Friday, January 18, 2008
Panic on the streets of London
Panic on the streets of Birmingham
I wonder to myself
Could life ever be sane again?
- The Smiths, Panic
While "panic" might not yet be the word to describe the feelings of policymakers and risky asset longs, it may not be far off. In the meantime, "extreme discomfort" is probably a reasonable encapsulation of the angst being felt on Main Street, Wall Street, and the corridors of power.
Where to start? Housing starts slipped in December to their lowest level since the 1991 recession. While this is a necessary result of the continued issue of excess inventory in the US housing market, it's still pretty bloody painful. The Philly Fed survey, meanwhile, collapsed 19.3 points to -20.9. While the survey may not capture a terribly high percentage of economic activity in the United States, these levels are usually consistent with recession.
Meanwhile, Merrill's Q4 earnings announcement was worse than even the most ursine forecaster imagined. A quarterly loss of $12.57 per share was quite literally shocking. The obvious interpretation is that John Thain is exhuming all the skeletons at once, blaming them on Stan O'Neill, and moving forward with a fresh slate. That's probably the right thing to do. However, if there are more writedowns and losses in the future, one would have to think that the reaction will be very unpleasant indeed.
We took another step towards the dreaded monoline downgrade yesterday when Moody's put Ambac on negative review. In any event, the SPX broke what some were terming "line in the sand" support in the 1360-1370 region. A particularly bearish interpretation of the chart might suggest that the target of the "three mountain top" formation could be as low as the mid-1100's.