Daily Insight: Housing Starts, Confidence, Korea and Goldman Not So Golden

U.S. stocks ran into a little trouble on Friday as the IMF is headed to Greece, the latest consumer confidence reading erased three-months of gains, the potential for conflict on the Korean peninsula got a little hotter and Goldman Sachs is now officially under investigation for defrauding investors.

Pre-market trading, which was pointing lower very early Friday morning, weakened just before the open when South Korea stated there’s a high possibility the sinking of their warship last month was due to an external explosion – one would think if their ship ran into a mine or was hit by a torpedo that they’d know by now. But if it was external, it has North Korea written all over it. This concern extended into the official trading session.

But concerns on that front were suddenly overcome by an SEC charge that Goldman Sachs defrauded investors. The deal is Goldman stated a financial product they marketed that was tied to subprime mortgages, as the housing market was beginning to crumble, was structured by an independent, objective third party. It appears though that the product, a synthetic CDO, was not structured by an independent source, but rather the portfolio selection was influenced by John Paulson’s hedge fund who was betting the securities underlying the CDO would default. This resulted in new fears that ramifications from the financials chaos of late 2008 may not have completely blown over. More on this below the jump…

The market has become incredibly complacent, and while stocks improved from the session’s low point, the news out of Korea and yet another case of financial fraud may have reminded traders of the various risks that lurk in the marketplace today. There are always risks, but they are abundant right now and when the market is so complacent, as illustrated by the VIX index, its sets up for stocks to get rocked.

Friday we held in there pretty well, a 1.6% decline is not getting rocked in my view. Hopefully, Friday slapped enough people from their pretty little wonderland to lower expectations just enough so we don’t endure something that scares traders and makes a harmful move lower self-fulfilling. This still fragile economy will not respond well to such an event.
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Brent Vondera, Senior Analyst
www.acrinv.com