The Market Ticker

You have to love the duplicity of the Nation's Largest Lenders.....

"Countrywide Financial Corp., reducing costs as part of its effort to weather a credit crunch, has begun laying off employees involved in originating loans, according to an internal email.
....
Less than two weeks ago, Countrywide said it was hiring more loan officers from rivals forced to close down."

Where is the SEC?

I'm tired of this. Aren't you? How many times recently have we had a mortgage company tell us that everything was fine, citing old data that they knew was stale, and then just a week or two - or sometimes a day or two later we get the truth - and it ain't pretty!

Is this market manipulation? I think it is. I think its a raw, blatant attempt to manipulate the firm's stock price and mislead investors and I, for one, am tired of it. I'm losing count of the number of firms that have pulled something like this in recent weeks, and while I've had no position in most of them, there are thousands who bought stock after a press release like this made them comfortable that all was ok - only to find out that it was simply not true and bankruptcy was just around the corner.

Will it happen here? I have no way to know. But the pattern is eerily familiar.

Now in the interests of not misleading people, I'm short CFC. With what I believe to be damn good reason. But those who are long the stock, whether they be institutional holders or small retailer purchasers, have a right to expect that when a press release is made about how a firm has "adequate liquidity" it does not cite data that is more than a month old, when the problems that caused the liquidity crunch happened TWO WEEKS AGO!

While I'm at it, I have a very interesting email that was forwarded to me yesterday. I cannot authenticate it, but it brags, in quite plain language, that a primary broker/dealer and the sender both knew in advance that the Fed was going to cut the discount rate.

Oh, and the email says they traded on that information too.

If its not braggadocio, and reflects what really happened, that's illegal.

And yes, I forwarded it on to enforcement@sec.gov.

Not that I have any faith that anything will be done about it.

The cockroaches always come out when market dislocations occur. We usually find out later about all the nasty things that people were doing, and how ugly they really were. How many people lied. How many "analysts" were really in bed with the companies they were allegedly covering "for investors", treating the alleged Chinese Walls as toilet paper. It happened in the wreck of 2000, and its happening again.

Speaking of seeking Cockroaches, there's news on the wire that Countrywide may have the OTS seeking Cockroaches in their office fulltime.

"-Examiners at the Office of Thrift Supervision recently set up a full-time presence in a conference room at the Calabasas, Calif., headquarters of Countrywide Financial Corp. (CFC), according to two people familiar with the matter." - Dow Jones Newswire

Is that good?

Wall Street plays rough. I've written about money management and just this weekend, about the safety of your brokerage and bank accounts. Why? Because The Street doesn't care if you lose all your money. Only you care about that.

But what we should all care about as investors and speculators is the honesty of the process. Make a bad bet, get to eat it - that's how it should work. We should not be playing in a casino where the cards are marked for the benefit of certain "favored" clients!

We got plenty of bad news coming for Moody's and others in the "ratings biz":

"U.S. Senate Banking Committee Chairman Christopher Dodd on Friday called for an examination of the credit rating agencies' role in valuing the subprime mortgage securities market."

That's gonna hurt. Time to short Moody's?

Thornberg Mortgage sold a bunch of mortgages at 95 cents on the dollar. Problem is, those were allegedly "AAA" credit! Uh, you're never supposed to see those bonds trade at that price.....

"Thornburg Mortgage Inc., forced to stop taking home-loan applications last week because of a cash crunch, sold $20.5 billion of mortgage-backed securities at a discount to pay down debt it couldn't refinance. The shares fell more than 10 percent."

"We'll lose money on everything we do, but make it up on volume! Honest!"

How's that one end?

The Leading Economic Indicators came in at expectations up 0.4% after last month's disastrous number. But the market swoon started in August in earnest, and guess what - that's one of the things "baked into" that number. That could get bad next month eh?

It appears the media reads the Discount Rate cut the same way I do....

"The Federal Reserve's attempt to calm credit markets may have the opposite effect on equities after the most volatile week for U.S. stocks in four years."

'Ya think? I do.

In far more ominous news the 3 month T-Bill fell in return by over 90 bips today. This is especially ominous because it means that the Fed's "ease" didn't work last week, and now they're in a tough spot. As people flee from asset-backed paper they move towards treasuries. The problem here is that no matter how low you cut FedFunds you can't make people take a turd, and this becomes especially true if they've bit into it thinking it was ham and found out that it was a shit sandwich.

This pattern is likely to continue as people bail on asset-backed securities and unfortunately those securities are spread all through our paper markets in places that you'd never expect, from pension to money-market funds. The ugly part of this is that as investors flee this part of the credit market will be irretrievably roached, and there is nothing the Fed or anyone else can do to stop it.

You can bet they'll try, but its a futile exercise. Once screwed, twice shy.

Oh, Sentinel has officially sucked water.

"Sentinel filed on Friday, listing between 200 and 999 creditors. Those with the largest unsecured claims include Fortis Clearing America LLC, Stone Capital Group Inc. and two funds run by BC Capital Management, according to court documents."

Hope one of those creditors wasn't you! These were the guys who recently screwed a bunch of commodities traders when their so-called "money funds" (not quite the same as money markets, but the same idea - in theory) couldn't be redeemed. That's gonna hurt.

Oh, and if that wasn't bad enough for them, now the SEC is after them for allegedly appropriating client assets (the common name for "appropriating" is stealing.)

Capital One shuttered Greenpoint after the close today, reducing guidance by 30% and taking a charge of $860 million (!)

"Capital One Financial Corporation today announced that it will cease residential mortgage origination operations at its wholesale mortgage banking unit, GreenPoint Mortgage, effective immediately. Current conditions in the secondary mortgage markets create significant near-term profitability challenges, given the company's "originate and sell" business model."

Darn, I shorted it the other day (they were promptly taken to the woodshed in the aftermarket, and its reasonable to expect there will be more of that in the morning.) I guess it was a good decision not to cover that short into the crazy pop we had Friday eh?

(If we do get my expected recession, you have to wonder if the answer to "What's in your wallet?" will be "An exploding credit card!")

In signs that the credit problems are spreading beyond anyone's ability to control, Fannie Mae skipped a "benchmark" debt offering this month.

""Though mortgage lending via the quasi-governmental agency appears to be the only game in town amid [a mortgage-backed security] investor boycott, this news suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency," wrote Action Economics on its Web site."

This is troubling in the extreme and pretty much reinforces that there will be no "PUT" of those mortgages onto Freddie and Fannie.

For the un-initiated, Fannie and Freddie both are reliant on securitization to clear the mortgages held on their books. If that conduit collapses then so does the ENTIRETY of the conforming loan marketplace for US Homeowners!

That is FAR more serious than, for example, Countrywide going bankrupt. In fact, it would basically insure that the nation would undergo a DEPRESSION.

This is one of the checks and balances on both Bernanke and lawmakers in attempting to organize some sort of real "bailout." While they could lift Fannie and Freddie's caps, for example, nobody can force investors to buy their paper! If that demand disappears, then it matters not what the limits are - they implode instantly, and with it goes what's left of the housing marketplace.

On to technicals.....

Today we had an interesting day, with the market staging a late-day rally (again) to close up, after being red most of the day. But the strength wasn't in the financials for the most part today - it was in the industrials. This isn't that big of a surprise - and it tempered my fear a bit that we were setting for another "Bernanke surprise" in the morning (heh, can you blame me?)

The Yen was suspiciously tracking the S&P again today. Margin calls? Didn't smell like it, but its tough to know. Silver and gold were both up, and while it looked like currency market jitters were in play today the sort of "aw crap!" type of problems we've seen recently seem not to be on the table.

The Dow pinged but held a fairly serious resistance level, as did the transports. The S&P again hit the 200 and bounced down, confirming its overhead resistance. The Nasdaq Composite's resistance level held, and the NDX didn't get there.

So we're still sitting with the same picture technically that we were Friday; no clear signal either way. There were very few new highs or lows today and volume was light, so there's nothing there either.

Tomorrow should be interesting.... let's see how many more Cockroaches we can scare out from under the cabinets!