Market Summary: Thurs. March 6, 2008

It was a rough one today to say the least. The major indices broke through technical resistance levels in the afternoon which triggered increased selling pressure. Also, setting new lows over as long-term of a period as we are, it also triggers a good amount of momentum money from people who trade on breakouts. A breakout is when a stock, index, or commodity sets new highs or lows for a certain period of time. Bottom line, as hard as it is to say, if you look at the technicals of the market…we’ve got a lot more pain on the way.

As I said, we broke through lows, the Nasdaq and Russell set new 52 week lows. The S&P and Dow are approaching those new lows over a 17 month period.

Two more firms failed to meet margin calls on portfolios of mortgage backed securities. Carlyle and Thornburg Mortgage were the ones in trouble. Thornburg fell another 50% to around $1.50, in June it was trading at almost $90, 'nuf said. The margin calls which forced these portfolios to liquidate assets (meaning they have to sell, which forces the prices of these “assets” even lower) create more margin calls, and you can see the vicious cycle that could develop. On top of that, it makes all the equity traders understandably nervous, creating lots of pain for us. There are probably more margin calls on the way.

On a similar page, there is increasing “counterparty” risk, the risk that the people you enter into a financial contract with will be able to hold up there end of the bargain. If more of these financial contracts start going bust, it’s going to create a lot more pain and uncertainty in the not so distant future.

5.82% of mortgages are at least 30 days overdue, up 87 basis points from this time last year. And I think this number is only going to grow, mainly because housing prices are falling. The growth in delinquencies will be even greater in states such as California where banks can’t sue people for defaulting (not paying) on mortgages. In this case, a mortgage is a pure put option, as the price of the house falls, as they have been, the borrower has the option to back out of paying the rest of the mortgage and saving themselves that money. With all the homes bought on speculation in the southwest, we will see more people letting the banks foreclose on their homes.

Retailers released same-store sales for last month today. Most of them were bad, look at a chart of American Eagle (AEO). Retailers hit worst were the specialty, niche type companies, i.e. Abercrombie, Nordstrom, American Eagle, etc. but it even extended to the department stores including JC Penny which lost about 10%

Oil was up almost a dollar, another record. Gold was down $11, again this is probably a great dip to buy. Bonds rose as this is the flight to quality. The more people that get scared of the market, the more expensive bonds become. The dollar weakened again, more of the same.

Unemployment insurance fell, but the number of people applying for unemployment benefits rose sharply. This makes tomorrow morning's unemployment number all the more important. If this employment number is bad, we will be down huge tomorrow. The only way we can stave off the momentum guys who will be shorting tomorrow is if the number absolutely rocks. We'll see in the morning.

DJIA 12,040.39 -214.60 (-1.75%)
Nasdaq 2,220.50 -52.31 (-2.30%)
S&P 500 1,304.34 -29.36 (-2.20%)
NYSE Volume 4,293,954,000

2-Yr Bond 1.53% -0.13
10-Yr Bond 3.62% -0.08
30-Yr Bond 4.57% -0.03

Dollar Index 73.001 -0.478
Crude Oil (Apr) 105.47 +0.95
Gold (Apr) 977.10 -11.40