Consolidation

An influential German business confidence survey showed a surprise drop in the country, the first in 10 months. A cold winter has apparently hurt retail sales in Germany.

That’s pressuring the euro, and providing strength for the U.S. dollar. It’s been pretty well documented that the euro does not tend to rally alongside the dollar. And that’s what we saw yesterday.

One positive note from yesterday – Maguire Properties rallied off of support at $1.50. Volume was strong and the stock broke above its 50-day moving average. You may recall yesterday, I said the stock needed to rally, and soon. Now, it needs to keep rising.

Another Winner for TradeMaster Readers

Also yesterday, TradeMaster Daily Stock Alerts‘ Jason Cimpl told us he expects consolidation for the stock market this week. (Consolidation occurs when prices don’t move much as investors adjust to a new price level.)

Yesterday, the S&P 500 traded in a tight 7-point range. And it won’t be surprising if it holds to a similar tight range today. We might anticipate the negative news from Germany to be offset by an improved reading of the Case-Shiller home price index.

TradeMaster Daily Stock Alerts’ readers closed out of two more positions yesterday – one for a 7% gain and one for a 1% loss. So far in February, they’ve gone 9 out of 11. Outstanding.

The Twists Keep Coming

Bloomberg is breaking a very interesting story concerning investment banks, toxic mortgage debt, and AIG. I know I’ve discussed these issues ad nauseum. But the twists keep coming…

Now, we know that investment banks like Goldman Sachs and Morgan Stanley bought "insurance" for mortgage-backed securities in the form of credit-default obligations (CDOs). It was these CDOs that eventually crushed AIG.

But what has escaped scrutiny is that the banks that bought the most CDOs to insure mortgage-backed securities are also the banks that bought the most credit default swaps from AIG. In other words, it’s as if these investment banks knew the mortgage-backed securities they held were garbage, knew that the CDOs would crush AIG, and found a way to profit from that.

Yes, AIG made dumb bets. And it’s fundamental to capitalism that poorly-invested money will be "redistributed" to the wise. But in this case, we’re looking at a possible insider trading case. That’s because some of these investment banks also owned mortgage lenders.

A former swaps trader said, "If these banks had insight into the underlying loans (mortgage-backed securities) because they had relationships with banks, originators, or servicers, [this] is at the least, unethical."

It also may be illegal. And the worst part? It is exactly this information that the New York Fed tried to keep hidden in November 2008.