I had a discussion with Bill today about why the  market is not going down even though the data releasedlast week was gloomy. Seems market is oversold and most of the worst data is already priced in.The bull case being that the selling has levelled off and investors started buying large cap stocks, and the sooner the data gets worse, the fast is the recovery.. An excerpt from www. "SO REMEMBER IT IS NOT THE NEWS THAT MATTERS IT IS HOW THE MARKETS REACTS TO THE NEWS THAT MATTERS MOST AND FRIDAYS REACTION TO BAD NEWS SUGGESTS MOST INVESTORS HAVE DISCOUNTED PRETTY MUCH ARMAGEDDON."

 Well, I subscribe to the bearish case taht the market has not yet priced in the worse yet. Market is just trying to search a bottom, and in doing so, the investors are acting optimistic.

Let me write fo rmyself the data that was out last week.. (well, i do it coz I am short broad market, and I lost my gain and I am in red in my investment and yes, I am pissed. )

Beige Book: In no surprise, the Fed’s latest survey of economic conditions in all its districts indicated that through late November the economic downturn was worsening from the last report and spreading throughout the country. The consumer remained weak with big-ticket luxury spending pressured the most. Auto sales were down broadly with less fuel-efficient light trucks and SUVs under the most pressure. Residential real estate activity remained weak across all regions. As reflected in the ISM service index below, a number of service industries were hit hard. Labor markets were also under pressure across all districts and consistent with the government’s reports on falling payroll employment. While most of the above is nothing new, exports are now falling across all regions, which is likely to cancel out the expected positive contribution to GDP from the international sector. Commercial real estate is now weakening as well with rents falling and vacancies rising.

ISM Non-Mfg Index:The ISM’s business activity index dropped 11.2 points also to a record low. The detail indexes are just as bad, especially the big drop in the employment index (31.3 vs. 41.5), the lowest on record by far and consistent with sizable losses in service sector jobs. Backlogs (39.5 vs. 44.0) and new orders (35.4 vs. 44.0) were weak enough to expect more bad news ahead in the service sector.

Chain Store Sales: Consumers may have ventured out for bargains on Black Friday, but it looked like they stayed home for the rest of the month as year-over-year same-store sales at retail stores fell 2.7% in November, far weaker than expected and the biggest drop since the late 1960s. Excluding Wal-Mart’s results, sales would have been down 0.7%.

Auto Sales:total light vehicle sales fell still lower, to a 10.1 million rate with the  domestic Big Three down 40% year-over-year, led by Chrysler (-47%) followed by General Motors (-41%) and Ford (-30%). They managed to increase their market share from 47% to 49%.

However, the Japanese Big Three did almost as poorly—Nissan (-42%), Toyota (-34%) and Honda (-31%). But that just demonstrates how weak overall consumer demand is in the U.S. no matter who makes the car.

ISM Mfg Index: It fell a deeper than expected 2.7 points in November to 36.2, its lowest level since the early 1980's recession years. That was the fourth month in a row the index has been below 50, indicating contracting factory activity with each month  successively lower and consistent with a serious recession.also reached similar near record-low levels. Production (31.5 vs. 34.1) again made new lows while forwardlooking measures like new orders (27.9 vs. 32.2) and order backlogs (27.0 vs. 29.5) were in the 20s and

predicted continued weak production levels ahead. Inventories will be a drag on the GDP, and the employment index (34.2 vs. 34.6) indicated continued higher layoffs and lower hiring by manufacturers.

Factory Orders: Like all other factory reports over the past few months, overall factory orders for October fell 5.1%, nearly double the 2.8% decline expected by consensus forecasts. It was the third monthly decline in a row following significant declines of 3.1% and 4.3% in September and August, respectively.

Semiconductor Billings: Even global semiconductor billings, a good leading indicator for overall technology manufacturing activities, turned down in October. Total billings fell 2.13% and 2.43% sequentially and year-over-year, respectively.

Construction Spending: Overall construction spending was down 1.2% in October, weaker than the consensus 0.9% expected decline, and was down 4.6% from a year ago.

Employment Report: The big news of the week was the government’s November employment report and, as many feared, it was a shocker. Total payroll jobs fell by 533,000 following an upward-revised 320,000 October loss (from 240,000) and a 403,000 September drop (from 284,000). That brought the total job loss over the past three months to 1.256 million. The unemployment rate rose as expected to 6.7% from 6.5%, even though over 400,000 workers left the workforce.

The same in Pictures.. http://www.econbrowser.com/archives/2008/12/comparing_reces.html

And, today was no different either.. Mortgage default rates data was out, and it is not pretty in any way.. 

From Bloomberg:

Almost 53 percent of borrowers whose loans were modified in the first quarter of this year re-defaulted by being more than 30 days overdue, John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency, said today in remarks prepared for a housing conference in Washington....

The OCC’s survey represents institutions that service more than 60 percent of all first mortgages, or 35 million loans worth $6 trillion, Dugan said.

“In general, the third quarter report will show many of the same disturbing trends as other recent mortgage reports,” Dugan said. “Credit quality continued to decline across the board, with delinquencies increasing for subprime, Alt-A and prime mortgages.”

YET THE MARKET RALLIED!!!! 

Two catalysts that would decide the direction of the market.. 

The SEC report on mark-to-market accounting, due on January 2nd.  This might recommend reporting transparency, but some relief on the official asset calculation.  Or it might not.

Housing initiatives.  

The Treasury is hinting at a new plan to reduce mortgage rates.  The Fed has already acted.  We expect the market to be skeptical of both, so it may take some real evidence to change opinions.

Song: "Closer" - Travis. 

Mood: "very playful" :)