Week in Review 7/27/07 – Stocks Pummeled

The euphoria of the DOW closing over 14,000 seems like ancient history.  In the six trading days since, the market has gone into free fall. Triple digit down days has become the norm.  Last Friday’s 149 point loss was a victory compared to this week’s 226, 311 and 208 point losses on Tuesday, Thursday and Friday.  Three months of gains wiped out, vanished, gone. 

Countrywide Financial Corporation (CFC), the largest mortgage lender in the U.S., kicked off the party when it announced that it was taking a huge charge as it prepared for the possibility of more people failing to make their mortgage payments.  Get this – they didn’t blame the usual suspect subprime slime (loans given to borrowers with poor credit histories).  The company stated the rise in credit-related costs was primarily related to its investments in prime home equity loans.  These are loans to people with solid credit profiles.

Countrywide’s conference call to discuss this mess went on for three hours.  These calls are usually only an hour.  The longer they talked the more the market fell.  I found the following quite troubling.  The company said that mortgage delinquencies were not due to borrowers struggling with mortgage rate resets.  Instead the delinquencies have been due to people losing their jobs.  That’s scary, because the resets are definitely coming and it will only add fuel to the fire.

Later in the week “repricing of risk” became the catch word.  Basically, mortgage defaults on Main Street are parlaying into higher rates on Wall Street.  This is having an adverse affect on Private Equity deals which has been a significant contributor to this bull market run.  

All of that added up to a thumping this week.  For the week, the DOW, S&P 500 and NASDAQ were down 4.2%, 4.9% and 4.7%.  The Semiconductor Index that had been performing so well was down 6.4%.

It wasn’t any better in the commodity patch.  Gold, Silver and Copper were down 3.6%, 5.1% and 4.3% respectively.  Gold stocks, as represented by the XAU index, were butchered to the tune of -8.6%.  The only bright spot was Oil which closed up 1.6%.

How could the TTaMG portfolios not take it on the chin with such a backdrop?

  • Fab 4    -7.0%
  • BBO     -8.9%
  • BRIC  -6.2%
  • Real Money   -6.5%
  • TBS     -4.4%
  • MDs Ag Play  -6.8%

The only consolation is that we are smoking the market year to date.  Refer to returns listed in sidebars.

More follows for Friends of TTaMG.

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  • Hey Mike,

    I thinking about dipping my feet in JYN and XLI, just wanted your opinion.

    I have been doing a little research, what is your view on curriencies, short-term, long-term, nada???

  • Hi Moneymonk, It’s good to hear from you. I am not much of a currency expert. All I know is that Europeans keep showing up here with empty suitcases.

    There are too many hidden agendas with currencies. Paulson was yapping last week that a strong dollar is in the best interest of the US. Now he is on his way to China to convince them to let their currency rise faster. The Yuan can’t increase versus itself.

    My only experience with currencies is through Gold and if I had any hair left I would pull it out. Gold is by far the most manipulated market in existence. Since high gold prices are a bad reflection on fiat money, the Central Bankers of the world like to keep it in check. One day their games will fail to work and gold will explode.

    I have no opinion on JYN. If I was going to trade a currency ETF – I would look to Europe, Canada or the UK. I like industrials, but I would wait for XLI to close over $41.50.

  • yeah U agree I have CEF. Thinking about Oil futures also, USO

    Thanks for the tip on XLI

  • USO is ripping. I bought some last week.

  • You are the man !

  • Moneymonk,

    Check out my latest article “Leave Buy and Hold to the Billionaires.” There is a video clip where Eric Bolling from Fast Money talks about the FXY as a way to play the unwinding of the Yen carry trade.