Oil strike back

7/10/08

As expected, oil did not turn down or even has a significant correction but rather rebound $5.60 like it did over the past few months. But the Dow was up as well. However, it merely formed a bearish continuation pattern that tells me that it is an orderly decline. So, I do not see the bottom unless tomorrow it is very strong follow up day. Actually, FRE and FNM are in focus for this trading weeks and both stocks keep dropping like a rock. I do not want to repost what causes them sink. But we all know they are the backbone of the home mortgage practice entities and they are supposed back up mortgage loans made by all US banks. The major problem is now they both do not have enough capital to buy up all the loans(bad loans). They are leverage very very huge amount of money to buy and backup the loans. Now, all financial firms are deleveraging their whole books. But FRE and FNM are both keep leveraging up. This leverage will eventually kill them just like a margin call will kill an individual investor. So, US government cannot let them fail. If either one of them fails, the US housing market will crash and it must brings us into very very long haul depression. Also, without the backing, banks will be reluctant to lend any money to potential home buyers. Then less and less buyers means equal to more home price correction. It is very common sense and simple. In order to bail out both, we are talking about trillion US$ worth of potential bailout amount in any forms(actually, now those trillion mortgage back securities are garbage). If the Fed/Treasury/Government do bail out, end result will be US$ goes much much lower, Housing market goes lower, US government's credit rating will drop, other countries that hold US treasury/bond will be very disappointed and might threaten to dump it to cut the loss, Mortgage industry must needs to go into a reform, and we as americans's tax $$ got ripped off again. What a worst result!!
Today, Treasury Secretary Henry Paulson told congress that Banks should not expect to be bailed-out by government, despite intervention by the Federal Reserve in the near-collapse of Bear Stearns in March. Woo, cool. It means LEH, WM, MS, MER, C, .....stock value may go to single digits (well, WM is $5 now) soon and will file bankrupt. Well, that is the worst. Folks, now the Fed/Treasury/Government know that credit crunch aftermath are too big for them to bail out.(We are talking Trillion$) It is so obvious that Federal Reserve are out of any ammo or $$ to save any financial institutions because they just all tie up. They are just sitting, waiting and praying that inflation will not go higher and economy will get better and housing price will get stable. Yes, I am very very bearish. Remember, market still good to trade short term. No long term buy on any stocks currently. I mean NONE unless those are bear ETFs. Good luck for GE earning tomorrow. I am so bearish about tomorrow(friday) if GE gives another sad announcement, Oil higher and market will crash.