I’ve got two book reviews to put up, but I keep waiting for the markets to look “boring” for a few days in a row. We’ll see if I get them out this coming week.

One pundit called yesterday a “messy reversal.” Let’s examine yesterday in context. The S&P 500 was up 10 premarket, had a cash market daily range of 19 points, and closed near the midpoint of the day’s range, on average volume. Now last Thursday, on the other hand, was down 40-ish points from the previous close, had a 45-point range, settled within 5 points of the high, and had record volume. There aren’t that many days in U.S. stock market history that end up UP after being down 2.4%. So which Thursday was really a “messy reversal,” and for whom was it “messy?”

Fly had a great picture of CountryWide’s CEO on his site yesterday. The Moz bears an uncanny resemblance to George Hamilton. This is only the first of many housing-related randoms, so if it bores you, skip to the bottom, I will change the subject near the end.

Is Moz playing the Fed or the “government” for a housing bailout? That’s one possibility, not my fave. I really think Moz is trying to paint as grim a picture as possible in order to “save his legacy.” You know, so that he can write his memoirs in a few years and say, “I did all I could to save my company from going to the crapper (in between tanning sessions and selling 20 or so million shares of the stock, of course), but it was the damn recession! I couldn’t help it!”

Hypothetical story of a foreclosure: they speculated that their new home’s appreciation would bail them out of their ARM or IO before their balloon or reset came due. Hint, balloons are for clowns. Let’s say their reset goes from something they can afford ($900?) to something they can’t ($1300?). Their income doesn’t change. End result is, they wind up still spending $900 for housing, but somewhere else (an apartment, renting a shotgun shack, etc), and still wind up spending the same amount on “consumer discretionaries” like lottery tickets, tall cans of beer in small paper bags, single packs of cigarettes, $1.25 pool games, and McDonalds McNuggets.

The banks hold the bag, but the banks own the Fed. How much pain?

How big a bag do they hold? It’s not like they pay PITI, just the TI on the homes they take back, so carrying charges aren’t bad and their insurance is probably cheap. Regulators don’t like a bank to have a bunch of REO on the books, so they’re motivated sellers, but does anyone besides the usual cast of permabears expect them to take pennies on the dollar? No, their pain will be pennies on the dollar, and they will loan the money for the mortgage when the home is resold.

Do the banks really even hold the whole bag? Foreclosures are a gold mine for real estate investors, who buy with the intent of using the leverage (they have good credit and can put cash down), the deferred taxes, the depreciation credits, and the positive cash flow to build for their retirement. This is a liquid market, and these vultures, God love ‘em, often solicit recipients of foreclosure notices before the bank even has to take the properties. Not to mention that they’re buying at the auction or buying from the bank’s REO inventory, and their competition is lessening the bank’s pain.

Is foreclosure a big deal to the perps in question? Given that they’ve taken huge credit on lousy terms to buy more than they could afford, I would guess that they don’t care much about their FICOs or Beacons.

How many folk bought a sensible house that they could afford on conventional (30-year amort with 20 down) terms, but chose an IO or ARM for convenience’s sake? These folk, however many they are, aren’t going to let go of their houses and each one probably presents more of a threat to G-D-P than a foreclosure does, because they will actually reduce their discretionary spending and it’s not clear that their increased mortgage payments will show up on that deeply flawed “government” socialist production indicator that so many “economists” worship.

Some of those ARM and IO buyers, the “cream of the crap,” will be able to refinance. Some already have. More than one institution will see opportunity in skimming this group.

Are house prices going down? Not yet, but the 2Q OFHEO HPI isn’t out yet. Even if the index goes down, it’s an index and it’s not monolithic. The buyer that’s ready for a reset in late ‘07 has had plenty of time for appreciation to work, even if appreciation slows or, as feared by some, goes backwards. Where are the prices actually declining, and where are prices still appreciating? Seven states had double-digit percentage annual appreciation according to the 1Q HPI data. Imagine a subprimer with a 3-year reset, getting annual appreciation of 12.8%, 12.6%, and 4.3%, the national averages for the last three years. Can they refinance? If they put nothing down and paid no principal with an IO, they now have 25% equity … and that’s at the national average appreciation with no principal paid. How many got more appreciation or paid some principal on their ARM?

The running assumption used by the fearmongers appears to be that every reset on every ARM or IO will result in a foreclosure that cause a 100% loss to the bank and a 100% loss of consumer spending by the defaulter. I would say that assumption is not robust. Panic, however, is not only buyable, but is typically constructed from non-robust assumptions.

The sad thing is, by the time the truth is actually known, the usual suspects will have found something else to scare people with, like SARS, Peak Oil, the Yellow Hoard, the Domino Theory, Global Cooling, Global Warming, AIDS, Herpes, Bird Flu, war with IranAfghanisChinaPakiKoreaStan, China’s faltering economy, Japan’s strengthening economy, a Dipto-crat in office, a Republi-clone Warmonger in office, hurricanes, plagues of locusts, etc., and nobody’s gonna be interested in someone calling “bullshit” on the “housing credit crunch crisis of 2007″ based on 2008 final U.S. G-D-P published sometime in 2009. Didn’t the credit crisis on the Russian Default cause the “economists” to lower their estimates of future U.S. G-D-P growth? How did that turn out? How do most stock market panics turn out?

Gonna fill out the account by putting that last little bit in FXI, the iShares China 25. Market at open. I’ll mark the watchlist with the fill tonight.

I want to let the other current positions sit until I’m more confident as to what will lead out of the correction. That may be a few more days or a couple of weeks, I dunno. That may be before all the current positions are green, since I bought early.

I will keep track of Trico Marine Services (TRMA) as a “phantom trade.” I mentioned it last week as a value candidate, and put it on the watchlist soon after that. Check out their bona fides, then check out their chart. Although it looks like a gap on this chart, it’s technically a lap, but there is a pocket of price where it skipped a trade and refilled, and it looks like a bullish day.

The “phantom trades” will be marked on the watchlist for signals, etc., but won’t be floated to the top of the list like the active trades in my account are. They’ll be a fun way to check out what actually makes good entry signals for the trend-following of value and GARP stocks.

Is it “fool’s gold?” Lots of folks thought gold was a good place to be post-Fed intervention, but stocks have done better this last week. Stocks have done better over the last year, and since the last two corrections in May ‘07 and Feb ‘08. Two-year window? Gold. Actually, anywhere from two to ten years back, gold looks good as, well, gold. But check out a longer-term chart of gold priced in units of stocks:

Here it’s plain to see that gold’s outperformance is limited to two short windows, from the crash to the bottom in ‘00 to ‘03, and the nine months leading into the correction of May ‘06. Other than that, gold priced in stocks has gone down like, well, lead. Bottom line, it’s a speculative asset, nothing special. Worth keeping an eye on, but no more so than anything else that’s actively traded … like REITs, for instance, which outperformed gold over last seven years, even without dividends … I never hear an “economist” permabear talking about REITs …