When the going gets good, everyone rolls in $$$ and overextend.
When it gets bad, it is a freefall.
Careers vanish after subprime 'free fall'
Kent and Mysti Cope were well-paid executives at subprime lenders who never thought the industry could disappear overnight. Now they're just trying to get by.
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March 31, 2008: 5:30 AM EDT
Mysti and Kent Cope met when both worked at subprime lender New Century. Both lost their jobs last year when the industry collapsed.
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Careers vanish after subprime 'free fall'
SAN CLEMENTE, Calif. (CNNMoney.com) -- Kent and Mysti Cope met and fell in love working for one of the nation's top subprime lenders. Now, their life has been turned upside down after the sudden implosion of the subprime mortgage industry.
Mysti was one of the last people out the door at New Century Financial, once the nation's No. 2 subprime lender. She had been in charge of e-commerce customer service with dozens of employees reporting to her. It was at New Century where the Copes met in 2000.
Kent worked for several of the firms that helped give birth to the industry, which specializes in making loans to people with less-than-perfect credit, in the 1990s. He has been out of work since August when he was laid off by Friedman, Billings, Ramsey Group (FBR) unit First NLC Financial Services.
"We're still both in shock that it could go from something so good to so bad so quick," said Kent, 59. "New Century in 60 days went from top of the heap to out of business."
The two didn't say exactly how much money they made at their last jobs but Kent admitted they each had six-figure incomes.
Today, they're trying to get by on his unemployment benefits of about $450 a week, which covers only about an eighth of the basic payments they owe every month.
Only $1,800 to cover $10,000 in bills
Their home equity line, mortgage, health and life insurance premiums alone cost about $10,000 a month. Still, they are trying to hang onto what they call their dream home with a view of the Pacific Ocean where they live with Mysti's 11-year old son.
Kent estimates the mountainside home in San Clemente, Calif., which they bought in 2005, is worth 20% less than it was a year ago. And in the current market, he said he's not sure he could sell it for even that amount.
"We've used up most of our reserves, cashed in her 401K," said Kent. "We're going Mach 1 into a wall. When we run into it, then we've got to decide what to do next."
Despite their financial problems, the Copes have worked hard to protect their credit rating, staying current on bills. And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example. But the couple also has learned that it didn't need everything it used to spend money on.
"We used to eat out a lot. Now we are the leftover king and queen," said Kent.
Since he lost his job, Kent has gotten a real estate license and is trying to start a business selling the rapidly increasing inventory of foreclosed homes in Orange County, Calif. Mysti is trying to build an online business selling jewelry and beachwear, some of which she designs herself.
"Is it scary? Yeah," said Kent. "How long do you have to hold on before it starts to turn around? If anything, that piece of it is the most unnerving for us."
For Mysti, 37, all her efforts to find work since she lost her job last May have been futile. She said she believes the attention given to subprime borrowers who have run into trouble paying their mortgages work against her and other former colleagues. It's almost like having "Enron" on your resume.
"The media has somewhat tarnished the subprime industry and all the employees, and portrayed them as being dishonest," she said. "We're not dishonest. Not everybody was a bad borrower. Not every company was a bad lender."
Hopes of hanging on to jobs quickly dashed
Mysti said she and many other employees who survived the early rounds of layoffs at New Century thought they'd be able to ride out the bad times even after the firm stopped taking new mortgage applications in March of last year and filed for bankruptcy in April.
"We were New Century. We were a large corporation. We were the No. 2 subprime lender in the industry," she recalled. "You figured someone would come in and want to invest and take it over."
But the potential buyers soon disappeared as did the remaining jobs. She and her co-workers got word on May 3 that they were being laid off, effective the next day.
Kent's story is similar. Throughout last summer, he tried to keep up the morale of the 150 sales people he had reporting to him. Friedman Billings had a deal to sell First NLC Financial Services to Sun Capital Partners, the private capital firm that had sold it to them only two years before. So there was hope. Or so he thought.
"We knew we're going to lose money, we were just going to try to not hemorrhage," he said. "That's the message we all had to deliver to our troops -- Sun Capital is going to come in, they're behind us, they wouldn't be buying us if they didn't think we could ride out the storm," Kent recalled.
But by August it was apparent that deal was no longer going to happen, and he too was laid off.
For some, getting laid-off is better than still working
The Copes are just two of many in Orange County, formerly the center of the nation's subprime lending industry, now trying to move on. Nearly 9,000 jobs have been lost there in the past year, with more than 4,000 alone in Irvine, where New Century was based.
But the damage extends far beyond those like the Copes who lost their jobs.
"You can't run into someone who isn't impacted by what's going on," said Kent. "It's very expensive to live in Orange County, and you pay a lot for your home and you can't get what it's worth now."
Some of their former colleagues found jobs with other lenders, only to get laid off again when those firms closed up. Kent said some of the sales people he knows who still have jobs are actually the worst off.
"They may be employed by a company for months and months, but they can't close a deal," he said. "They've got the borrowers, but unless that thing is pure gold, it isn't made. It's a commission business. They're to the point frankly where they would rather get laid-off so they can go collect unemployment than be employed and make no money."
The subprime industry in Orange County was a close-knit close cluster of lenders. The industry rapidly expanded as executives at one firm would strike out on their own and setup shop nearby. But the industry fell apart even more quickly.
The Copes and their colleagues tracked the collapse through rumors and Web sites, such as lenderimplode.com.
"You kept looking everyday to see if your company was on there or not," said Kent. "It seemed like every day there was a company going under."
"You know you could take a roller coaster ride down," he said. "But you never envisioned it could be a free fall."
Welcome to subprime's ghost town
10 resumes a day, no takers
Monday, March 31, 2008
Monday, March 24, 2008
March 24 DOW
Last monday Fed saved BSC. From then 11650 to 12548, it is a 900 points rally in 5 days. All media is saying "buy stocks". Dick Bove is saying "Buy Financials".
In one week the mood has totally changed.
At this point, i feel like i should go ahead and buy.
But i will wait for a fall to pick some tech. csco, intc, msft & qqqq.
In one week the mood has totally changed.
At this point, i feel like i should go ahead and buy.
But i will wait for a fall to pick some tech. csco, intc, msft & qqqq.
Thursday, March 20, 2008
ONE DAY UP ANOTHER DAY DOWN
The market is so volatile.
Mar 18 Up 410
Mar 19 Dn 290
May 20 Up 200.
Today (Mar 20) is options expiry.
As for my portfolio, except for GE, other positions look good.
What should i do during the next dip? Buy, sell or keep quiet.
If you buy, then is it possible that the purchase becomes a PFE kind?
not sure.
Mar 18 Up 410
Mar 19 Dn 290
May 20 Up 200.
Today (Mar 20) is options expiry.
As for my portfolio, except for GE, other positions look good.
What should i do during the next dip? Buy, sell or keep quiet.
If you buy, then is it possible that the purchase becomes a PFE kind?
not sure.
Tuesday, March 18, 2008
FED BONANZA
Mon 17 morning - World market down 5%. DOW supposed to open at 11500.
Sunday BSC was sold at $2 after closing at 30 on friday.
Tue 18 evening DOW closes up 50 on Mon and 420 on Tue. LEH and GS down to 20 and 145
on Mon close up to 41 and 175 on Tuesday.
SO when and how is the next leg down going to be?
Sunday BSC was sold at $2 after closing at 30 on friday.
Tue 18 evening DOW closes up 50 on Mon and 420 on Tue. LEH and GS down to 20 and 145
on Mon close up to 41 and 175 on Tuesday.
SO when and how is the next leg down going to be?
Monday, March 17, 2008
BSC causes Joe Lewis to lose a billion
CREDIT CRISIS HITS WALL STREET
A Stake Through the Heart
Bear's Biggest Holders
May Have Little Choice
But to Cut Their Losses
By CASSELL BRYAN-LOW and KATE KELLY
March 17, 2008; Page C2
British billionaire Joseph Lewis made his fortune gambling on currencies. His recent investment in Bear Stearns Cos. has turned out to be a disastrous bet.
The elusive septuagenarian is one the biggest losers from the New York investment bank's problems. In just a few months, he has paper losses of about $800 million on his roughly 9.6% stake in Bear, whose share price has cratered in recent days.
A small cadre of investors, often considered some of the best in the business, own big stakes in Bear that aren't looking good. A number of these shareholders are the type of investors who ordinarily would take a hard line in a sale, demanding a higher price. But with Bear on the brink, they may have little choice.
Among the stakeholders: James Barrow, a Dallas money manager who runs the firm Barrow, Hanley, Mewhinney & Strauss Inc., is the single biggest investor, with a 9.95% stake, according to recent regulatory filings. Bear Stearns Chairman James Cayne, who stepped down as chief executive in January amid criticisms by some investors that he was too hands-off when the mortgage mess unfolded, holds a stake just under 5%. So does activist investor Bruce Sherman, the CEO of Naples, Fla., money-manager Private Capital Management Inc., a unit of Legg Mason Inc., recent regulatory filings show.
RELATED ARTICLES
• J.P. Morgan Rescues Bear Stearns
03/17/2008
• Bear Stearns Discovers Risk of Its Hedge-Fund Business
03/17/2008
• Another Source of Quick Cash Dries Up
03/17/2008
• In a Crisis, It's Dimon Once Again
03/17/2008
• Bear's Biggest Holders May Have Little Choice but to Cut Their Losses
03/17/2008
• Fed Cuts Rates, Extends Loans to Calm Markets
03/17/2008
• Breakingviews: Stern Warning All Around
03/17/2008
• J.P. Morgan Statement on Deal
• MarketBeat: The Bear Stearns Fallout
• Deal Journal: A Short History of Troubled Investment Bank SalesMr. Sherman, who persuaded the media company Knight Ridder Inc. to put itself up for sale in 2005, has taken a more active stance with Bear in recent months, say people familiar with the matter. He closely questioned Bear lead director Vincent Tese about the investment bank's problems last summer and made his dissatisfaction with Mr. Cayne clear to Bear officials in the weeks preceding Mr. Cayne's early-January resignation as CEO, these people said. Mr. Sherman's firm held 5.5 million Bear shares as of Dec. 31, 2007, or a 4.8% stake. Those 5.5 million shares at Friday's close were valued roughly at about $166.5 million, down 80% from a year ago.
Mr. Sherman was unavailable to comment, a spokesman said yesterday. Mr. Lewis was unavailable to comment, a spokesman said. An assistant in Mr. Cayne's Bear office said he was in a meeting and unavailable for comment. Mr. Barrow didn't respond to a request for comment.
Mr. Lewis made his fortune as a currency trader, once amassing a 30% stake in auctioneer Christie's International PLC, and has spent the past decade investing in an array of businesses, including real estate, oil and gas, and sports. He now lives in the tony Lyford Cay development in the Bahamas. He got involved with Bear first as a client and became a major investor last year.
Mr. Lewis long has been a client of Kurt Butenhoff, one of Bear Stearns's heavy hitters in private-client services. Mr. Butenhoff brought the relationship with him to Bear from Salomon Bros., where Mr. Butenhoff was a high-net-worth broker in the early 1990s.
Mr. Lewis began rapidly building his stake in Bear Stearns last summer, shortly after the bank announced that two internal hedge funds had imploded. In December, his stake rose to just under 10% from about 7% when Bear's stock price fell below $110, forcing him to make good on an options trade he had made with another party.
Mr. Lewis could have sold his obligation to buy and washed his hands of an unlucky trade. Instead, he chose to exercise his options, filings show, acquiring hundreds of thousands of new shares. He owns more than 11 million Bear Stearns shares, according to a December regulatory filing.
Friday, Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading after the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep the firm afloat following a severe cash crunch. It doesn't appear from reviews of regulatory filings that Messrs. Sherman, Cayne, Barrow and Lewis have sold shares in recent weeks.
The son of a cafe owner in London's East End, Mr. Lewis started work there and later expanded the family business to create a small empire of theme restaurants. He acquired the nickname "the boxer" in part because his name is similar to boxing legend Joe Louis and also because of his shrewd approach to business.
Mr. Lewis's recent endeavors have included developments in central Florida, where he owns Isleworth and another gated community. About six years ago, Mr. Lewis purchased a stake in Tottenham Hotspur PLC, a soccer club based in northeast London. A keen golfer, Mr. Lewis hosts the Tavistock Cup tournament and has befriended golf star Tiger Woods.
A Stake Through the Heart
Bear's Biggest Holders
May Have Little Choice
But to Cut Their Losses
By CASSELL BRYAN-LOW and KATE KELLY
March 17, 2008; Page C2
British billionaire Joseph Lewis made his fortune gambling on currencies. His recent investment in Bear Stearns Cos. has turned out to be a disastrous bet.
The elusive septuagenarian is one the biggest losers from the New York investment bank's problems. In just a few months, he has paper losses of about $800 million on his roughly 9.6% stake in Bear, whose share price has cratered in recent days.
A small cadre of investors, often considered some of the best in the business, own big stakes in Bear that aren't looking good. A number of these shareholders are the type of investors who ordinarily would take a hard line in a sale, demanding a higher price. But with Bear on the brink, they may have little choice.
Among the stakeholders: James Barrow, a Dallas money manager who runs the firm Barrow, Hanley, Mewhinney & Strauss Inc., is the single biggest investor, with a 9.95% stake, according to recent regulatory filings. Bear Stearns Chairman James Cayne, who stepped down as chief executive in January amid criticisms by some investors that he was too hands-off when the mortgage mess unfolded, holds a stake just under 5%. So does activist investor Bruce Sherman, the CEO of Naples, Fla., money-manager Private Capital Management Inc., a unit of Legg Mason Inc., recent regulatory filings show.
RELATED ARTICLES
• J.P. Morgan Rescues Bear Stearns
03/17/2008
• Bear Stearns Discovers Risk of Its Hedge-Fund Business
03/17/2008
• Another Source of Quick Cash Dries Up
03/17/2008
• In a Crisis, It's Dimon Once Again
03/17/2008
• Bear's Biggest Holders May Have Little Choice but to Cut Their Losses
03/17/2008
• Fed Cuts Rates, Extends Loans to Calm Markets
03/17/2008
• Breakingviews: Stern Warning All Around
03/17/2008
• J.P. Morgan Statement on Deal
• MarketBeat: The Bear Stearns Fallout
• Deal Journal: A Short History of Troubled Investment Bank SalesMr. Sherman, who persuaded the media company Knight Ridder Inc. to put itself up for sale in 2005, has taken a more active stance with Bear in recent months, say people familiar with the matter. He closely questioned Bear lead director Vincent Tese about the investment bank's problems last summer and made his dissatisfaction with Mr. Cayne clear to Bear officials in the weeks preceding Mr. Cayne's early-January resignation as CEO, these people said. Mr. Sherman's firm held 5.5 million Bear shares as of Dec. 31, 2007, or a 4.8% stake. Those 5.5 million shares at Friday's close were valued roughly at about $166.5 million, down 80% from a year ago.
Mr. Sherman was unavailable to comment, a spokesman said yesterday. Mr. Lewis was unavailable to comment, a spokesman said. An assistant in Mr. Cayne's Bear office said he was in a meeting and unavailable for comment. Mr. Barrow didn't respond to a request for comment.
Mr. Lewis made his fortune as a currency trader, once amassing a 30% stake in auctioneer Christie's International PLC, and has spent the past decade investing in an array of businesses, including real estate, oil and gas, and sports. He now lives in the tony Lyford Cay development in the Bahamas. He got involved with Bear first as a client and became a major investor last year.
Mr. Lewis long has been a client of Kurt Butenhoff, one of Bear Stearns's heavy hitters in private-client services. Mr. Butenhoff brought the relationship with him to Bear from Salomon Bros., where Mr. Butenhoff was a high-net-worth broker in the early 1990s.
Mr. Lewis began rapidly building his stake in Bear Stearns last summer, shortly after the bank announced that two internal hedge funds had imploded. In December, his stake rose to just under 10% from about 7% when Bear's stock price fell below $110, forcing him to make good on an options trade he had made with another party.
Mr. Lewis could have sold his obligation to buy and washed his hands of an unlucky trade. Instead, he chose to exercise his options, filings show, acquiring hundreds of thousands of new shares. He owns more than 11 million Bear Stearns shares, according to a December regulatory filing.
Friday, Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading after the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep the firm afloat following a severe cash crunch. It doesn't appear from reviews of regulatory filings that Messrs. Sherman, Cayne, Barrow and Lewis have sold shares in recent weeks.
The son of a cafe owner in London's East End, Mr. Lewis started work there and later expanded the family business to create a small empire of theme restaurants. He acquired the nickname "the boxer" in part because his name is similar to boxing legend Joe Louis and also because of his shrewd approach to business.
Mr. Lewis's recent endeavors have included developments in central Florida, where he owns Isleworth and another gated community. About six years ago, Mr. Lewis purchased a stake in Tottenham Hotspur PLC, a soccer club based in northeast London. A keen golfer, Mr. Lewis hosts the Tavistock Cup tournament and has befriended golf star Tiger Woods.
BEAR STERN COLLAPSES and DOW opens steady
Bearn stern collapses and was bought by JPM for $2 yesterday.
World market were down 5%.
DOW futures point to a pretty low open. DOW opens down 150 but by
10:30 it is down only 60, a meagre .5%
MARCH 17 2008
Markets Last Change
Dow Jones 11,894.10 -56.99 / -0.48%
Nasdaq 2,184.06 -28.43 / -1.28%
S&P 500 1,272.90 -15.24 / -1.18%
World market were down 5%.
DOW futures point to a pretty low open. DOW opens down 150 but by
10:30 it is down only 60, a meagre .5%
MARCH 17 2008
Markets Last Change
Dow Jones 11,894.10 -56.99 / -0.48%
Nasdaq 2,184.06 -28.43 / -1.28%
S&P 500 1,272.90 -15.24 / -1.18%
Tuesday, March 11, 2008
WHEN THE MARKET IS DOWN BIG ON FRIDAY
03/07/2008 12:41:48 Sold 4 GEDT @ 1.57 619.99 $19,179.09
03/07/2008 13:56:22 Sold Short 100 COP @ 78.1801 7,812.92 $26,992.01
03/07/2008 14:26:26 Bought 3 JNJOL @ 0.35 -112.25 $26,879.76
03/07/2008 14:58:52 Sold Short 200 BX @ 14.4 2,874.96 $29,754.72
03/07/2008 15:11:33 Bought 2 SFBOA @ 3.6 -726.50 $29,028.22
03/07/2008 15:23:02 Sold Short 100 GE @ 32.45 3,239.96 $32,268.18
03/07/2008 15:26:27 Sold 5 PFECX @ 0.1 41.24 $32,309.42
03/10/2008 10:13:07 Bought 1 COPOP @ 3.35 -340.75 $31,968.67
03/11/2008 4 GEDT 860 (-232)
03/11/2008 100 COP (-132)
03/11/2008 200 BX (-358)
03/11/2008 SFBOA (-320)
03/11/2008 GE (-100)
No action on Friday would have given $1200
03/07/2008 13:56:22 Sold Short 100 COP @ 78.1801 7,812.92 $26,992.01
03/07/2008 14:26:26 Bought 3 JNJOL @ 0.35 -112.25 $26,879.76
03/07/2008 14:58:52 Sold Short 200 BX @ 14.4 2,874.96 $29,754.72
03/07/2008 15:11:33 Bought 2 SFBOA @ 3.6 -726.50 $29,028.22
03/07/2008 15:23:02 Sold Short 100 GE @ 32.45 3,239.96 $32,268.18
03/07/2008 15:26:27 Sold 5 PFECX @ 0.1 41.24 $32,309.42
03/10/2008 10:13:07 Bought 1 COPOP @ 3.35 -340.75 $31,968.67
03/11/2008 4 GEDT 860 (-232)
03/11/2008 100 COP (-132)
03/11/2008 200 BX (-358)
03/11/2008 SFBOA (-320)
03/11/2008 GE (-100)
No action on Friday would have given $1200
New post. DOW after Fed cuts in previous instances
Six months after the first rate cut
Stocks are sharply lower since the Fed began its recent series of rate cuts in September, making this the worst reaction to an easing cycle since the 1950s.
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See all CNNMoney.com RSS FEEDS (close) By Alexandra Twin, CNNMoney.com senior writer
Last Updated: March 11, 2008: 7:05 AM EDT
Recession Watch 2008
Slower growth, but no recession - forecast
Jobs get tossed out of stores
Job losses: Worst in 5 years
Consumer confidence lowest on record
House Democrats vow new push on economy
Quick Vote
What worries you more about the economy?
Rising energy and food pricesWeakening job and housing marketsConcerned equally about inflation and slow growthNot worried: The economy is fine or View resultsNot your 1980's stagflation
More Videos
NEW YORK (CNNMoney.com) -- Despite five interest rate cuts in the past six months, Wall Street has remained impervious to the Federal Reserve's wooing, with investors taking a "thanks, but..." attitude to Ben Bernanke & Co.'s attempt to recharge the economy and stock market.
Since September, the central bank has lowered its federal funds rate, a key overnight bank lending rate, to 3% from 5.25%. This included a 75 basis point emergency cut in January. There are 100 basis points in one percentage point.
Federal Reserve policy-makers will meet again on March 18 and are expected to cut rates by at least another 50 basis points, to 2.5%. Coincidentally, the Fed's next meeting also marks the six-month anniversary of the first cut in this easing cycle.
But before you order your flowers and candy to send to your favorite central banker, it's worth pointing out that the stimulus from the Fed has done little for the stock market.
Since the first rate cut on Sept. 18 of last year, through Monday's close, the S&P 500 is down 16.2%. That makes this the worst performance for the market following a series of rate cuts since the 1950s, according to Standard & Poor's research. And that's taking into account other times when the economy was in a recession, as may be the case now.
Wall Street after rate cuts
S&P chief investment strategist Sam Stovall looked at where the market stood six months after the Fed initiated a series of interest-rate cuts, going back to the 1954 cycle.
Stovall found that the S&P 500 was in positive territory 7 of 11 times, for an average gain of 12.3% overall and a gain of 7.6% since 1980. For the years before 1980, Stovall looked at cuts to the discount rate and for the years after that, he looked at cuts to the federal funds rate.
How about the Nasdaq? Stovall looked at the tech average going back to its inception in 1971, again switching from the discount rate to the fed funds rate after 1980. On average, the Nasdaq rose 4 out of 7 times, for an average of 15.6% overall, and 11.5% since 1980.
Since the first rate cut last year, through Monday's close, the Nasdaq is down 18.2%. That's the worst response since the 1990-1991 recession, when six months after the first rate cut, the Nasdaq was down 22.6%.
As for the Dow, Ned Davis Research looked at statistics going back to 1921 and found that the Dow also posted double-digit gains, on average, six months after the first in a series of rate cuts. The Dow rose 13 out of 18 times, for an average of 11.7%.
Since the first rate cut last year, through Monday's close, the Dow is down 14.6%. That's the worst response since 1932, when the Dow had posted a loss of 37.5% at the six-month mark.
Fed loans not easing credit crunch
One of the reasons stocks haven't seen a 'Fed bounce' is that "although the Fed has been cutting rates for months, the economy hasn't started coming back yet," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
In fact, the economy has deteriorated since the September rate cut. The most recent reading on fourth-quarter GDP showed anemic growth of 0.6% and the first quarter could show a contraction in growth, some economists say. Employers made the biggest monthly job cuts in February in five years. And pretty much every housing market report shows falling prices, lower sales and rising rates of foreclosure.
Did we mention that quarterly earnings are at a five-year low and that the dollar is plunging? And that oil and gold prices are at or just below record highs?
All of this speaks to the possibility that the Fed may have waited too long to start cutting rates, therefore muting the impact, said Scott Armiger, portfolio manager at Christiana Bank & Trust.
He said that stocks initially bounced a bit after the first cut, leading to record highs for the Dow and S&P 500 in early October and to a multi-year high for the Nasdaq around the same time. Stocks also got a bit of a jolt after the Jan. 22 surprise rate cut.
But beyond those short spurts, stocks have been on the slide.
"We didn't get a real Fed bounce because it was just too late," Armiger said. "By the time they started cutting, the consumer was already tapped out."
Meanwhile, banks haven't been using the extra liquidity as a means of expanding their borrowing capabilities.
"The problem is not one of liquidity, but solvency," said Ryan Atkinson, market analyst at Balestra Capital. "The Fed is providing liquidity, but assets are overvalued. With the amount of credit outstanding, real economic activity cannot support the cash flows needed to service that debt."
So what really might be needed before the market reacts favorably to the Fed cuts is more time.
Play it like it's 2002
Along those lines, the 2008 stock reaction to the Fed cuts could be similar to what happened in 2001-2002, when the Fed cut rates aggressively to stimulate the economy amid the end of the tech boom, 9/11 and the 2001 recession. The stock reaction to that was delayed, but ultimately positive.
"There's no doubt that we're in a financial crisis," said Bill Stone, chief investment strategist at PNC Financial Services Group. "But its also reasonable to figure that we could see a turnaround like in 2002."
The Fed cut rates 11 times in 2001, from 6.5% to 1.75%. But six months after the first rate cut, the S&P 500 was down 3.6%, the Nasdaq was down 6.2% and the Dow was down 4.3%, with Wall Street smack in the middle of a three-year bear market.
Stocks didn't bottom until October 2002 and didn't see an up year until 2003, a big year on Wall Street in which the Nasdaq rose more than 50% and the Dow and S&P 500 each gained more than 25%.
Stone's not saying that stocks are in for a year like that next year, as problems in the housing and financial markets are bound to linger. But eventually, he said, the markets start discounting the bad numbers and looking forward. And that will coincide with signs of a bottoming in the economy and other indications of a turnaround, all of which will be bolstered by the Fed's cuts.
So while the market may not be feeling any better six months after the first rate cut, it may be a different story another year from now.
Stocks are sharply lower since the Fed began its recent series of rate cuts in September, making this the worst reaction to an easing cycle since the 1950s.
EMAIL | PRINT | DIGG | RSS Subscribe to Markets
feed://rss.cnn.com/rss/money_markets.rss
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close) By Alexandra Twin, CNNMoney.com senior writer
Last Updated: March 11, 2008: 7:05 AM EDT
Recession Watch 2008
Slower growth, but no recession - forecast
Jobs get tossed out of stores
Job losses: Worst in 5 years
Consumer confidence lowest on record
House Democrats vow new push on economy
Quick Vote
What worries you more about the economy?
Rising energy and food pricesWeakening job and housing marketsConcerned equally about inflation and slow growthNot worried: The economy is fine or View resultsNot your 1980's stagflation
More Videos
NEW YORK (CNNMoney.com) -- Despite five interest rate cuts in the past six months, Wall Street has remained impervious to the Federal Reserve's wooing, with investors taking a "thanks, but..." attitude to Ben Bernanke & Co.'s attempt to recharge the economy and stock market.
Since September, the central bank has lowered its federal funds rate, a key overnight bank lending rate, to 3% from 5.25%. This included a 75 basis point emergency cut in January. There are 100 basis points in one percentage point.
Federal Reserve policy-makers will meet again on March 18 and are expected to cut rates by at least another 50 basis points, to 2.5%. Coincidentally, the Fed's next meeting also marks the six-month anniversary of the first cut in this easing cycle.
But before you order your flowers and candy to send to your favorite central banker, it's worth pointing out that the stimulus from the Fed has done little for the stock market.
Since the first rate cut on Sept. 18 of last year, through Monday's close, the S&P 500 is down 16.2%. That makes this the worst performance for the market following a series of rate cuts since the 1950s, according to Standard & Poor's research. And that's taking into account other times when the economy was in a recession, as may be the case now.
Wall Street after rate cuts
S&P chief investment strategist Sam Stovall looked at where the market stood six months after the Fed initiated a series of interest-rate cuts, going back to the 1954 cycle.
Stovall found that the S&P 500 was in positive territory 7 of 11 times, for an average gain of 12.3% overall and a gain of 7.6% since 1980. For the years before 1980, Stovall looked at cuts to the discount rate and for the years after that, he looked at cuts to the federal funds rate.
How about the Nasdaq? Stovall looked at the tech average going back to its inception in 1971, again switching from the discount rate to the fed funds rate after 1980. On average, the Nasdaq rose 4 out of 7 times, for an average of 15.6% overall, and 11.5% since 1980.
Since the first rate cut last year, through Monday's close, the Nasdaq is down 18.2%. That's the worst response since the 1990-1991 recession, when six months after the first rate cut, the Nasdaq was down 22.6%.
As for the Dow, Ned Davis Research looked at statistics going back to 1921 and found that the Dow also posted double-digit gains, on average, six months after the first in a series of rate cuts. The Dow rose 13 out of 18 times, for an average of 11.7%.
Since the first rate cut last year, through Monday's close, the Dow is down 14.6%. That's the worst response since 1932, when the Dow had posted a loss of 37.5% at the six-month mark.
Fed loans not easing credit crunch
One of the reasons stocks haven't seen a 'Fed bounce' is that "although the Fed has been cutting rates for months, the economy hasn't started coming back yet," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
In fact, the economy has deteriorated since the September rate cut. The most recent reading on fourth-quarter GDP showed anemic growth of 0.6% and the first quarter could show a contraction in growth, some economists say. Employers made the biggest monthly job cuts in February in five years. And pretty much every housing market report shows falling prices, lower sales and rising rates of foreclosure.
Did we mention that quarterly earnings are at a five-year low and that the dollar is plunging? And that oil and gold prices are at or just below record highs?
All of this speaks to the possibility that the Fed may have waited too long to start cutting rates, therefore muting the impact, said Scott Armiger, portfolio manager at Christiana Bank & Trust.
He said that stocks initially bounced a bit after the first cut, leading to record highs for the Dow and S&P 500 in early October and to a multi-year high for the Nasdaq around the same time. Stocks also got a bit of a jolt after the Jan. 22 surprise rate cut.
But beyond those short spurts, stocks have been on the slide.
"We didn't get a real Fed bounce because it was just too late," Armiger said. "By the time they started cutting, the consumer was already tapped out."
Meanwhile, banks haven't been using the extra liquidity as a means of expanding their borrowing capabilities.
"The problem is not one of liquidity, but solvency," said Ryan Atkinson, market analyst at Balestra Capital. "The Fed is providing liquidity, but assets are overvalued. With the amount of credit outstanding, real economic activity cannot support the cash flows needed to service that debt."
So what really might be needed before the market reacts favorably to the Fed cuts is more time.
Play it like it's 2002
Along those lines, the 2008 stock reaction to the Fed cuts could be similar to what happened in 2001-2002, when the Fed cut rates aggressively to stimulate the economy amid the end of the tech boom, 9/11 and the 2001 recession. The stock reaction to that was delayed, but ultimately positive.
"There's no doubt that we're in a financial crisis," said Bill Stone, chief investment strategist at PNC Financial Services Group. "But its also reasonable to figure that we could see a turnaround like in 2002."
The Fed cut rates 11 times in 2001, from 6.5% to 1.75%. But six months after the first rate cut, the S&P 500 was down 3.6%, the Nasdaq was down 6.2% and the Dow was down 4.3%, with Wall Street smack in the middle of a three-year bear market.
Stocks didn't bottom until October 2002 and didn't see an up year until 2003, a big year on Wall Street in which the Nasdaq rose more than 50% and the Dow and S&P 500 each gained more than 25%.
Stone's not saying that stocks are in for a year like that next year, as problems in the housing and financial markets are bound to linger. But eventually, he said, the markets start discounting the bad numbers and looking forward. And that will coincide with signs of a bottoming in the economy and other indications of a turnaround, all of which will be bolstered by the Fed's cuts.
So while the market may not be feeling any better six months after the first rate cut, it may be a different story another year from now.
WHENVER the market falls 5 to 10% in a space of 2 weeks....
REMEMBER
The fed always comes to the rescue and the markets go up atleast in the short term
The fed always comes to the rescue and the markets go up atleast in the short term
MARCH 11 2008 Fed adds $200b liquidity and DOW jumps 350
March 9 Sunday
My short options + long stocks were down $3000 in the last 2 days and i was wonder how low the market is going to go?
In the past 10 days market has been down from 1381 to 1273 (8% down) and especially last week was brutal.
10-Mar-08 1,293.16 1,295.01 1,272.66 1,273.37 4,261,240,000 1,273.37
7-Mar-08 1,301.53 1,313.24 1,282.43 1,293.37 4,565,410,000 1,293.37
6-Mar-08 1,332.20 1,332.20 1,303.42 1,304.34 4,323,460,000 1,304.34
5-Mar-08 1,327.69 1,344.19 1,320.22 1,333.70 4,277,710,000 1,333.70
4-Mar-08 1,329.58 1,331.03 1,307.39 1,326.75 4,757,180,000 1,326.75
3-Mar-08 1,330.45 1,335.13 1,320.04 1,331.34 4,117,570,000 1,331.34
29-Feb-08 1,364.07 1,364.07 1,325.42 1,330.63 4,426,730,000 1,330.63
28-Feb-08 1,378.16 1,378.16 1,363.16 1,367.68 3,938,580,000 1,367.68
27-Feb-08 1,378.95 1,388.34 1,372.00 1,380.02 3,904,700,000 1,380.02
26-Feb-08 1,371.76 1,387.34 1,363.29 1,381.29 4,096,060,000 1,381.29
Last four months starting Nov, was a down month.
Mar-08 1,330.45 1,344.19 1,272.66 1,273.37 5,093,968,300 1,273.37
Feb-08 1,378.60 1,396.02 1,316.75 1,330.63 4,148,143,000 1,330.63
Jan-08 1,467.97 1,471.77 1,270.05 1,378.55 4,925,982,300 1,378.55
Dec-07 1,479.63 1,523.57 1,435.65 1,468.36 3,363,127,500 1,468.36
Nov-07 1,545.79 1,545.79 1,406.10 1,481.14 4,317,578,500 1,481.14
Oct-07 1,527.29 1,576.09 1,489.56 1,549.38 3,477,202,100 1,549.38
Not a very good feeling on monday morning.
Tue Fed cuts and market is up huge.
MORAL: Whenver the market falls huge in a short term, Fed does something to
get it back on feet.
My short options + long stocks were down $3000 in the last 2 days and i was wonder how low the market is going to go?
In the past 10 days market has been down from 1381 to 1273 (8% down) and especially last week was brutal.
10-Mar-08 1,293.16 1,295.01 1,272.66 1,273.37 4,261,240,000 1,273.37
7-Mar-08 1,301.53 1,313.24 1,282.43 1,293.37 4,565,410,000 1,293.37
6-Mar-08 1,332.20 1,332.20 1,303.42 1,304.34 4,323,460,000 1,304.34
5-Mar-08 1,327.69 1,344.19 1,320.22 1,333.70 4,277,710,000 1,333.70
4-Mar-08 1,329.58 1,331.03 1,307.39 1,326.75 4,757,180,000 1,326.75
3-Mar-08 1,330.45 1,335.13 1,320.04 1,331.34 4,117,570,000 1,331.34
29-Feb-08 1,364.07 1,364.07 1,325.42 1,330.63 4,426,730,000 1,330.63
28-Feb-08 1,378.16 1,378.16 1,363.16 1,367.68 3,938,580,000 1,367.68
27-Feb-08 1,378.95 1,388.34 1,372.00 1,380.02 3,904,700,000 1,380.02
26-Feb-08 1,371.76 1,387.34 1,363.29 1,381.29 4,096,060,000 1,381.29
Last four months starting Nov, was a down month.
Mar-08 1,330.45 1,344.19 1,272.66 1,273.37 5,093,968,300 1,273.37
Feb-08 1,378.60 1,396.02 1,316.75 1,330.63 4,148,143,000 1,330.63
Jan-08 1,467.97 1,471.77 1,270.05 1,378.55 4,925,982,300 1,378.55
Dec-07 1,479.63 1,523.57 1,435.65 1,468.36 3,363,127,500 1,468.36
Nov-07 1,545.79 1,545.79 1,406.10 1,481.14 4,317,578,500 1,481.14
Oct-07 1,527.29 1,576.09 1,489.56 1,549.38 3,477,202,100 1,549.38
Not a very good feeling on monday morning.
Tue Fed cuts and market is up huge.
MORAL: Whenver the market falls huge in a short term, Fed does something to
get it back on feet.
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