Now We Find Out What’s What


The stock market rally stalled today on a number of interesting and important developments.

The front page of the WSJ (subscription required) announced that Bank of America was making a $2 billion investment in Countrywide Financial (CFC), that nation’s largest mortgage company.

Countrywide’s shares were up big at the open but faded the entire day, ultimately finishing up less than 1% (CFC Chart).

At 11am EST, Countrywide CEO Angelo Mozillo held an interview on CNBC with Maria Bartiromo.  He said that housing busts have always led to recessions and this time will be no different.  You can see (S&P Chart) that this took some of the steam out of the market.

In other important news, as the deadline for finalizing the LBO of Home Depot’s wholesale business, HD Supply, approached the negotiations had become hostile.  The private equity firms seem to want a lower price.  And the investment banks seem to want better terms on the debt they’ll be required to sell to finance the deal (subscription required). 

The deadline is tonight (Thu) and everybody will be watching to see how this plays out as there is a backlog of some $300 billion in private equity deals still to be funded.

Home Depot’s stock was down about 2% on the news (HD Chart).

So now that we’ve rallied from extremely oversold conditions we’re probably about to find out what’s what.

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