Another Bipolar Rally and Other Stuff

Stock traders didn't let us down yesterday. Oil fell more than $5/barrel, to a little more than $136.

Wait - isn't that still really expensive? When oil was rising through that level, just a couple of weeks ago, the Dow was shedding more than 250 points over about a four-day period. Yesterday, we get a 150-point rally for hitting that level.

Oh, and why did oil fall? Reduced concerns that Iran might threaten Israel.

So what's Iran up to today? Oh, just testing a little long-range missile - one that can easily reach Tel Aviv or Jerusalem. So oil's up, and stocks are down.

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Here's more nonsense from a Bloomberg story: "Treasuries fell as stocks rose and concern eased that mortgage-related losses at banks and financial companies will widen."

Oh, really? If those concerns have abated, then why are mortgage spreads widening back out to the 22-year highs they reached in March before the Bear Stearns bailout? The widest spreads since we've had a secondary mortgage market ought to tell us something, as should a doubling of the credit default swap spreads on Fannie Mae and Freddie Mac.

The financials have written down about $400 billion thus far, right? Every estimate out there is that credit market losses will ultimately hit anywhere from $1.3 trillion to $1.6 trillion. So we're only about a quarter to a third of the way through this mess. Trust me, the losses will widen (especially with rates now rising).

A bond trader interviewed for the article said, "Financials have hit bottom or are close to it. The Fed has a grip on the financial downside."

Riiiiight.

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We now turn our attention from nonsense to good sense, and from a most unlikely source: Hank Paulson. The architect of the monumentally silly "HOPE NOW" plan said, "Many of today's unusually high number of foreclosures are not preventable. There is little public policymakers can, or should, do to compensate for untenable financial decisions." (Emphasis added.)

Wow.

Don't get me wrong, I don't disagree. In fact, this is probably one of the first times I've found myself in complete agreement with Hank. It's just something of a shock coming from him.