just yesterday, and sent the Dow flying 420 points into posititve territory, gave a good chunk back today. The DJIA falling 293 points to 12,099.66 means that Bernanke's magic bullets were a very short-term fix to what ails us.
On Saturday, President Bush warned that the government must guard against 
Oil prices have continued to rise today, 
Is the declining dollar just a longer cycle than we have seen before or are there fundamental global economic forces at play, and why? How did we get to where we are now? What does the future hold? How are emerging markets like Brazil, China and India affecting the current situation?
When the Federal Reserve finishes up its two-day meeting this afternoon, it is widely expected that we will be in store for at least another 50 basis point cut, and possibly more. In anticipation for another cut, 
The dollar has once again set a .jpg)
TheStreet.com's Jim Cramer sees good reason to own the automaker's stock now that a big raw cost has been reduced.
Stock picks and pans for troubled times: RIMM, ED, ISRG, GLW, LEA, SLB, GOOG ...
Is Berkshire Hathaway better than S&P Index?
Closing Bell: Torch Passing on a Friday Rally
