Goldman and Morgan Stanley

The last two remaining Wall Street investment banks gave up their relatively non-regulated status and are now commercial banks as the Federal Reserve approved Goldman Sachs and Morgan Stanley to become bank holding companies yesterday. The reason? Morgan and Goldman can now permanently borrow from the government, since banks can borrow from the Federal Reserve at the discount window. Less risk, less profit, but the ability to buy retail banks and add stability. It is an interesting trade-off.

Nomura Securities is close to buying Lehman's Asian operations as Lehman continues to be divvied up.

Emini trading coach

Focus on Growth not on inflation

Two-year Treasury notes rose on concern that financial firms face widening losses from credit markets and the U.S. housing slump. Yields on the securities touched a five-week low as investors sought the relative safety of government debt. Lehman Brothers Holdings Inc. may post $4 billion in writedowns when it reports fiscal third-quarter earnings, JPMorgan Chase & Co. analysts said. Builders in the U.S. broke ground on the fewest houses in 17 years in July, signaling the drop in residential construction will continue to hurt economic growth.
U.S. stocks fell for a second day, boosting the appeal of government debt's fixed returns. The Standard & Poor's 500 Index lost 0.7 percent, with the S&P 500 Financials Index dropping the most among 10 industry groups.

It's not surprising that high oil and other commodity costs have had a huge impact on prices for everything, at every level. At $147 per barrel, oil impacts everything that gets produced, transported and ultimately purchased by consumers. Even when you exclude "food and energy costs", you still have lingering adds due to the price of fuel... and they'll be with us for a while. But, oil is now trading at $112 per barrel, down $35 from its July peak. It will take some time for these lagging indicators to reflect the relief that is already coming from that. What we're seeing now is the worst reflection of inflation because oil was at its highest in July. It would serve us all better if the focus would be on growth instead of inflation.

Aug 4 S&P 500 Daily

Markets Economic News

Treasuries advanced after government reports showed the economy grew at a slower pace in the second quarter than forecast, fueling speculation the Federal Reserve won't raise interest rates this year.

The gains pushed two-year notes to their biggest monthly rally since February after the growth report, which contained revisions that showed the economy may have slipped into recession during the last three months of 2007. Initial claims for unemployment benefits reached the highest level in more than five years. Initial jobless claims increased by 44,000 to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists had forecast a drop in claims. The total number of people on benefit rolls rose to the most since December 2003.

The bond market still isn't providing investors with enough income to cover the rate of inflation, which rose 5 percent in the year ended June 30, Labor Department data show. The Standard & Poor's 500 Index has dropped 13 percent this year and the dollar declined 4.7 percent against the currencies of six trading partners as U.S. financial institutions posted losses and writedowns totaling $250 billion in the deepest housing recession since the Great Depression.

According to the Kiplinger Letter released yesterday, "California will fare well in the increasingly competitive global economy. Current job and housing troubles are only a pause in a wave of growth that will carry the state in a rising tide of expansion over the next 10 years."

Treasuries, Bonds and bail out.

Treasuries fell as Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank should raise interest rates ``sooner rather than later'' and traders prepared for the sale of $58 billion in government debt this week.
Treasury Secretary Henry Paulson's plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they're shunning in Europe. Paulson wants to create a version of Europe's market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower. As I have mentioned before the insurers for these bonds are ll going under. This could be our next crisis.

Developing a U.S. market for the securities is the latest of Paulson's initiatives to revive lending among banks crippled by $452 billion of credit losses and writedowns. His plan for a ``SuperSIV'' to bail out the $400 billion market for structured investment vehicles(What planet is our government from?) failed last year after Wall Street firms rescued the credit funds independently. Both Democratic and Republican senators are looking for changes in the Treasury secretary's proposal this month to shore up home lending by allowing the government to buy stakes in Fannie Mae and Freddie Mac.

ES Daily april 22 after hours

Looks like we have a channel.

Watch out for Rice prices

Watch out for Wheat prices

Oil to break $120

Banks and Financials need a higher market to keep the creditors at bay and to keep the expected 250,000 homes that haven't recieved their Notice of Defaults off their books.

Although we are seeing a slight uptick in home purchases compared to last month, the numbers of foreclosures are up 57% over last year and expecting bigger numbers in the months ahead.

Dollar also looks like it might get a bit of a break as the Bank of England is stepping in to help out with the Financial companies that have big losses in subprime. Holland, Belgium and England are also entering their first rounds of Foreclosures as overpriced properties have hit their highs and starting to plummet.

China's economy is the strongest it has ever been expecting the largest GDP % move ever......

63000 jobs cut fed fund rates cut 75 basis points too

The February jobs report came in remarkably weaker than expected by dropping another 63,000, causing the Fed to aggressively cut the federal funds rate by 75 basis points. February’s decline in payroll jobs, the largest such decrease since a colossal 212,000 fall in March 2003, was notably worse than the consensus projection for a 25,000 rebound and mar ked a third consecutive month of decline.

Exacerbating the situation, not only did February come in weak, but the prior two months were also revised down. The initial January estimate of a 17,000 drop was revised down 5,000, while December was revised down 41,000 from the previous estimate of an 82,000 increase. For Janu ary and December combined, the net revision was down 46,000, indicative of a very clear downward path. February also marked a full year of payroll survey weakness in the goods-producing sectors, with both construction and manufacturing entering its 21st consecutive monthly decline.
Several key factors are thought to have influenced the February NFP report.

They include:
* Government payroll expected to add just 15K to March payrolls
* Private service providing payrolls expected to edge just -5K lower, from -12K in February and a 100K average in Q4

Unemployment rate expected to rebound to 4.9% following December’s 5% high
For week ending March 29, 2008, the Department of Labor reported that the advance figure for seasonally adjusted initial claims was 407,000, an increase of 38,000 from the previous week’s revised figure of 369,000. They also reported a four-week moving average of 374,500, a n increase of 15,750 from the previous week’s revised average of 358,750.
The back-to-back payroll declines that started 2008 is disturbing for the economy as the weaker growth has become more broad-based and trend like. Payrolls have shown weaker growth for four months from a 140K gain in October. Unemployment is rising from the March low of 4.4% but fell to 4.8% in February after reaching 5% in December. Employment trends lag the economy as final demand—in excess of labor productivity—feeds in to labor demand. Earnings growth is fading and stands at 3.7% compared to the 4.3% yoy high of late 2006. The loosening labor market is being watched for signs of unraveling—which many analysts will say has arrived in the payroll data.

What is the non-farm payroll report?
Of all the world monthly economic reports, the monthly US NFP report is the most highly anticipated and has the most dramatic impact on the currency market.
The report, which is released on the first Friday of each month and states the previous month’s numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.

What’s more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the US economy and interest rates translate to the strength or weakness of the US dollar.

Pre Fed Gap up 20 points

Well we have a 20 point gap up before the open. Fed meeting at 2:00.

The roller coaster will be leaving the station soon.

We have had some prettty large volume going through these past days and today could be the same.

We have some price divergence on the RSI.

Close the gap, rally big off the rate cut news and wathc the US currency dive.

Gold hit $1,033, Oil $112 Dollar dives

The Fed announced two initiatives designed to bolster market liquidity and promote orderly market functioning, and approved the JP Morgan - Bear Stearns deal. First, they authorized the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets.

It is available today, and will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities.

Second, the Federal Reserve Board decreased the primary credit rate ("Discount Rate") from 3.5% to 3.25%. Lastly, the Board also approved the financing arrangement announced by JPMorgan Chase and Bear Stearns where Bear is being purchased for 1% of its value only 16 days ago! Tomorrow, the FOMC will meet, and obviously the odds that the Fed will cut the Fed Funds rate by 1.0% have increased. Mortgage prices are really a mixed bag ("where should they be priced?") with the 10-yr down to 3.41% currently.

SP 500 daily Feb 6 5 min after hours

Here is the after hours chart for the S&P 500

5 min bars, after the close

Looks like the news is not good no matter how much stimulus you put behind it.

Watch for the fall.

A little stimulus thank you.

As part of the economic stimulus package, an increase in the conforming limit could now be a reality, at least for a brief period. Congress and President Bush agreed, but have not voted yet, on a 1-yr increase in the conforming loan limit to $730K. There is not a lot of detail yet (there is confusion as to whether the $730K, or $725, is for high cost housing areas, or everywhere, and just what high cost areas are?). Just when mortgage originators everywhere were breaking out the bubbly, OFHEO's director James Lockhart (Office of Federal Housing Enterprise Oversight, who oversees FNMA & FHLMC) issued a statement saying "We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform. To restore confidence in the markets we must ensure that the GSEs' regulator has all the necessary safety and soundness tools. Yesterday Chairman Dodd talked about moving a GSE reform bill early this year.

Now what? Frankly, analysts feel that enactment is possible by mid-February but looks more likely by early March. No large investors will make any policy changes or announcements until the issues are less confusing, or even voted into law. Apparently, the bill would temporarily increase the limit on mortgages Fannie Mae and Freddie Mac may securitize from $417k to up to $730k. In addition, the bill would increase the limit on loans the Federal Housing Administration (FHA) may insure from $362k to $625k. This should help to reduce spreads in the jumbo mortgage market! One estimate mentioned that as many as $400-500 billion in loans could qualify for refinancing. As these loans refinance, it could ease pressure on capital-constrained bank balance sheets. And "temporary" items like this are difficult to rescind after a year, which would also be good news for originators.

Here in California Gov. Arnold Schwarzenegger wants Congress to raise the Fannie Mae and Freddie Mac lending limit from $417,000 to at least $625,000 as part of the economic stimulus package. State Assemblyman Ted Lieu is pushing for a bill that requires mortgage lenders to tighten up already strict guidelines to make sure homebuyers can afford their basic monthly bills before qualifying for a mortgage loan.

This bill would also ban certain designer mortgage loans such as the option arm mortgage. The option arm mortgage, also known as the pay option arm, allows borrowers to pay less than the interest that is due by adding the unpaid interest to the balance of the mortgage loan. The bill would also allow some homeowners to refinance their homes without being responsible for any penalties or unnecessary fees.