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The market has been bouncing around on misplaced hopes that the Federal Reserve will somehow save the day. Beyond the din, it's important to focus on one overarching fact: The fundamental problem in our country is the aftermath of the housing bubble.
We'll be dealing with it for some time. That's because the math doesn't work -- in terms of the average person trying to buy the average house. And it's not likely the math will improve, via lower mortgage rates, given our inflation rate and given where yields will probably go.
That brings me to a recent Bloomberg story, "Banks fail to lower mortgage rates as Bernanke cuts." As noted by the writer, Fed rate cuts will be hard pressed to rescue the housing market, given that mortgage spreads have widened. Some people believe spreads will somehow tighten, but I think that will happen only if Treasury yields rise.
Folks may be willing to buy Treasurys at the ridiculous negative (after inflation) yield they're being offered. But given what has occurred in the mortgage business and given the shakiness of the collateral, I don't see anyone rushing out to lend in the mortgage arena. (Note: Lending and buying mortgages are essentially the same idea.)
Meanwhile, as the financial system continues to reel, there has been no shortage of ink spilled on the recent proposal by Treasury Secretary Henry Paulson to "overhaul" the financial system and give the Fed greater regulatory powers.
It's slightly ironic that we would consider putting the fox in charge of guarding the henhouse. The Fed was sound asleep as all these problems developed. Of course, many of them sprung from the Fed's ill-fated attempts to pick the right interest rates in the first place.
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Roger Lowenstein got it exactly right in a recent New York Times story called "Bleakonomics": "The formula of laissez faire in advance and intervention in the aftermath has it exactly wrong."
We don't need more regulation to solve the financial system's problems. What we need is enforcement of the rules and laws already on the books. Had that occurred and had the Fed not pursued its practice of setting interest rates too low, this debacle could never have reached the mammoth size it did. But we are where we are: staring down a recession that intervention will not silence.
Facts aside, there still remains on Wall Street a bullish contingent that believes the tech sector will enjoy immunity from hard times. Recent earnings reports from Oracle (ORCL, news, msgs) and Jabil Circuit (JBL, news, msgs) give the lie to that notion.
Ditto last week's earnings from Best Buy (BBY, news, msgs). The company did "beat the number." But beneath the surface, sales were up only 4% year over year, while inventories grew 17%. Store traffic was lower, even though Best Buy is gaining market share as its competitors go out of business.
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Jubak's Journal: Is the worst over for Wall Street?Stocks rallied after UBS announced an $18 billion write-off, and The Street hopes problems with the big banks are over. But troubles brew for the smaller banks, which are about to feel the crunch.
When further earnings reports are released, I expect we will see plenty of weakness from tech companies. Their biggest customers tend to be financial concerns and/or consumers, and we know the state they're in. It's just the perennially clueless on Wall Street who seem to think that simply because technology isn't finance, it ought to do well.
This same band will be saying it's the bottom, or getting positioned for a second-half recovery, as they expect a "short, sweet recession." However, they also will be wrong.
At the time of publication, Bill Fleckenstein did not own positions in any of the stocks mentioned in this column.
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