Another rally? Huh? What happened to fear? After weeks of turmoil, markets seem to have calmed down, and we are trading at the high endof our recent ranges. Value investors are starting to come in.
And fear? It's still here, and it will likely come back. But I have argued for a week that some kind of asset allocation makes sense: stocks are underowned, bonds are overowned, and gold...well if it's not overowned it sure has got ahead of itself.
In the past week, both Treasurys and gold have looked toppy, and stocks have come off their lows. After pricing in a recession, a banking crisis and a sovereign debt crisis, the sellers have abated... now it is time to wait and see if the facts line up with the repricing.
If we don't have a double dip ...then stocks are pretty cheap.
Who's buying these stocks? Some — but not enough — is coming from corporate buybacks. According to TrimTabs.com, in August, 163 buybacks totaling $39.7 billion have been announced, the highest since February 2008. However, the volume of new stock buybacks this month has not been spectacular given the market’s losses.
In addition, corporate insiders have boosted their purchases of equities. The $1.7 billion in insider buying this month is the highest since October 2008, again according to TrimTabs.com.
What's up with housing stocks? Masco up about 10 percent in two days? USG up 16 percent in two days? Ryland up 11 percent in two days? Was there a housing recovery, and no one sent me the memo?
I don't think so. Near as I can tell, a lot of traders are trying to game President Obama. The President is set to deliver a major address on the economic crisis right after Labor Day, and a part of the trading community seem to be betting that he will address much of his remarks to efforts (read: stimulus) to get housing going.
What kind of stimulus? There's lot of theories floating around, including allowing really cheap refinancings for large pools of homeowners, or somehow reducing the tight underwriting standards that are reducing the pool of buyers.
The big issue, of course, are foreclosures. Most delinquent borrowers are not interested in refinancing. How to address that is the Gordian knot of housing.
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