Thursday, March 13, 2008

Laugh (or lie) of the Day: End in Sight for Subprime Writedowns

Today's word from Standard & Poors that the "end is in sight" for the massive subprime writedowns taken by major financial institutions, is as ludicrous and bittersweet as news can become.

The ratings agency issued word that the subprime losses had reached the "halfway point" amidst yet another spate of bad news that had markets reeling early in the trading session.

Prior to the opening bell, the Commerce Department reported that retail sales fell by 0.6 percent in February, while analysts had been expecting a gain of 0.1%.

Chiming in, the Labor Department noted that first time applications for unemployment benefits was unchanged, at 353,000. Import prices also registered a gain of 0.2% in February.

With that news in hand, investors quickly sold off stocks, sending the averages to intraday lows, with the Dow down more than 200 points in the first hour of trading.

With the manufacture of positive news the latest weapon in the arsenal of attacks against falling equity prices, the S&P ploy was just what the spin doctors ordered. Stocks eventually turned positive, with the Dow registering a 100-point gain just after 2:00 pm.

Dow 12,145.74 +35.50; NASDAQ 2,263.61 +19.74; S&P 500 1,315.48 +6.71; NYSE Composite 8,827.16 +45.93

Of course, the hot air eventually was mostly blown out, and the session ended with stocks holding onto marginal gains.

Advancing issues managed to beat back decliners, 3706-2535, though new lows stayed ahead of new highs, 497-84.

Over in the commodities pits, the morning's dismal economic news brought out the best, with gold, silver and oil all reaching all-time highs. Oil gained 41 cents to close at $110.33. Gold soared, briefly trading at over $1000 per ounce, before backing down to finish at $993.80, up $13.30. Likewise, silver added 43 cents to end up at $20.42.

What's interesting, sad and funny all at once about the markets is that any small sliver of good news is magnified far beyond its importance, while bad news is simply taken in stride. While the markets continue to wriggle and writhe their way toward some kind of bottom (probably 12-18 months away), the merchants of happiness on CNBC and at the brokerages have consistently under-appreciated the depth of the downturn.

It's not only too bad for them, but for small investors who have neither the expertise nor keen market understanding to make rational decisions regarding their holdings.

Simply put, anybody who hasn't already taken their 10% penalty and the associated tax bite by at least partially emptying their retirement account has missed the boat. The sad news is that most accounts such as these are already down 15-25% from their summer 2007 highs. The even sadder news is that many baby boomer types are still holding on for dear life (and many happy years in their 60s and 70s), though the chances of regaining their former valuations are slim and nil.

Too bad for them too. The age of 70 is still 15 years away for more than 2/3rds of the boomer generation.

NYSE Volume 5,001,790,500
Nasdaq Volume 2,471,754,250

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