Gimme Cheap Money

When I saw futures this morning, I got a little nervous about my statement in yesterday’s Daily Profit that the Dow might take out 8,500, the mid-point of its recent trading range. 

I got a little nervous again when the Dow went negative by 100 points around 2 PM. But the buyers prevailed again. And volume on the upside was once again stronger than on Monday’s decline. 

It seems pretty clear that investors are saying that if this is as bad as things will get, that if Obama’s stimulus plans work, if the automakers survive, and if there aren’t anymore sub-prime skeletons, then it’s a good time to buy stocks.  

That’s a lot of ifs. The law of averages would suggest that not all of these ifs will work out. And I still have my doubts that we’re ready for 8.5%-9% unemployment.  

But we should enjoy the strength in the stock market while it lasts. 

*****It was bound to happen. Mortgage applications have been declining for years. They’ve hit such a low level that any uptick was bound to register as a massive gain. 

The Mortgage Banker’s Association (MBA) said its index of purchase and refi applications jumped 112% to 857 for the week ending November 28. That appears to be the biggest jump in applications in 15 years. 

But it’s important to note that the index’s current level, 857, is still below what was being registered as recently as March 2008. What’s more, if you strip out refi applications, the index comes in at 361. That’s also farbelowyear-ago levels. 

There isn’t going to be a big jump in home sales. Basically, what we’re seeing is people still want cheap money. And they’ll refi to get it. What we’re we saying yesterday about underestimating the American consumer? 

*****An anonymous source told Bloomberg that Henry Paulson wants to start buying mortgage securities from Fannie Mae and Freddie Mac in an effort to push mortgage rates down to 4.5%. At that level, one analyst estimates that 90% of current mortgage loans could be refinanced. 

Another refi-driven spending binge, that’s a great plan to reflate the economy. Didn’t Greenspan already try that one? 

I can hear Paulson now saying "It’s different this time." Since those two agencies require 3% equity in the home, many underwater and at-risk homeowners wouldn’t qualify. Banks could lend without having to address homeowners that may not be able to pay. People that did refi could start spending again and economic growth would pick up. 

Then after a year or two, some banks might think that, with a nice upswing in the economy and rising home values, maybe those troubled homeowners might be better able to pay now. So maybe they charge a little extra to cover the foreclosure risk. 

It’s starting to sound a little familiar, isn’t it? 

*****Here’s my headline for the day: Automakers Have a Plan: Ask for More Money. The original $25 billion needed to save the Big 3 is now above $30 billion. And some analysts are saying the total actually needed is much higher. 

The Big 3 are certainly stepping up the rhetoric. Chrysler says a failure by one of the automakers could trigger another Depression. And GM is saying that bankruptcy is not an option. 

These are some pretty bold statements. And it’s tempting to say "Oh yeah? Let’s see about that." But that would be letting the credit crunch so serious and perhaps permanent damage to the U.S. economy. And besides, it’s kind of fun watching Congress make these execs jump through hoops. 

*****Questcor Pharmaceuticals (Nasdaq:QCOR) made a new 52-week high at $9.40 yesterday. It was also TRIGR’s top-rated small cap stock and was recommended to TradeMaster Daily Stock Alerts members yesterday morning. 

This will be the third time TradeMaster Daily Stock Alerts has recommended Questcor. And if the pattern holds, they’ll be taking profits on it in the next 5 to 15 days. 

I heard from one Daily Profit reader who bought it at $7.72, if memory serves. As of yesterday’s close, that’s a 17% gain. Anybody else buy some QCOR? 

Emergent Biosciences (NYSE:EBS) also made a new 52-week high at $25.93 yesterday, though it finished in the negative. In case you don’t know, Emergent makes the only FDA-approved anthrax vaccine. And the U.S. government is buying as much as Emergent can make. Emergent is up 49% since it first appeared in Daily Profit. 

Emergent and Questcor are both top-rated TRIGR picks. I went off the reservation for Chesapeake Energy (NYSE:CHK) and while I still like the prospects for the company going forward, it certainly hasn’t performed nearly as well over the short-term as TRIGRs picks have. Sometimes I wonder why I bother…