Merrill Lynch Write Downs

Stocks jumped today on pure optimism that all the banking woes are over, and the housing market is near its bottom, and the dollar is in a long term rally, and oil will continue to fall in price until they give gas away.

Bonds didn’t believe all that hype, but lost some value.

The Dollar did rally enormously today.

Oil and gasoline fell again big time, sparking the rally in stocks.

Gold fell to $926, and must fall a lot farther before I institute my buying recommendation.

In the news today….

Merrill Lynch will be writing down $5.7B in the 3rd Quarter, and plans to raise $8.5B thru a share sale. A Singapore Company will be buying $3.4B of Merrill’s sale of shares – foreigners to the rescue again. Somehow the stock market interpreted the Merrill announcement as meaning that those lousy mortgage securities are just about finished in being written down. Can you believe that? I can’t.

The Consumer Confidence Index rose in July, the first increase since December. This measure is truly a fickle measure of what consumers “feel” about the economy. I tend to ignore this index, and look for hard numbers; like how much are consumers purchasing, employment rate, etc.

Here are today’s numbers:
Dow Jones 30 Industrial - 11,398 (up 266 points)
10 Year Treasury Bond - 4.04% (up 0.03%)
Euro - $1.5591
Gold - $926 (down $11)
Oil - $122.19 (down $2.54)
Gasoline - $3.01 (down $0.06)

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This entry was posted on Wednesday, July 30th, 2008 at 12:11 am and is filed under Banks, Markets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Merrill Lynch Write Downs”

David on July 30th, 2008 at 11:20 am

Yes, I don’t believe it. There is no way the write downs are close to finishing. The latest news is that the alt-a and prime loans are showing a much greater than historical default rate. Just wait a few more months until those alt-a/neg-am loans start to reset. It will be subprime all over again.

Another strong indicator of the housing market direction is that inventory as measured by months of supply of homes (listings/sales) are at record levels. Nationally the number is close to 12 months. In some markets it is from 24 to 48 months. It will take a long time to work off that inventory and some where along the way many of those loans will go into foreclosure. High foreclosure rates on loans will keep write downs a quarterly activity for I-banks, banks, and other FIs.
Tom Harvey on July 30th, 2008 at 1:56 pm

David,

I totally agree with you thoughts. Well thought out. I would add that all markets are local, and the investory of 3 months or less is something to look for in that local market before thinking your local market has hit the bottom.

I agree that it will get worse before it gets better.

Tom