WASHINGTON – Well, it’s Wednesday, stock market fans. And Tuesday’s headline chaos seems to have carried over into a second trading day. All three major averages I regularly follow – the Dow, the S&P 500 and the NASDAQ – opened strong at the opening bell. But then, they fizzled. As of 3 p.m., all three continue to struggle to maintain upside momentum. But they’re not doing very well. That’s likely due to the kind of headline chaos — like the current impeachment lunacy — that’s likely to disrupt stock investing strategies until… well, until it doesn’t. Add to this headline chaos the obvious fact that stocks are probably overbought at this point. Individual stockholders, like yours truly, find it hard to pick up shares at today’s notably inflated prices. And without continued buying from individuals and institutions, it’s harder for individual issues to hit impressive new highs on a regular basis. So that's another strike against the bulls. ##### When the buying panic slows down...
Worse, when the buying panic slows down – or stops – so does the ongoing rally, making it highly vulnerable to a correction. And perhaps a nasty one. Add the current bout of political and economic news headline chaos – fake impeachment and otherwise – and you have the recipe for a modest-to-severe market correction. The Democrats’ ongoing Impeachment Carnival on Capitol Hill isn’t helping this situation either. Hungering to remove the first American president in memory who’s actually done his best to keep his campaign promises shows you just how focused these monomaniac faux-socialist losers really are on achieving a “fundamentally transformed” America re-founded on the basis of permanent one-party rule. Theirs. This is proving highly unsettling to stock markets and average Americans as well. Even averages Americans who’ve customarily pulled the Democrat lever every 2-4 years. Because if they didn’t, grandfather would start spinning in his grave. Fake impeachment cuts both ways. The Dems decided to gamble that their erroneous flavor of impeachment would tilt the electoral environment their way. We'll see. ##### Bonds behaving weirdly
The Tylers at ZeroHedge note that bonds and common stocks seem temporarily adrift from their moorings.
“Despite the fact that the bond market refuses to sell-off (as it should in a well-behaved market sending stocks to record… highs each and every day), the levered [leveraged] long crowd has never been more "all-in" than they are right now.”
Call options – essentially bets that the underlying stock will continue to climb – appear overly optimistic as well. Big time. If investors and funds are wildly buying both bonds and stocks hand over fist, it’s a sign that this market may have lost all reason. At which point, raw, emotional greed and fear of being left behind kick in. Not good. ##### Liar Loans on the comeback trail?
Bankrate.com offers the following info, which, while good news on its surface, could also prove very problematic.
“Heeding the call of some of the largest mortgage lenders in the industry, the Consumer Financial Protection Bureau (CFPB) is moving to back the elimination of debt-to-income (DTI) requirements in mortgage underwriting.
“In a letter CFPB Director Kathy Kraninger sent to Congress today, the CFPB asked to amend the Ability to Repay/Qualified Mortgage rule (ATR/QM rule) in order to remove DTI as a qualifying factor in mortgage underwriting.
“This rule was created in response to the financial crisis of a decade ago as a way to prevent lending money to borrowers who might not be able to afford the loan…. The only portion the CFPB is asking to amend is the DTI requirement as a powerful coalition of lenders deems the rule unfair and constraining.”
What's the unconstitutional CFPB up to now?
Moving on to an obscure example of headline chaos, the CFPB wants to trim back the current 43% debt to equity rule. What's that? Surely at least some of our readers already know. Borrowers whose finances exceed that limit currently can’t qualify for new or refinanced real estate loans at or above that level. For me, this one is personal, as it’s prevented me from refinancing several underwater rental properties at a way lower rate than my current mortgage rates, averaging a whopping 6.5% per house. A lower rate would at least restore these rental properties to positive cash flow status, but, sorry, pal, no can do. I’ve been paying this rate since the Great Recession without ever missing a monthly installment. But, sorry pal, no can do. Which is asinine for me and countless others who’ve arguably kept debt loads and the economy afloat for over a decade. But even a spotless payment rate can’t overcome that draconian 43% rule. Repealing this inflexible piece of economic asininity would make sense for at least some borrowers, like moi. But doing it wholesale and allowing liar loans to return might prove a bridge too foolish and too far. Yet something needs to happen here. This rule has, in the main, been a huge obstacle to growing housing stock and our over all economy much faster than is currently the case. The blatantly unconstitutional CBPB, however, is not the place to get this done. ##### Tom Bowley: The Masses are Growing Too Bullish. Is this a Short-Term Market Top
In our next article, we’ll examine a couple specific sectors of the stock market that are cruising for a bruising. But let’s wrap up today’s general market observations with some comments from technical analyst Tom Bowley.
“In case you haven't seen it, I've made a prediction that the S&P 500 will see 4000 before this year ends. It may have looked really crazy 6 months ago, but it's not quite so crazy anymore. It won't be straight up, however. We'll have our normal ebbs and flows with short-term greed and fear helping to direct traffic. Currently, greed is taking over. No one wanted to buy U.S. stocks when the headlines centered on the trade war. We were doomed! 500 points later and now everyone is speculating and buying calls. That's how the market works. The masses usually arrive late to the party.”
The wrap: Stock and bond correlations are unmoored
Yeah, Tom, they do. So maybe its time for all of us to exit a few positions, which I’ll explore in my second article today. As for now, let’s agree on the following. Unmoored stock and bond correlations, plus dubious moves in the financial sector by an “independent” Federal agency that never should have been born are unsettling for investors. So is the ongoing headline chaos. These realities make this an increasingly treacherous market in which to invest. So does headline risk, particularly as it involves China trade and the continuing impeachment nonsense. In my companion article to this one, I’ll take a look at a couple of stock sectors that have weakened in recent weeks This may put the underlying stocks in those sectors at risk of some serious declines. Some of which seem to have already begun. **
*– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.*