Monkeys in the market

Posted by Marc Hodak on August 31, 2007 under Economics | 2 Comments to Read

The AP story begins with the silliest possible headline: “Stocks End Up on Bush, Bernanke Speeches.”

Actually, stocks opened higher, well before either speech, and drifted sideways through the day. So, there is no basis for implying that the stocks were up because of the speeches, unless you assume that the market got copies of the speeches before they were actually given by Bernanke and Bush.

Even if that were true about the Bush speech, let’s look at what he actually proposed to deal with mortgage problems:

1. Expanding FHA lending to a number of home-owners not previously covered
2. Supporting legislation to change tax law on forgiven debt
3. Strengthening lending standards for loans to low income individuals

Here is the translation:

1. Shifting more of the risk from private banks to the taxpayers
2. Inserting into our 67,000 page tax code another couple of lines that read like, “Enter on line 16g the total interest expense (including interest equivalents under Temporary Regulations section 1.861-9T(b)). Do not include interest directly allocable under Temporary Regulations section 1.861-10T to income from a specific property…”
3. Insuring that whatever steps the market would naturally take to prevent something like this from happening any time soon is associated with additional regulatory paperwork, risks, costs, and constraints so as to artificially depress the number of loans that will be available to the poor on any terms.

That’s what the AP reporters thought the market was applauding?

Oh, we don’t get far into this story before encountering this nugget:

“You’ve got all the speeches working for the market here,” said Michael Church, portfolio manager at Church Capital Management in Philadelphia. “What we’ve seen in the last few weeks is that Ben Bernanke and the Federal Reserve are paying attention to what’s going on. They will help correct the credit markets. For now, we’re in a trading range and we have to sort through this mess.”

Dear readers, you should know that this speaker hasn’t said a goddamn thing. The only sentence here that isn’t fluff is the one contending that the Fed will correct the market–and that one is flat out wrong.

By the way, not to alarm anyone who might happen to be invested with Church Capital, my expert opinion is that this fund has only a 52 percent chance of losing you money. In other words, save yourself the fees. You’re better off with a monkey and darts.