Tuesday, September 18, 2007

Bernanke PR Syndrome

About Stocks ( BAC / TMA / MER / NCC / HOV / BZH / DHI / MDC / RYL / TOL / SPF / PHM / DHOM / CTX / KBH / PHHM / MSO )

Bernanke not only blinked he jolted and surprised the market with the 50 50 approach. The Fed Reserve Chairman needs to be respected and he was clearly having a PR problem. So like any politician he bought his constituency with their own money. Everyone will remember yesterdays profits at least until... well for a little while anyway.

While the rate needed to come down some it does not stop the defaults. If you are behind 90 days, your mortgage is on the arrears list and you are staring at power of sale action. This move will probably not roll back the existing problems. Therefore the existing sub prime securitized debt that was poorly structured is still a terrible deal. The sub prime financings will no longer generate big fees for Wall Street or originating brokers.

The key indicators will be if housing starts and resales pick up. These indicators were driven in part by buyers who did not have adequate incomes or adequate equity. The rate cut does nothing to alleviate this issue.

Bernanke got the monkey off his back. Now everyone has to stop whinning.Can the market really make this work?