Market Higher on Continued Declines in Commodities Prices

Commodities continue their recent sell-off, giving a boost to financials.  Lower commodities prices mean less inflation which takes the pressure off of the Fed to raise interest rates soon.  Higher interest rates would be yet another kick in the pants of the beleaguered banking industry.  As a consequence, each time commodities take another tumble, financials rally.  Furthermore, it is widely believed that many large hedge funds who have had success this year were long commodities and short financials.  If these players are unwinding their positions, this further reinforces the divergent movements between commodities and financial shares.

In the good news camp, analysts at UBS upgraded AIG this morning.  The stock promptly rallied in response to the upgrade, which I find amusing.  AIG reports earnings tomorrow.  Why on earth would an investor buy a stock the day before the earnings report just because some analyst at UBS, of all places, decided on a whim that this stock is a buy?  Is that because UBS knows subprime better than anyone?  UBS has certainly lost enough money in the past year because of its subprime exposure, so I suppose that could be the reason.  In any event, once again, without irony, this is reported in the financial press as if it were significant news.  Bloomberg even has the misleading headline "AIG Rises as UBS Upgrades to Buy on Narrower Losses" implying that the company has already reported narrower losses, which is certainly not the case.  Personally, I'm going to wait to hear the actual earnings report from the company itself.  Call me crazy but I don't have an particularly itchy trigger finger.

Meanwhile, in actual earnings news, D.R. Horton reported a wider than expected loss of $399.3 million or $1.26 a share.  Analysts were expecting a loss of 70 cents a share.  Wrong again.  The homebuilder took a $330.4 million charge for inventory impairments and other charges, Revenue dropped 44% to $1.43 billion, the number of homes closed fell 36% while net orders declined 56%.  Still searching for that bottom in homebuilders...   

D.R Horton Posts $1.3 Billion Loss

Trying desperately not to be overshadowed by the gargantuan losses posted at Fannie Mae and UBS, D.R. Horton lost $1.3 billion for the quarter on $834 million in land write-downs. This means DHI only punted around $500 million in its core operations of selling houses. Revenues declined to $1.62 billion from $2.62 year-over-year. Net sales orders fell to 7,528 from 9,983 a year ago and the cancellation rate was 33%. Waiting for a rebound in the homebuilders is beginning to bear a remarkable resemblance to the plot of Waiting for Godot, a play by Samuel Beckett, which I have never seen or read. The only thing I know is that a bunch of people sit around and wait for a guy who never shows up. Maybe in Act I these people purchase a bunch of homebuilder and financial stocks because they think Godot is just around the corner? Act II is where they become disappointed again when someone realizes it was just a Godot lookalike. What happens in Act III? I think that's the part where the weakest homebuilders go bust when Godot fails to show up.