Just like the old days

It was just like the old days yesterday, with everything going up except the dollar (which fell heavily). Well, stocks and commodities were higher. Bonds were looking OK in Europe until the Euro PMIs came out slightly stronger in the morning (suggesting very weak rather than disastrously weak activity - just wait till the next few months if you want to see disastrously weak activity) while in the US, the flight to quality bid Ts had enjoyed diminished over the day. The flip side of that was stronger stocks including, to some extent, financial stocks which gaped lower on the open on the LEH news, but drifed higher for the rest of the day without closing up for the day. Resources were the real driver of higher index prices though. Stocks rising with oil and gold soaring ... makes you nostalgic ... if only it could be like that every day.

It can't though, mainly because the US financial system's insolvency problem is deteriorating further. S&P reported that delinquencies for subprime loans in 2006 rose from 34.2% in Feb to 41.7% in July. Alt-As went from 15.2% to 21.5%, non-conforming jumbos (which aren't guaranteed) trading 12c lower than conforming. The picture is similar for 2007 bonds, with sub-prime delinquencies rising to 31.2 from 23, Alt-As from 9.1 to 14.1 and jumbos from 1.9 to 3.2. Over time, delinquencies always rise so you have to be careful when reading about "record highs for foreclosures" as an indicator that things are getting worse. Its the rate of change which is more important. Those rates of change don't look to encouraging though. And why should they? House prices remain in freefall and although there are tentative signs of stabilisation, those occured before the GSEs became so distressed even they turned off the tap. Another leg down in the housing mkt beckons, and the longer Hank keeps his Bazooka in his pocket the uglier it will be.

Its probably why Thain at ML is reportedy scheduled to pop in to some of the Asian Sov funds, including Korea. Hope he does better than Fuld did. Temasek said yesterday they were interested in looking at bank funding should opportunities present themselves (wonder if Fuld tried there?) Corn and beans rose yesterday on news that the late plantings caused by this years fooding are at risk from an early frost. Western Australia (world's third largest exporter) said lack of rain looked like bringing its crop in at the lower end of forecasts.

Today Bernanke speaks on financial stability. That'll be interesting. I'm sure he'll stress is inflation fighting credentials, as is obligatory ... if he meant it though he'd do more than talk. A good place to start would be by painting it 100 times on the outside of the Whitehouse while noone's looking ... "How much do you hate inflation Ben? Cos we really hate it, not like the Washington Popular Front. If you want to be in the People's Front of Washington, you have to really hate inflation. "Oh I do, I do. I really really really hate inflation"").

It will also be interesting to see how commods behave today. Ags are down this morning, as you'd expect given the run they'd just had. But oil is the big one. It traded through $121 last night which was a big support on the way down. We corrected about 25% from $147 and I'd be amazed if that was it for the oil price given the influence of distressed buying (Semgroup) in pushing it to $147 in the first place, not to mention the weakening global backdrop. In 2001, a couple of years after the bull market started, oil fell by 50% as global activity fell of a cliff post the tech bust. That'd take us to $75ish, which is probably where the highest marginal cost producers are. If the global economy isn't as weak as it was then (I suspect it's weaker but who the hell knows?) , well we've had a couple of 35% corrections during this bull mkt. That would take us to $100. That's the next level at which I'll start nibbling on some of the energy trades. In the meantime, I'll leave it to those who know more.