Last week the market was dizzier than dubya trying to play Scrabble. We are in the heart of the second quarter earnings season and it seems that we have a crisis on our hands. The crisis stems from one word – SUBPRIME. This started because people who shouldn’t have been given mortgages were given them hand over fist by overeager bankers and mortgage brokers. Many of these loans and mortgages were given on a no-documentation or “no-doc” basis. This means that the borrower didn’t provide proof that they even made any money, they were just given the loan on their word. Now they can’t pay them back and the lenders are now screwed. What has made the whole thing worse, and affected the stock market like it has boils down to this: LEVERAGE. Here’s how leverage works- suppose you sit down to play blackjack, and are betting with $5 chips. However, each $5 chip you bet is paid off like you bet $50, so if you win or lose, it multiplies your winnings or losing by 10. This means you can make or lose a bundle very quickly. Bets like these can drive an individual to irrational behavior. (http://www.youtube.com/watch?v=Pd5zAbDKZEg)
We’re also in the heart of earnings season for the second quarter. Companies earnings have been downright good compared to estimates, growing at about 11% year over year so far. Ideally reports like this would be good for the stock market. However, the market is only focusing on the subprime lending issue right now and this is having a carryover effect on the overall market. In times like this, consumer products stocks and pharmaceutical stocks provide a safe haven. Even if the economy slows, people still buy razors, light bulbs, Tylenol and tequila (especially tequila)
Is the “Right Wing” Soros about to get his comeuppance?
http://www.dealbreaker.com/2007/08/can_we_interest_anyone_from_ca.php
They deny the reports, but it looks like the Right Wingers can’t buy a break these days.
Bruce Kovner is the chairman of the American Enterprise Institute (http://rightweb.irc-online.org/profile/3532) and sometimes called George Soros’ “Right Wing Twin” http://nymag.com/nymetro/news/people/features/12353/
Funny you never hear the “Liberal Media” bashing him like they bash Soros. I bet you never even heard of him. Funny how that works.
This brings us to Oil. Oil hit an all time high price per barrel this week. We’ll probably be saying as much next week and the week after. I wouldn’t be surprised to see it $100 per barrel next year at this time. Its not even a front page issue anymore. If we have a hurricane, look for it to spike to the $90s and get ready to pay $4 a gallon of gas.
What to watch for this week: The Federal Reserve is meeting Tuesday and the consensus is they will leave interest rates alone. Many are calling for an interest rate cut to bail out the banks who lent out the money to the deadbeats a few years ago. Here’s a handy scorecard for those of you watching http://ml-implode.com/
Fun fact: As we enter election season, just remember the Stock Market has historically performed much better under Democrats. http://money.cnn.com/2004/01/21/markets/election_demsvreps/
Prepared by Financeboy