I feel like there’s something missing in this sharp market decline…namely, a good reason for it to be happening right now. You would think that we would have seen some more serious pre-announcements but aside from Alcoa (AA), I can point to as many positive surprises as negative surprises. Retail sales were mediocre but I would argue that was already priced into the retail stocks. Interests rates have been going higher, but not so dramatically that it would tip the scales to the negative. Governor Dick has been talking about the federal deficit and about raising rates, but the market already knew the Fed was going to keep raising rates after last month’s meeting. Oil and gas has come back down because refineries are coming back on line and that should be a positive.
One explanation is that insurance companies could be selling stocks to pay claims for Katrina and Rita damages. However, many claims will be disputed for years since they may or may not be flood related so I’m not sure if insurance companies are in the market selling $30 billion of stock right now to pay for damages they might not pay for years.
The more insidious explanation is that something more problematic is going on with Fannie Mae (FNM). At the beginning of the year, the Office of Federal Housing Enterprise Oversight released a report that basically said Fannie Mae’s accounting was as bad as Enron’s. Then, just last month, another report implied it was even worse than that. Could the problems at Fannie Mae finally be affecting the market? I would think interest rates would be moving more dramatically if something was truly wrong at FNM but the stock says there’s more to the story than we know right now.
As the OIH leadership broke down due to BP’s earnings warning due to Katrina, it’ll be interesting to see what the impact of the hurricane on the energy sector will be…..
Has the destruction/shutdown of Katrina wiped out any gain from price increases???? Is the energy sector imploding due to that??? Should be very interesting.