September 19, 2013 Update

DJIA:15,677 S&P 500:1,726 NASDAQ:3,784 Gold:$1,366 Oil:$108.39 EURO:$1.35 YEN:98.91

The Emotional Attachment to the Market of Dreams

It has always been of my opinion that emotions have a terrible way of clouding one’s judgement. Once a person emotionally invests themselves in a concept or idea, it becomes extraordinarily difficult to divorce the thought and leave it behind. Unfortunately for Fannie Mae and Freddie Mac, it was the irrational American agglomeration of hope that caused them to suffer huge losses in their portfolios during the crisis. The role of a politician is to accurately represent the people who elected him into office. When Congressman Barney Frank (D-MA) encouraged Fannie and Freddie to take on the default risk for millions of Americans’ subprime mortgages in 2007, he was doing so because it represented the emotional interests of his people at a time when the US housing market was growing faster than income levels. As he explained, “I’m not worried about Fannie and Freddie’s health, I’m worried that they won’t do enough to help out the economy... That’s why I’ve supported them all these years - so they can help at a time like this.” But once the bubble burst, the music changed; and the US government became the conservator of GSE in September of 2008 since they recognized value is the ballooning entities. As explained by Congressman Frank (chairman of the House Financial Service Committee at this time), “It’s a case where market psychology became more important than the fundamentals... There’s no immediate crisis. It’s not like (Fannie are Freddie are) going to run out of money tomorrow or Monday.” Obviously, this forecast failed to come to fruition. The American Dream has remained one of the only constant widely accepted social constructs over the past century, despite the global economy’s rapid transition and progression. And because of this, it’s no longer sustainable in modern times. The irrational emotional attachment the American people have to the American Dream is what ultimately caused the system to fail and explains why the government became the conservator of companies whose balance sheets were poisoned with bad debts. The value in Fannie and Freddie that the government (as such, American people) wanted to salvage was the idea it represented, the concept that many believe to be responsible for founding this melting pot of opportunity. And to keep the system from crashing the government is providing cheap money so that developers can build and consumers can borrow, which is why I think the housing market has shown any signs of recovery. There is a skewed relationship between private and public financing. Like the American Dream, the housing market is artificially inflated. Once the government starts to walk away from its investment, the market will crash. The Dream will end in tears. The economy has so polarized that the American Dream is no longer a functional reality. The Fed is trying to buy a house that has already been demolished with gold that Hugo Chavez has already taken back. Divorcing a dream, cutting losses, and walking away has never been for the light hearted. But in order to keep up with modern times, determining how to cutting losses and walk away from expensive and emotional investments is crucial to future success. After all, emotions are the amnesia of reality. 

Domestic News

• Market Update Futures are trading up, indicating another day of bull markets ahead.
• Data on weekly jobless will be released at 8:30, and are expected to to rise 338,000 from the seven year low of 292,000 last week (which is believed to be a result of a computer error).
• Statistics on existing home sales will be released at 10:00, and are forecasted to show a pullback to a 5.2mm rate in August from July’s four-year high of 5.39mm. 

International Updates

Asia

• Market Update Markets ripped in response to the Fed’s policy announcement. 

Europe

• Market Update Markets also rallied after the Fed did not announce a cut in its monthly asset purchasing program.