Treasury could buy Fanniew Mae and Freddie Mac

Treasuries gained as stocks fell, led by financial companies, highlighting rising concern that problems for the U.S. banking system may be worsening. U.S. stocks fell, sending financial shares to their lowest level since October 1998, on heightened concern that bank failures will spread. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

Treasuries initially declined, pushing the yield on the 10- year note to the highest in almost two weeks, after Treasury Secretary Henry Paulson put a plan before Congress to provide support to Fannie and Freddie, the government-sponsored enterprises that purchase or finance almost half of the $12 trillion of U.S. mortgages.

There are some that feel that the U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac is an unmitigated disaster and the largest U.S. mortgage lenders are basically insolvent. Some bet that Fannie Mae shares will keep tumbling. Fannie Mae's market value is now about $10 billion, down from $38.9 billion at the end of 2007. Freddie Mac's market value has shrunk to about $5 billion from $22 billion at the end of last year.

July 11, Dow tumbles S&P Bounces Hard

Fannie Mae, and Freddie Mac are kicking the market when it is down. Fortunately Big Brother Ben stepped in, gave them both a life saving IV (opened the lending window) before they entered the suicide list.

The dow took it the hardest as it dipped down below 11,000 for the first time in two years which traded down more than 250 points in the session, briefly moved into positive territory in the afternoon before ending down more than 125 points. Now that it has been tested, next week we will probably thrash it.

The Dow is down 21.6% from the record closing high of 14,164.53 it reached in October. The S&P 500 is down 20.8 % and the Nasdaq is off 21.7 %.

The fiery convergence of the Housing crisis, subprime crisis, capital availability, lending requirements got another dose of gasoline, literally as oil, continued its ascent, rising to a trading record of $147.27 amid tensions between the West and Iran. Light, sweet crude for August delivery settled up $3.43 at $145.08, slightly below a record close of $145.29 a barrel set more than a week earlier.

Have a great weekend.

Market news for this week

Treasury 10-year note yields held near a one-month low amid a rise in crude oil and concern that mortgage-related losses at financial firms will widen. Oil advanced after a U.S. government report showed a bigger-than-forecast decline in inventories. Freddie Mac and Fannie Mae fell after Fannie sold $3 billion in notes at higher yields than in past offerings. Many strategists believe that rising oil is going to affect consumption, it's going to affect earnings, so it's going to affect financial institutions' ability to recover.

Mortgage Bonds had a great day on Tuesday which allowed most lenders, to issue improved mid-day pricing. The rally has continued this morning, at least mildly, as the Fannie Mae 6.00% coupon is improved by 12 basis points. The 10 Year Treasury Note is currently yielding 3.88% ( this is good for 30 year Mortgages, because most are tied to this rate) while stocks are in the red by 30 points in early trading. Tomorrow we'll hear from the Labor Department with their weekly report on initial unemployment claims and that's about it for this week's economic calendar. I suspect now that Q2 is behind us, most traders will be taking their cues from corporate earnings reports during the next several days... GE will report on Friday and their numbers are generally considered a strong indicator for the economy.