Greenspan reinforces US housing weakness, as IFR Reports & Events anticipated here last week. -Protrader
Posted by Index Protrader Services at 4/9/2008 11:13 AM and is filed under uncategorized 
Fedpseak is now exacerbated by Mr. Greenspan’s comments last Thursday, as he expects US house prices still have a long way to fall. In the context of the previous speeches, that is a toxic brew for the US economy and stock markets. -ProTrader
Our associates at ITI had noted in our blog last week that Mr. Greenspan’s comments might be influential. Below is an excerpt from last Friday’s ITI Institutional Financials Review market letter (now available to individual investors through our exclusive relationship with ITI):
Friday, May 9, 2008 (07:00 CDT; 08:00 EDT; 12:00 GMT)
OVERVIEW
▪ It seems there is a return to earthspace for the various market psychologies that had
demonstrated perverse permutations of late. The US equities continue to shake off
strong news to anticipate a still depressed outlook. That was reinforced by former Fed
Chairman Greenspan yesterday noting the worst of the credit crunch might be over,
yet there would be an extended period of weak US growth. His expectation is that US
house prices still had a long way to fall. Taken in conjunction with our assessment
that the official efforts to get borrowers and lenders together (Hope Now) is futile in the
context of securitized mortgages, and the Fed’s recent shift to an inflation focus, that
reinforces the most toxic aspects of the current official stance for the equity markets.
▪ What that likely means in practice is that US equities lead the way back down, and
European equities lose their ‘bad news is good news’ psychology on the potential
bottom and follow suit. The has quite a few implications for markets, with long dated
fixed income likely to head higher in a major way once again, and expectations the Fed
will hike rates anytime soon refuted. Anticipation that the Fed would hike rates again
quickly due to stock market recovery is just the sort of misguided view that got the
Eurodollar future bears into trouble back in 2002. As back then, if equities return to a
bear trend there is actually room for the Fed to ease once again rather than hike. It is
also near term bearish the US dollar, although whether that means the buck spins back
into a sharp bear or just retreats into a broad basing action will depend on how quickly
economic psychology weakens in Europe and the UK. The latter is already apparent in
the poor performance of the pound after the BoE held rates steady at 5.00% yesterday.
▪ Yet, for now the equities’ loose Double Bottom basing pattern UP Breaks (above
February highs) are starting to unravel, as DJIA drops back below 12,768 after a
lengthy push above it. Back below 12,700 late this week puts it into a DOWN Break out
of a Rising Wedge pattern, which has a minimum downside Objective of a return to the
Bear Stearns capitulation low at 11,757. That would be quite a shock to the system for
most of the ‘basing’ camp who believes that things are going to continue to improve.
That weaker sister S&P 500 future has already been below 1,401 for the past couple of
days only adds weight on the markets. The next shoe to fall will need to be FTSE 100
dropping back below its 6,105 UP Break. Lower DJIA critical support is 12,500-450.
▪ Other tech views remain the same as in yesterday’s TrendView BRIEF UPDATE, and a
courtesy copy is attached. One additional note is that the next important resistance
threshold in June T-note is the 116-16 area, above which 118-00/-16 is next. While that
works well with Bund resistance at 115.00-.30, the Gilt is already out above 108.50-.80
reflecting the weaker UK outlook. Next resistances are 109.70-110.00 and 111.00 area
Our associates at ITI had noted in our blog last week that Mr. Greenspan’s comments might be influential. Below is an excerpt from last Friday’s ITI Institutional Financials Review market letter (now available to individual investors through our exclusive relationship with ITI):
"…the equities’ loose Double Bottom basing pattern UP Breaks (above February highs) are starting to unravel, as DJIA drops back below 12,768 after a lengthy push above it. Back below 12,700 late this week… …(it) has a minimum downside Objective of a return to the Bear Stearns capitulation low at 11,757. That would be quite a shock to the system for most of the ‘basing’ camp who believe that things are going to continue to improve. That weaker sister S&P 500 future has already been below 1,401 for the past couple of days only adds weight on the markets."
The full ITI Institutional Financials Review analysis:
Friday, May 9, 2008 (07:00 CDT; 08:00 EDT; 12:00 GMT)
OVERVIEW
▪ It seems there is a return to earthspace for the various market psychologies that had
demonstrated perverse permutations of late. The US equities continue to shake off
strong news to anticipate a still depressed outlook. That was reinforced by former Fed
Chairman Greenspan yesterday noting the worst of the credit crunch might be over,
yet there would be an extended period of weak US growth. His expectation is that US
house prices still had a long way to fall. Taken in conjunction with our assessment
that the official efforts to get borrowers and lenders together (Hope Now) is futile in the
context of securitized mortgages, and the Fed’s recent shift to an inflation focus, that
reinforces the most toxic aspects of the current official stance for the equity markets.
▪ What that likely means in practice is that US equities lead the way back down, and
European equities lose their ‘bad news is good news’ psychology on the potential
bottom and follow suit. The has quite a few implications for markets, with long dated
fixed income likely to head higher in a major way once again, and expectations the Fed
will hike rates anytime soon refuted. Anticipation that the Fed would hike rates again
quickly due to stock market recovery is just the sort of misguided view that got the
Eurodollar future bears into trouble back in 2002. As back then, if equities return to a
bear trend there is actually room for the Fed to ease once again rather than hike. It is
also near term bearish the US dollar, although whether that means the buck spins back
into a sharp bear or just retreats into a broad basing action will depend on how quickly
economic psychology weakens in Europe and the UK. The latter is already apparent in
the poor performance of the pound after the BoE held rates steady at 5.00% yesterday.
▪ Yet, for now the equities’ loose Double Bottom basing pattern UP Breaks (above
February highs) are starting to unravel, as DJIA drops back below 12,768 after a
lengthy push above it. Back below 12,700 late this week puts it into a DOWN Break out
of a Rising Wedge pattern, which has a minimum downside Objective of a return to the
Bear Stearns capitulation low at 11,757. That would be quite a shock to the system for
most of the ‘basing’ camp who believes that things are going to continue to improve.
That weaker sister S&P 500 future has already been below 1,401 for the past couple of
days only adds weight on the markets. The next shoe to fall will need to be FTSE 100
dropping back below its 6,105 UP Break. Lower DJIA critical support is 12,500-450.
▪ Other tech views remain the same as in yesterday’s TrendView BRIEF UPDATE, and a
courtesy copy is attached. One additional note is that the next important resistance
threshold in June T-note is the 116-16 area, above which 118-00/-16 is next. While that
works well with Bund resistance at 115.00-.30, the Gilt is already out above 108.50-.80
reflecting the weaker UK outlook. Next resistances are 109.70-110.00 and 111.00 area
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