STOCK MARKET WATCH, Monday March 19

Looking Out the Window
BY BRIAN PRETTI

Many moons ago in what seems a lifetime far, far away, Barton Biggs was not running a hedge fund, but rather found himself penning weekly strategy commentaries at Morgan Stanley. I was pretty much a religious devotee in terms of checking in on what Barton had to say about life at the time. I can distinctly remember a particular piece written before the equity peak early this decade he titled, “Looking Out The Window.” The gist of the article was that Barton felt investment professionals of the era spent far too little time simply looking out the window and thinking. From my perspective, he was conceptually right on the money. But little did Barton know at the time, the world of instantaneous 24/7 information flow was about to accelerate in a very big way. In today’s world, who has time to look out the window when their eyes are glued to the screen?

In the spirit of the “Looking Out The Window” commentary written by Barton, and in light of the events we’ve lived through in the financial markets over the last few weeks, I thought I’d spend some of my own time simply looking out the window and reflecting on what financial market messages of the moment may be suggesting to us. Personally, I’m as guilty as anyone in terms of following the day-to-day information overload flashing on the screen in colors my mind now reacts to virtually unconsciously. Filtering out white noise in this information miasma world of the moment has become one of my most important daily activities. And as crazy, or overly simplistic as this may sound, in looking out the window I try to force myself to distill recent market events into one or two macro ideas. What’s the big message here? How are recent market events interconnected? Do I have enough individual pieces of the puzzle to allow me to step back and see a larger picture perhaps unseen by those following every price tick in red and green?

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At least for now, the events in the world of sub prime paper have turned a bit of this complacent consensus thinking on its proverbial head. Credit spreads in sub prime have blown out, and many a sub prime lender has simply been blown away in the winds of credit market repricing. This has happened fast. Moreover, as I see it, when looking at the pyramid that is mortgage financing in this country, we’ve just stripped away the entire bottom layer of the credit pyramid. So what happens to the real world of nominal dollar housing sales when your marginal buyer has now been shut out of the game? Can pricing really hold up in thin air above the now non-existent bottom level of the mortgage credit structure? The mortgage credit food chain of recent years just lost its most important marginal driver. And as always, change at the margin can be incredibly powerful in terms of ultimate trend change.

http://www.financialsense.com/Market/wrapup.htm

SINGAPORE - Oil prices edged higher from six-week lows, supported by gains in Asian stock markets, although worries over the U.S. and global economies following a global equities sell-off last week kept a lid on prices.

"There are concerns that the global equities sell-off may not be over and that may impact economic growth and thus oil demand," said Victor Shum of Purvin & Gertz in Singapore. "These concerns and worries about the state of the U.S. economy have taken some momentum out of the oil market."

Light, sweet crude for April delivery rose 12 cents to $57.23 a barrel in electronic trading on the New York Mercantile Exchange mid-afternoon in Singapore.

The contract fell to a six-week low to $57.11 a barrel, down 44 cents, after Wall Street slumped last Friday. But stock markets in Tokyo, Hong Kong and Australia rose Monday.

http://news.yahoo.com/s/ap/oil_prices

SYDNEY (Reuters) - Oil prices shed early losses to rise back above $57 on Monday on concern over falling gasoline supplies in the United States and political instability in top producer Nigeria.

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"Barring some very bearish economic data from the U.S., oil prices should recover in coming weeks on falling U.S. gasoline stocks amid the driving season. Traders would likely flex their muscles in this gasoline market, which would push up crude prices," said Gerard Burg, analyst at National Australia Bank.

NYMEX gasoline led the complex's gain on Monday, rising 1.9 percent to $1.9261 in early trade, after BP said its 260,000 bpd Los Angeles refinery had a fire in a hydrocracker process unit that last about 10 minutes.

Oil prices have been hit by worries over a U.S. economic slowdown and OPEC's decision to keep oil production unchanged despite lower seasonal demand in the second quarter. Troubles in the U.S. mortgage market sector have sparked fears that the fallout may spread to mainstream lenders and shake the economy.

http://news.yahoo.com/s/nm/20070319/bs_nm/markets_oil_dc_2

NEW YORK - U.S. stocks moved toward a sharply higher opening Monday as Wall Street tried to bounce back from a losing week and as stocks in Asia and Europe posted gains.

Stocks pointed toward gains ahead of a report on home sales and manufacturing in the Midwest as well as the start on Tuesday of the
Federal Reserve's two-day meeting on interest rates.

Dow Jones industrials futures rose 60 points, or 0.50 percent, to 12,272, Standard & Poor's 500 index futures rose 8 points, or 0.57 percent, to 1,407.00. Nasdaq 100 index futures rose 10 points, or 0.57 percent, to 1,774.00.

Economic data will again loom large on Wall Street in the coming week as investors try to determine whether the economy can pull off a so-called soft landing or whether areas of weakness such as the housing sector are poised to drag the economy into a pronounced slowdown.

http://news.yahoo.com/s/ap/20070319/ap_on_bi_st_ma_re/wall_street

NEW YORK - The stock market proved again last week that it's vulnerable to bad news relating to U.S. subprime mortgage lenders. This week should give investors a clearer view of the housing market's health, and whether it's stable enough to stave off an overflow of that sector's troubles into the wider economy.

In addition to housing data, investors will be digesting the Federal Reserve's take on inflation and trying to figure out if the central bank is leaning toward a rate hike — a move that could put even more of a drag on the housing market and consumer spending.

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Investors this week should also get a better idea of how the sluggish housing market is affecting the industries that depend on it. On Monday, the National Association of Home Builders will release its index on builders' perceptions of new single-family home sales and near-term sales prospects. And Tuesday, the Commerce Department reports on February housing starts and building permits; the market is expecting housing starts to have risen to 1.450 million from 1.408 million in January, and building permits to have slipped to 1.56 million from 1.57 million.

http://news.yahoo.com/s/ap/20070318/ap_on_bi_ge/wall_street_week_ahead_1

NEW YORK (CNNMoney.com) -- Renewed merger and acquisition talk around the world could lift U.S. stocks at Monday's open.

At 7:15 a.m. ET, Nasdaq and S&P futures were solidly higher.

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Treasury prices were lower. The yield on the U.S. 10-year note climbed to 4.56 percent from 4.54 percent late Friday. The dollar was higher against the euro and the yen.

Art Hogan, chief market analyst at Jefferies & Co., said the rash of merger news is an important pscyhological lift for stock investors who have seen great markets volatility in recent weeks.

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But he said he believes some investors are already looking ahead to the Federal Reserve's statement after its two-day meeting concludes Wednesday. While rates are widely expected to remain unchanged, Hogan said that there are growing hopes that the central bank's policymakers will signal a willingness to cut rates in the future.

http://money.cnn.com/2007/03/19/markets/stockswatch/index.htm?postversion=2007031907

WASHINGTON (AFP) - Mixed signals on the US economy have put the Federal Reserve in a quandary as it tries to steer monetary policy amid fresh inflation concerns but also a slumping housing market, analysts say.

The central bank's Federal Open Market Committee headed by Ben Bernanke is widely expected to hold its base interest rate steady at 5.25 percent at a two-day meeting opening Tuesday.

The federal funds rate has been unchanged since August, when the Fed halted a string of 17 quarter-point increases. But policymakers have warned in the past few meetings that they are watching inflation and could hike rates again to keep prices in check.

http://news.yahoo.com/s/afp/20070318/bs_afp/useconomybankrate_070318040919

London equities rose on Monday, as a flurry of deal making helped restore a measure of momentum to the market.

The FTSE 100 started the session 0.5 per cent higher at 6,157.9, a rise of 26 points. The mid-cap FTSE 250 was 0.5 per cent higher at 11,324.5, an advance of 55 points helped by a strong showing from engineering stocks.

Barclays (NYSE:BCS - news) pledged to issue a statement about its intentions toward ABN Amro after an FT report said it was interested in mounting a white knight bid for the Dutch bank, currently at the centre of a break-up campaign led by activist investors. Shares in the UK bank, long linked with interest in ABN, rose 0.6 per cent to 686½p.

http://news.yahoo.com/s/ft/20070319/bs_ft/fto031920070539028682

UNION, N.J. - Pet owners were worried this weekend that the kibble in their cupboard may be deadly after the recall of millions of containers of dog and cat food sold at major retailers across North America.

Menu Foods, the Ontario-based company that produced the pet food, said Saturday it was recalling dog food sold under 46 brands and cat food sold under 37 brands including Iams, Nutro and Eukanuba. The food was distributed throughout the United States, Canada and Mexico by major retailers such as Wal-Mart, Kroger and Safeway.

An unknown number of cats and dogs had suffered kidney failure and about 10 died after eating the affected pet food, the company said.

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A complete list of the recalled products along with product codes, descriptions and production dates was available from the Menu Foods Web site — http://www.menufoods.com/recall — and consumers also could call (866) 463-6738.

http://news.yahoo.com/s/ap/20070317/ap_on_bi_ge/pet_food_recall

Ford Motor Co. told workers Friday it will close its Norfolk truck factory during the week of June 25 - an announcement that puts a solid date on shutdown plans first announced in April, union officials said.

A memo signed by both plant manager Kevin Gideon and Ed Hay, the chairman of United Auto Workers Local 919, was given to workers Friday morning.

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The plant, which makes F-series pickup trucks, employed more than 2,300 people a year ago. But the company said in October that it would cut that in half by early this year.

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The plant was originally scheduled to close in 2008. But Ford moved up those plans when it announced in September that it would close the plant by the third quarter of 2007, which begins July 1.

http://www.forbes.com/feeds/ap/2007/03/16/ap3524847.html

So much fun standing next to the paint booth in the middle of summer in the full smock and headcovering gear setting up PCs. It was 107F in front of the fans (but I wasn't standing near the fans). :-)

I'm sure that's going to affect that area's economy quite a bit. All so the jobs can go to Central/South America.

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 83.39 Change +0.20 (+0.24%)

Dollar Dumped on Dour Data

http://www.dailyfx.com/story/strategy_pieces/trade_or_fade/Dollar_Dumped_on_Dour_Data_1174282715586.html

A slew of negative economic data throughout the week finally weighed in the dollar and pushed the greenback to 2007 lows by the week’s end. The pair tried, but failed to take out the 2006 highs of 1.3348, however the bias in the EURUSD remains to the upside as the latest batch of news suggests that the implosion in the housing sector is beginning to spill over into manufacturing and consumer spending. As we wrote on Friday, “Lackluster results from the manufacturing sector which showed very tepid numbers from Philly Fed along the largest month over month decline in Empire Manufacturing readings suggested that the contraction in housing may be creeping into other parts of the US economy. Taken together with Tuesday’s limpid Retails Sales, this weeks US data indicates a clear US economic slowdown that may in the words of some analysts, “become much worse before it becomes better.”

Next week housing data takes center stage as Housing starts and Existing Home Sales are both set on the calendar. The Fed decision is sandwiched in between but the market expects no change from the US monetary authorities. In fact traders will monitor the statement for any acknowledgement of the sub-prime fiasco. However, given the Fed’s penchant for hawkishness the FOMC is likely to stress the increases in the latest batch of inflationary data, but ultimately the FOMC bark will be much larger than its bite as the slowdown in US growth will put a freeze on any policy action. At the very best dollar bulls can only hope that Fed officials keep rates steady through the summer maintaining the interest rate differential advantage against the euro and the yen. However, if next weeks housing data shows any ugly surprises to the downside, talk of recession is sure to sweep the dealing desks and the greenback may take out the 2006 lows. – BS



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Dollar Loses Despite Higher Consumer Prices

http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/Dollar_Loses_Despite_Higher_Consumer_1174082145173.html

Dollar - The dollar was lower on the day despite economic fundamentals that would’ve supported the US currency otherwise. Released in the morning, US consumer prices rose better than expected in the month and year on year comparison. For the month of February, the headline number increased to 2.4 percent after the monthly figure rose by 0.4 percent. However, the core figure remained weaker, falling in-line with consensus estimates as underlying expectations were looking for an larger increase on higher crude oil prices. As a result, traders took the US currency lower against the majors as the Dow Jones Industrial Average closed lower for the session, down by 50 points. Additionally pessimistic was the University of Michigan’s consumer sentiment survey. Expected to ring in at 89, the preliminary assessment was lower for the month of March, printing an 88.8. The lower figure declined through the previous 91.3 and lent a bearish shading on the US currency. Unsurprisingly, the lower figure was attributed to recent stock market declines and higher gasoline prices. Nonetheless, market players kept the reading in context, as a preliminary post, with most looking towards further evaluation of the economy. The reports will, however, be taken into consideration when Fed policy officials meet next week to announce a decision on benchmark rates. Although markets are expecting a stay at 5.25 percent, the subsequent rhetoric should point players in the right direction. Obvious attention will be placed on any further mention of subprime lending woes and their future spillover effects into the economy. Should the latter emerge, dollar bears will sure be on the sidelines ready to pounce.

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http://www.kitco.com/ind/Laird/mar192007.html

This is an excerpt from this week’s Prudent Squirrel newsletter. We discuss emerging carry trade liquidation issues. I view pressing carry trade liquidation forces as a major issue right now in, not only gold, but all financial markets going forward to Summer 07.

Carry trade selling is killing markets – to include gold. There is new evidence of carry liquidation in the EU region. I believe we are right at the crux of major market crashes, and these carry liquidations are the first phase, and will be the primary drivers of massive financial market sell offs coming. The only thing that is stopping this is probably massive central bank preemption by the BOJ, the US Fed and likely other central banks, to include the Chinese central banks working in concert with the US….This article focuses only on part of this picture. The Chinese recently reiterated that their recent moves to diversify their massive $1 trillion FX reserves will not be allowed to affect the USD….

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But, aside from continuing Yen carry related selling pressures, and continuing fears of further Asian and - at some point US Dow sell offs - the story this week is a weakening USD. Right now, Friday AM PST, the USD is now down below 83 - at 82.86, down another .51 after dropping Wednesday and Thursday. We definitely have a weakening USD trend. Up to this time the USD has held around 84 on the USDX (US dollar index basket of currencies - heavily weighted to the Euro) like almost a rule. We had one very brief scare since January when it looked like the USD would drop to close to 80. That lasted only about several days….within a very short time the USD climbed back to its home at around 84 - 85. Needless to say, that episode put the fear of God into USD short sellers, and these have left the USD relatively unmolested since - up to now.

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Pattern of carry trade unwindings developing - Euro now

What is happening is a pattern of rising currencies, and market liquidations, and unwinding carry trades. This would be a perfect example to illustrate what I put out in the public article - World Liquidity Crisis Emerging -this week. Well, a further new development, Euro related carry trade selling.

The worst thing the markets need now is rising currencies and carry trades of all kinds unwinding. We are again set up for further bouts of market sell offs - and gold would be hit again if that happens. This gold strength recently to over 650 could be short lived.

Once again, there is a vicious cycle when carry trades unwind. First, there are stock drops, then the currencies that were borrowed cause carry trade losses, then those are sold off and paid off, then the currencies rise again, causing more carry trade losses and stock drops. It is a very dangerous feedback loop. Now we are seeing the same pattern develop with the Euro and carry trades related to that. So, with the Yen in this condition - biased to carry unwinding, and now the Euro added - this is very very dangerous!

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http://www.marketwatch.com/news/story/dollar-rises-before-fed-meeting/story.aspx?guid=%7B26B498BA-EDBB-4097-A44D-093CDC27C208%7D

NEW YORK (MarketWatch) -- The dollar rose against other major currencies Monday, rebounding from last week's losses as investors await an interest-rate decision from the Federal Reserve later in the week.

The Federal Open Market Committee, the Fed's policy-setting panel, starts its two-day policy meeting on Tuesday. Economists believe the Fed will almost certainly keep monetary policy on hold for the sixth consecutive meeting, maintaining its federal funds rate target at 5.25%. The Fed will announce its decision at 2:15 p.m. Eastern on Wednesday.

"Traders will monitor the statement for any acknowledgement of the subprime fiasco," said Boris Schlossberg, senior currency strategist at DailyFX.com, in a note. "However, given the Fed's penchant for hawkishness the FOMC is likely to stress the increases in the latest batch of inflationary data."

In early New York trading, the dollar was quoted at 117.37 yen, compared with 116.81 yen late Friday. The euro stood at $1.3302, compared with $1.3308.

The British pound traded at $1.947, compared with $1.9418. The dollar changed hands at 1.2105 Swiss francs, compared with 1.2076 francs.

The euro fetched 156.16 yen, compared with 155.47 yen

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http://www.fxstreet.com/fundamental/market-view/market-drum-highlights/2007-03-19.v02.html

• Australian dollar at possible point of no return
• Australian dollar Day of reckoning could be 1 to 3 years way
• US dollar, long term geopolitical shift lower

The Australian dollar is at an interesting juncture. Lingering yet again near 80 cents but not yet there, everyone is wondering if it can break higher, but then again some are keen to sell near the magical .8000 level.

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The majority of buying of Australian dollars is being done by a range of speculators from private intra-day traders to the world’s largest institutions and funds. What this means is that one day these buyers will have to sell, in order to realise any profits they may accumulate. In other words over time, the whole global investment community is gradually turning into a sea of potential Australian dollar sellers. Now I am not suggesting we are going to have a liquidity crisis any time yet, but one day it is a very real possibility. The day of reckoning for the Australian dollar, where all the speculators take profit and we return to core fundamental value, that will be just a few weeks after the US dollar finishes it’s long term price adjustment.

The US dollar is falling due to a long term geopolitical shift from a US centric world, to a world of balanced economic power by regions other than the US. This means balanced portfolio allocations with Europe and China the big winners from here. The processes involved include the US current account and trade deficits, political stagnation between the White House and the Houses, military over extension, a normal bout of economic consolidation correction, and an end to rate hikes with a shift to rate cuts possible by year end.

The US dollar is likely to fall dramatically lower this year and next. The real end to the decline of the US dollar may be several years away, but for practical reasons, profit, this next phase of decline now looming towards us, will probably complete in the first quarter of 2008. Possibly as early as third quarter this year, but more probably quarter one 2008.

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http://www.dailyfx.com/story/currency_crosses/currency_crosses/Euro_Crosses_Could_Roll_Over_1174320455716.html

1. EURJPY
2. EURCHF
3. EURGBP

EURJPY – The EURJPY rally has extended past the 3/12 high at 155.75 so focus is now on 157.72. This is where the rally from 152.66 will equal the 150.74-155.75 rally. A rally to 157.72 would possibly complete a 3 wave correction of the 159.68-150.74 decline and give way to a similar decline. The short term bullish scenario remains intact as long as the 3/19 low at 154.76 remains solid.

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EURCHF – The EURCHF may be rolling over. There are 5 waves down from 1.6295 to 1.5957 and 3 waves up to 1.6198. The current rally from 1.6025 has retraced to the 61.8% Fibonacci level of the 1.6198-1.6025 decline in 3 waves. At this point, rallies are looking corrective and declines impulsive. Price must remain below 1.6198 for the bearish outlook to remain at the forefront. Coming under 1.6025 would favor a test of 1.5931.

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EURGBP – We are still looking for “a 4th wave correction to unfold soon and give way to another thrust higher.” There are 5 waves up from .6536, so we should see a larger correction down in 3 waves to test the 3/11 low at .6768. The confluence of the 50% / 2/23 low at .6703 should be very strong support. The long term trend has turned and now favors bulls.

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http://www.morganstanley.com/views/gef/archive/2007/20070316-Fri.html

From bubble to bubble – it’s a painfully familiar saga. First equities, now housing. First denial, then grudging acceptance. It’s the pattern and its repetitive character that is so striking. For the second time in seven years, asset-dependent America has gone to excess. And once again, twin bubbles in a particular asset class and the real economy are in the process of bursting – most likely with greater-than-expected consequences for the US economy, a US-centric global economy, and world financial markets.

Sub-prime is today’s dot-com – the pin that pricks a much larger bubble. Seven years ago, the optimists argued that equities as a broad asset class were in reasonably good shape – that any excesses were concentrated in about 350 of the so-called Internet pure-plays that collectively accounted for only about 6% of the total capitalization of the US equity market at year-end 1999. That view turned out to be dead wrong. The dot-com bubble burst, and over the next two and a half years, the much broader S&P 500 index fell by 49% while the asset-dependent US economy slipped into a mild recession, pulling the rest of the world down with it. Fast-forward seven years, and the actors have changed but the plot is strikingly similar. This time, it’s the US housing bubble that has burst, and the immediate repercussions have been concentrated in a relatively small segment of that market – sub-prime mortgage debt, which makes up around 10% of total securitized home debt outstanding. As was the case seven years ago, I suspect that a powerful dynamic has now been set in motion by a small mispriced portion of a major asset class that will have surprisingly broad macro consequences for the US economy as a whole.

Too much attention is being focused on the narrow story – the extent of any damage to housing and mortgage finance markets. There’s a much bigger story. Yes, the US housing market is currently in a serious recession – even the optimists concede that point. To me, the real debate is about “spillovers” – whether the housing downturn will spread to the rest of the economy. In my view, the lessons of the dot-com shakeout are key in this instance. Seven years ago, the spillover effects played out with a vengeance in the corporate sector, where the dot-com mania had prompted an unsustainable binge in capital spending and hiring. The unwinding of that binge triggered the recession of 2000-01. Today, the spillover effects are likely to be concentrated in the much large consumer sector. And the loss of that pillar of support is perfectly capable of triggering yet another post-bubble recession.

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It didn’t have to be this way. Were it not for a serious policy blunder by America’s central bank, I suspect the US economy could have been much more successful in avoiding the perils of a multi-bubble syndrome. Former Fed Chairman Alan Greenspan crossed the line, in my view, by encouraging reckless behavior in the midst of each of the last two asset bubbles. In early 2000, while NASDAQ was cresting toward 5000, he was unabashed in his enthusiastic endorsement of a once-in-a-generation increase in productivity growth that he argued justified seemingly lofty valuations of equity markets. This was tantamount to a green light for market speculators and legions of individual investors at just the point when the equity bubble was nearing its end. And then only four years later, he did it again – this time directing his counsel at the players of the property bubble. In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of sub-prime borrowing – the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to “take the punchbowl away just when the party is getting good,” Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent US economy. I fear history will not judge the Maestro’s legacy kindly. And now he’s reinventing himself as a forecaster. Figure that!

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The exit strategy is painfully simple: Ultimately, it is up to Ben Bernanke – and whether he has both the wisdom and the courage to break the daisy chain of the “Greenspan put.” If he doesn’t, I am convinced that this liquidity-driven era of excesses and imbalances will ultimately go down in history as the outgrowth of a huge failure for modern-day central banking. In the meantime, prepare for the downside – spillover risks are bound to intensify as yet another post-bubble shakeout unfolds.

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http://www.prudentbear.com/articles/show/1676

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Reading through this week’s Wall Street earnings releases and listening to their conference calls left me with the sense that these firms and their clients are especially poorly positioned for an abrupt change in the market environment. Everyone is quick to state that their subprime exposure is small and that they have successfully “hedged.” We are also told that market tumult has been isolated in the subprime marketplace, and that marketplace liquidity remains extraordinarily abundant. All of this may be true for now, but it does not alter the reality that the subprime collapse may very well mark a key (historic?) inflection point for the U.S. Mortgage Finance Bubble and intertwined global risk markets generally.

Clearly, the subprime collapse has quickly imposed dramatically tighter Credit standards and Availability for risky borrowers. I would expect this to speed housing price declines in some areas, with mounting Credit losses ushering in the ugly downside of Credit cycle. To be sure, this has provided a belated wakeup call regarding the latent Acute Financial Fragility of Ponzi Finance Units. Importantly, the flow (deluge) of speculative finance played a critical role in the subprime boom, and its abrupt reversal has instigated almost immediate collapse. In many ways, Subprime is a microcosm of U.S. Credit system and economic fragility.

The bulls argue that subprime amounts to only a small portion of mortgage debt – and thus will have only minimal economic impact. More discerning analysis would instead focus on the Financial Sphere Ramifications Associated with the Hasty Reversal of Speculative Flows from Risky Mortgage Instruments. Is the flight out of subprime mortgages, securitizations and other derivatives a harbinger of things to come for the entire mortgage marketplace? And does the move toward Risk Aversion (position liquidation and/or hedging operations) in this sector mark a momentous marketplace shift from Risk Embracement to Risk Aversion?

In analyzing potential Subprime Contagion Effects, we must begin with a critical question: Is the general backdrop characterized by soundness and stability or is it more a case of excess, weak debt structures, and general fragility. Again, subprime collapsed so abruptly because of the acute fragility associated with Ponzi Finance. Unfortunately, analysis of general mortgage market vulnerability leaves me quite uneasy.

The entire Mortgage Finance Bubble is today especially susceptible to Subprime Contagion Effects. For starters, lending standards should be expected to tightened significantly throughout the “Alt-A,” “jumbo,” and prime “exotic” mortgage marketplace. This will likely pose a greater dilemma than subprime restraint for vulnerable high-priced housing across the country, with all eyes on California. For years now, the “Golden State” has been at the epicenter of mortgage lending excesses. I suspect the state has also been the leader in mortgage fraud. Going forward, I fully expect California to lead the nation in Credit losses and mortgage/housing angst.

Throughout the boom, the securitization of mortgage Credit provided endless finance for homebuyers and speculators, as well as endless profits for the holders of these instruments. As long as home prices were inflating, there was little concern whether the underlying collateral was a reasonably valued home in, say, Texas or a highly inflated property in the San Francisco Bay Area. Now, with Credit conditions beginning to tighten, I expect holders of MBS, ABS, CDOs, etc. to take a more keen interest in the type and location of underlying collateral. This Contagion Effect will spur risk reassessment and a consequential reversal in speculative flows from the mortgage arena.

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Is it possible that Bush & Co are just trying to hold on and "run out the clock" strategy on this? If they can keep things on a somewhat even keel till Jan 2009, then the incoming administration, which could well be Democratic, would wind up holding the bag. Tools such as the PPT and fudged reporting on economic numbers (the true deficit for one) come to mind as methods they would employ. I don't want to sound too tin-foilish, but I have no faith in these folks' policies and no doubt they would do anything to save their asses.

Fortune's Bethany McLean explains how the credit-rating agencies got in the middle of the subprime-lending crisis.

http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/02/8403416/?postversion=2007031909

Fortune Magazine) -- Amid the chaos of the escalating subprime mortgage crisis, the three major credit-rating agencies - Fitch, Moody's and Standard & Poor's - have been voices of calm. They've downgraded only a sliver of the debt backed by such mortgages, and they say they expect the mess to stay safely confined to the subprime sector.

But what if they're wrong? It's not just their reputations, already tarnished by their failure to give investors timely warning of the Enron or WorldCom implosions, that are at stake, but possibly the housing market itself.

To appreciate the role that the rating agencies play in today's housing market, you have to understand a piece of Wall Street alchemy: the process by which mortgages are combined, carved up, recombined and carved up again in almost endless permutations to create new forms of debt (which usually go by three-letter abbreviations).

A bank or brokerage bundles up hundreds of mortgages and sells investors debt that is backed by mortgage payments and secured with homes. These asset-backed securities - ABS's, in Street parlance - are sold in slices, each of which carries its own theoretical level of risk, ranging from the supposedly invulnerable (AAA) all the way down to the bottom rung of investment grade and even past that, to a highly speculative unrated slice.

It's possible to create a AAA-rated asset out of somewhat shaky collateral, because the first dollar of income goes to the securities with the highest rating, while the first dollar of loss is assigned to those with the lowest. The bottom layers provide a cushion that supposedly protects the higher-rated securities.

Lately much of the bottom rung of investment-grade ABS's has been snapped up by another Street creation called a collateralized debt obligation (CDO), which, like an ABS, is sold in slices. A large chunk of a CDO that consists of barely investment-grade securities can still secure a coveted AAA rating - again, because any losses have to eat through the bottom layers.

These products exploded in popularity in recent years because investors - including pension funds and insurance companies, which must mostly buy investment-grade-rated debt - had a voracious appetite for them. That in turn encouraged a historic increase in subprime lending.

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Hedge funds hit hard by subprime woes
The limited partnership investment funds are much more exposed to the high-risk loans than mutual funds.

http://money.cnn.com/2007/03/16/markets/hedge_subprime.reut/index.htm

BOSTON (Reuters) -- Hedge fund portfolios seem to be suffering the most within the fund industry from turmoil in subprime lending, as most mutual fund investors have so far escaped big losses, industry analysts and investors said.

"This is probably a case where the tail is wagging the dog," said Jeff Tjornehoj, an analyst at fund research firm Lipper, a unit of Reuters. "The people taking the biggest hit seem to be the hedge funds, and their nervousness is spreading through the markets; but so far most mutual funds do not look to be heavily impacted," he added.

The value of the average stock mutual fund, which could own anything from financial companies to home builders, slipped 0.4 percent in the week ended Thursday, Lipper data show. In the previous week they were off 0.3 percent, but for the year to date, they are still nearly flat - off only 0.03 percent. Hedge fund data is not available on a weekly basis.

"For the most part, the big mutual funds just aren't that exposed to this problem right now," Tjornehoj explained.

Next worry for stocks: Earnings slowdown

On the other hand, a small number of hedge funds exposed to the mortgage-backed securities and some subprime lenders, may be nursing bigger losses, people who track performance in the $1.4 trillion industry said. And their problems - real or perceived - make for daily conversation, fund of fund investors and performance trackers said.

more...

http://www.leap2020.eu/GEAB-N-13-is-available!-Global-systemic-crisis-Housing,-financial-institutions,-stock-markets,-consumption,-currencies_a505.html?PHPSESSID=e87228c9cbf03142a88c24a29f9a8518
GEAB N°13 is available! Global systemic crisis / Housing, financial institutions, stock markets, consumption, currencies: The contagion is spreading!
- Public announcement GEAB N°13 (March 16, 2007) -


As anticipated by LEAP/E2020 in the past months, the United States are really sinking into the 2007 « very great depression », with a tipping point of the global systemic crisis coming up in April as indicated in last month's GEAB (GEAB N°12). In the coming weeks, the contagion will spread from real estate to the whole of the financial sector and to US household consumption, bearing severe consequences on the results of various economic sectors in the US and on the US market. Simultaneously, these tendencies will accelerate the winding up of the trans-Pacific trade war which, as early as December 2006, LEAP/E2020 anticipated would be a dominant feature of the year 2007.

The contagion spreads in four directions:

1. Global stock markets: First victims of the China-US trade war
2. Housing crises: Besides subprime mortgages, all financial players operating on the US market are dragged into the infernal spiral
3. Dollar (and related currencies): Another nose-dive in April 2007
4. US consumption: Large companies' exodus out of the US market

In this announcement, LEAP/E2020 chose to make public the first of those four directions.

A- Global stock markets: First victims of the China-US trade war
According to LEAP/E2020, it is not by chance that the current stock market crisis started from China with the Shanghai stocks falling steeply (close to 10 percent) following the release of Chinese declarations aimed at restricting stock speculation. Besides the fact that global stocks diving after Shanghai illustrates the central role played by China in the global economy, it would be very surprising that Chinese authorities triggered this crisis by unintentional mistake precisely on the eve of US Treasury secretary Hank Paulson's arrival in Asia. It is obvious that the content of Paulson's Asian tour was deeply transformed by the surge of a global stock crisis: he came to moralize US economic partners in the region and to teach lessons of good financial and monetary management to China, but in the end he spent most of his week restoring Asia's confidence in US economic health and the absence of any monetary or financial risks resulting from Wall Street's dive and from the subprime crisis.

<snip>

In summary, US leaders are taking steps to « teach a lesson » to China (and to a lesser extent to Japan's car makers) without realizing (despite Beijing's warnings, resulting in the current stock crisis) that not only they are in no position to « teach any lesson » to China, but in doing so they are triggering a trade conflict which will contagiously spread to the financial and monetary sectors. It is indeed now in Beijing that the value of US dollars and treasury bonds is determined (not mentioning the value of Fannie Mae's and Freddie Mac's shares, in the past few months massively purchased by Asian investors thus following the advice of their US bankers, knowing that Ben Bernanke himself now acknowledges that the amount of their engagements conveys a “systemic risk” for the US economy).

The United States have somehow become an enormous hedge-fund whose leaders have decided to confront by the end of April the bank lending them the money they need to go on with their highly risky business (i.e. China). Of course their idea is that the “banker” is doomed to go on playing by fear of losing everything. At this level of the game (with billions of people and thousands of billions of US dollars involved), it is a very simplistic idea, especially when the banker begins to realize that nearly all the “securities” provided in the past years are worth no more than bits of papers. That is indeed what the housing crisis' contagion to the US financial sector is revealing to the whole planet.

China's USD 200 billion trade surplus with the US must be compared to a 10% drop of the US dollar's value over one year on China's currency reserves, i.e. USD 100 billion. To think that Beijing will kindly accept to lose on all fronts and not trigger any retaliation, is a sign of great intellectual naivety similar to when four years ago everyone in Washington was convinced that the Iraqis would welcome US troops with flowers.

/more...

The mainland's central bank raises interest rates for the third time in less than a year to try to put a lid on China's hyperactive economy
http://www.businessweek.com/globalbiz/content/mar2007/gb20070319_752378.htm?chan=globalbiz_asia_more+of+today%27s+top+stories

Beijing's financial mandarins have tried ever-so-carefully to calibrate just the right amount of credit tightening to prevent China's $2 trillion-plus, high-speed economy from overheating—without going too far and engineering an unwanted slowdown. It has been difficult, given the massive liquidity sluicing through the economy, and China's still-undeveloped financial markets.

That explains the move by China's central bank on Mar. 17, when mainland and world markets were closed, to hike interest rates for the third time since April, 2006. It was a modest move: The People's Bank of China increased a key benchmark, one-year interest rates, by 27 basis points to 6.39%. The one-year deposit rate was nudged up by the same amount, to 2.79%.

When markets reopened on Mar. 19 in Asia, the Chinese yuan hit a new high of 7.73 against the dollar, the highest level since China abandoned its fixed dollar peg back in mid-2005. The betting is that China may be prompted to raise interests again later in the year, and the U.S. Federal Reserve will hold steady or possibly cut interest rates.

The narrowing interest rate differential could make the Chinese currency, and the prospect of more appreciation in the future, more attractive to currency traders. President Hu Jintao's government is also under heavy international pressure to let the yuan—widely viewed as undervalued— rise in order to cool China's export growth and massive global trade surplus—which hit $177 billion last year.

...

China's surprising 51% year-on-year spike in exports, a nearly 18% advance in M2 money supply growth, a 2.7% increase in inflation, and a 18.5% jump in industrial production were evidence that the economy was heating up again and prompted the central bank to make the move, according to some economists.

/...

http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20070319:MTFH56173_2007-03-19_06-37-23_T142072&pageNumber=0&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage3

TOKYO, March 19 (Reuters) - The Nikkei average rose 1.59 percent on Monday and topped 17,000 for the first time since March 13 as exporters such as Kyocera Corp (6971.T: Quote, NEWS , Research) advanced after the dollar rose more than a yen from the day's lows.

The Nikkei also drew support from a rebound in China's main share index <.SSEC> to positive territory after it fell more than 2 percent at the opening following China's weekend interest rate rise.

Relieved by a halt to the yen's recovery against the dollar, investors picked up shares in electric machinery makers, said Hiroyuki Fukunaga, chief strategist at Rakuten Securities.

"Worries about further unwinding of yen carry trades appear to be waning, leading to investor bargain-hunting of electronics shares," he said.

...

Concerns that China's interest rate rise could trigger a sell-off in stocks also receded after the Shanghai Composite Index <.SSEC> showed resilience despite the Chinese central bank's 0.27 percentage point rate hike at the weekend, he added.

...

The Nikkei <.N225> was up 265.40 points at 17,009.55, its highest close since March 13. The broad TOPIX index <.TOPX> added 1.01 percent to 1,694.08.

Yoshihisa Okamoto, senior vice president at Fuji Investment Management, said the Nikkei is unlikely to surpass 17,200 in the near term as investors are still concerned that the U.S. subprime mortgage crisis could hurt the broader economy.

/..

By Nathan Newman

Here is the real scandal of the subprime bubble that tanked Wall Street last week-- and is why 2.2 mllion subprime borrower face foreclosure on their homes.

State governments actually passed a range of anti-predatory lending laws to stop ripoffs by subprime lenders, but as we discuss over at Progress States today, Bush's White House legally worked to shut down many of those state efforts. More below the fold

"fodder units" to the BFEE and their cronies.

http://www.morganstanley.com/views/gef/archive/2007/20070316-Fri.html

We have highlighted the importance of the tectonic shift from foreign official reserves to sovereign wealth funds (SWFs). While this issue is not as urgent as the risk-reduction that is taking pace in the market right now, in the long run, the evolution of these funds will have monumental implications for financial markets, in our view. We have been tracking the rapid growth in both the official reserves and the SWFs. We now present an update on this issue.

The key conclusions are as follows. (1) Total global official reserves have breached the US$5 trillion mark, as they grew by US$86 billion in the latest month and by US$832 billion in the past 12 months. (2) The SWFs could have reached US$2.3 trillion, and will grow very rapidly. (3) China’s State FX Investment Corporation (SFEIC) will be a massive entity. (4) Notwithstanding some implementational constraints, these funds will have important structural implications for the financial markets.

Tracking official reserves and SWFs

• Observation 1. Global official reserves are massive, and still growing. The world’s official reserves have just breached the US$5 trillion mark (US$5,130 billion, to be exact, for gross reserves and US$5,078 billion for the currency component). The world’s official reserves are growing at roughly US$75-80 billion a month, with China accounting for about 30% of these increases. While oil exporters and the Asian countries have roughly the same absolute size aggregate C/A surpluses (around US$400 billion a year), so far the Asian countries have accumulated these balance of payments (BoP) surpluses in the form of official reserves, while the oil exporters tend to channel their export proceeds into SWFs. In any case, compared to the total official reserves that prevailed at end-2005 of US$4,175 billion, the world’s official reserves have risen by close to US$1 trillion in a little more than a year: this is a major increase.

• Observation 2. The SWFs could be as big as official reserves in five or six years’ time. As of now, the total size of the SWFs may be as big as US$2.3 trillion — already close to half the size of the gross official reserves. We believe this ratio will rise in the coming years. If we are right that these funds will grow by roughly US$500 billion a year, at the expense of official reserve growth, the total size of the SWFs should be as big as the official reserves in only 5-6 years’ time. The top three funds, in terms of size, are ADIA, GIC and Norway’s GPF. However, we expect China’s SWF to quickly become the second-largest SWF in the world.

• Observation 3. China’s SWF is the fund to watch. In our opinion, Beijing’s decision to establish the State Foreign Exchange Investment Corporation (SFEIC) outside the PBoC was the right decision, as it minimizes the ‘reputational risk’ of having the central bank managing low-risk reserves and a higher-risk investment fund. But the decision to merge the Central Huijing Holding Company and this new SFEIC was somewhat of a surprise to us.

First, we always thought of the Central Huijing Holding Company as more like Singapore’s Temasek and the SFEIC modeled after the GIC. Temasek tends to hold more domestic assets and more private equity, while GIC holds only foreign assets, most of which are publicly traded company shares. Organizationally, China’s lumping these two types of investment entities together really should not raise major problems, as long as the two branches under the State Council are run separately.

Second, partly due to the merging of these two types of funds into one, we suspect that China will follow Singapore’s practice of not releasing detailed and timely information on the size of the funds or the composition of these funds’ asset holdings. In other words, these funds, in terms of transparency, will be more like the ADIA than Norway’s GPF.

Third, critically, these funds will likely eventually be ‘equity-heavy’. Specifically, we expect the SFEIC to hold a substantial share of its assets in equities, not sovereign bonds. Using Norway as the benchmark, massive equity purchases by China are likely in the coming years. In his speech from last November, Executive Director of the Norwegian Pension Fund, Mr Knut Kjaer, argued that a 40% allocation to equities may be too low. If the SFEIC is to start with US$300 billion or so of seed capital, the demand for equities should be substantial, if the SFEIC has an equity allocation anywhere near that of Norway’s GPF. Further, as the SFEIC grows over time, the incremental demand for global equities will no doubt be immense.

/continues

I don't agree with this writer but am posting it in the interest of being aware the range of views.

http://www.nytimes.com/2007/03/18/realestate/keymagazine/318RElead.t.html?_r=1&ref=keymagazine&oref=slogin

Since last year, when new home construction stopped in its tracks and the rate of home sales (in hot markets) dropped by a third, the experts, the real estate writers, the listing agents, have been listening very hard for that popping sound. Prices have eased — by a point or two in many markets, by as much as 5 percent in Boston. Prognosticators have forecast a recession, with banks up to their eyeballs in foreclosed mortgages and ordinary folk bailing out of their center-hall colonials.

Such alarmist sentiment is at odds with the conventional, and comforting, view: that real estate is “different” from other, purely financial markets, and that a house, in particular, is a more reliable investment than a dot-com stock. But is it?

snip

This is the problem I have with the real-estate-equals-dot-com argument. Most homeowners buy to have a place to live. If prices fall, they react precisely unlike stock traders; rather than bail out, they stay put longer. Every share of Cisco may be for sale every day, but every house is not. Case, Shiller’s partner, tracked 628 home listings in the Boston area during 2006, as prices began to fall. After four months, the majority remained unsold, but the sellers lowered their asking prices by only 3 to 4 percent. While Case says this demonstrates that real estate is “stickier” than financial assets, Shiller says it proves that owners are delusional — unwilling to admit that real estate goes down as well as up.

Interesting.

:donut: and lurkers. It is good to be back for Spring Break but things are really hopping now. I can't shake the idea that we will have a bad summer, both in terms of gas, the real estate market, and hurricane season. If I had a mended broken leg that would ache when the weather was due to change-I'd say pass me the Tylenol right about now. Things will be hopping soon. I can't pin it on more than a gut feeling. You know how sometimes, if you are lucky, you know the exact event that caused a change (I got that feeling with the Camp David accord and predicted to my friends that one of those guys would be assassinated). Other times, you know something changed but it is not til you look through the rear view mirror that you can see the exact event. I have that feeling now. I think it is something in hedge funds and the real estate crash that is the source of this unbalanced feeling. Well, that's me today....AnneD, psychic/psycho armchair economist. Get the :tinfoilhat: at the ready.

Happy hunting and watch out for the bears...they will be foraging for the winter.

Dow 12,186.84 76.43 (0.63%)
Nasdaq 2,387.61 14.95 (0.63%)
S&P 500 1,396.50 9.55 (0.69%)
10-yr Bond 4.5730% 0.0280
30-yr Bond 4.7190% 0.0240
NYSE Volume 684,920,000
Nasdaq Volume 403,005,000

10:30 am : Investors continue to embrace a fresh round of M&A activity as well as hope for some bullish leanings from Wednesday's Fed policy statement; but the absence of a new catalyst since the market opened leaves stocks vulnerable to some intraday consolidation.

While recent evidence of a slowing economy leaves some participants expecting the Fed to offer a more balanced approach to monetary policy this week, there's still a risk policy makers will err on the side of caution and reiterate their tightening bias. DJ30 +68.74 NASDAQ +12.82 SP500 +8.60 NASDAQ Dec/Adv/Vol 888/1806/334 mln NYSE Dec/Adv/Vol 644/2257/228 mln

10:00 am : The indices are off their opening highs but are still holding on to the bulk of early gains. All 10 sectors are in positive territory, led by a 1.0% advance in Energy along with notable gains of at least 0.6% for even more influential areas like Financials, Technology and Industrials.

Of the 147 S&P industry groups, 142 are trading higher, further underscoring the broad-based nature of this morning's renewed enthusiasm for equities and a sense that last week's pullback may signal a short-term bottom. :eyes: DJ30 +73.38 NASDAQ +14.60 SP500 +9.14 NASDAQ Dec/Adv/Vol 606/1942/172 mln NYSE Dec/Adv/Vol 401/2270/80 mln

09:40 am : As expected, stocks open sharply higher as rally around the fact that low interest rates and ample liquidity continue to feed the M&A pipeline. Reports that Barclays PLC (BCS 53.72 +0.22) is making a blockbuster bid for ABN Amro (ABN 39.47 +3.23) top today's headlines, since such a move would create a banking giant with a market cap of more than $150 bln. Community Health Systems (CYH 36.80 unch) is reportedly ready to top a $4.5 bln private equity bid for Triad Hospitals (TRI 49.36 unch). Shares of both stocks have been halted.

Proposed private-equity buyouts are also contributing to this morning's bullish disposition. A Blackstone-led group is reportedly looking to trump a record-breaking $32 bln bid for TXU Corp. (TXU 64.01 +1.26) while ServiceMaster (SVM 15.12 +1.65), the only confirmed deal of note, has said it will go private at a 16% premium to Friday's closing stock price. DJ30 +86.15 NASDAQ +16.10 SP500 +10.01 NASDAQ Vol 88 mln NYSE Vol 52 mln

09:15 am : S&P futures vs fair value: +7.3. Nasdaq futures vs fair value: +8.3.

09:00 am : S&P futures vs fair value: +7.2. Nasdaq futures vs fair value: +9.2. Futures trade is holding steady above fair value, setting the stage for stocks to stage a respectable rebound. Aside from M&A activity and a rally in overseas markets contributing to the positive disposition, the market also appears to be pricing in the possibility that this week's Fed policy directive will provide a more balanced approach to monetary policy. Any softening of the statement's wording on Wednesday and improvement in the interest rate outlook will be welcome news, especially since lowered earnings expectations of late restrict the upside potential for equities and will continue to underpin a cautious tone until the market receives more convincing evidence of a possible rate cut.

08:30 am : S&P futures vs fair value: +7.3. Nasdaq futures vs fair value: +9.2. Still shaping up to be a strong open for stocks as the futures market continues to trade above fair value. With the mix of data last week doing little to alter economic perceptions, the absence of potentially troubling reports this morning is also helping to pave the way for investors to get back on the buying track following a down week.

08:00 am : S&P futures vs fair value: +7.0. Nasdaq futures vs fair value: +8.2. Early indications are pointing to a higher open for stocks as investors embrace a wave of M&A activity. Topping the headlines is speculation over a potential merger between Barclays (BCS) and ABN Amro (ABN) and reports that a counterbid is coming for TXU Corp (TXU). Also, Community Health Systems (CYH) is reportedly eyeing a takeover of Triad Hospitals (TRI), breaking up an existing $4.5 bln buyout plan, while ServiceMaster (SVM) has agreed to be taken private for $5.5 bln (including debt).

06:19 am : S&P futures vs fair value: +8.4. Nasdaq futures vs fair value: +10.0.

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=stocksNews&storyID=2007-03-19T135525Z_01_NOA950101_RTRUKOC_0_USA-MARKETS-LIQUIDITY.xml

NEW YORK (Reuters) - Global equities, government bond yields and the dollar have spent the last several weeks tumbling, but financial market liquidity is not in danger of drying up -- at least not yet.

A crisis in the subprime U.S. mortgage market has boosted market volatility and raised concerns about a potential U.S. economic recession. These factors ganged up on investors who had been enjoying relatively low borrowing costs around the world, forcing them to exit risky trades en masse.

But top money managers and analysts do not yet see a tectonic shift taking place that would alter the landscape in which an abundance of money was chasing a limited number of trades.


That would take clear evidence that the U.S. economy is headed for what is called a "hard landing" in market parlance -- or a recession.

"I would not take the events of the last few days and project on them either a fallout that fundamentally changes the economic view or a market-seizing event that forces the Fed to come in and provide emergency liquidity by cutting" interest rates, said Chris Probyn, senior economist with State Street Global Advisors in Boston.

In a matter of weeks, the futures market has gone from reflecting expectations for a steady hand at the Federal Reserve to fully pricing in two quarter-percentage-point cuts this year from the current rate of 5.25 percent.

more...

http://mwprices.ft.com/custom/ft2-com/html-story.asp?pulse=true&siteid=ft&dist=ft&guid=%7Baa584f8e%2D4761%2D467f%2Daa53%2D402cf397c88c%7D

Merger speculation lifted equity markets yesterday after talks between ABN Amro and Barclays heightened expectations of further consolidation in the European banking sector. ABN Amro gained 9.7 per cent to €29.94 on reports that Barclays of the UK was interested in a “white knight” bid to shield Holland’s biggest bank from activist investors. ABN has faced mounting pressure from hedge funds to sell off non-core assets as they believe the bank’s restructuring and acquisitive strategy has done little to boost the share price. ”After recent pushing by activist investors for ABN to break-up, a merger with a highly respected bank such as Barclays may not be something they could continue to say no to,” said Tania Gold at Dresdner Kleinwort. A successful merger between the two companies would create a banking titan worth around £80bn. In the wider market, the FTSE Eurofirst 300 was 1.4 per cent higher at 1,475.39 in closing exchanges, while the CAC 40 closed up 1.4 per cent at 5,458.95 and the Xetra Dax 30 finished 1.4 per cent higher at 6,671.41.

http://www.postfinance.ch/pf/content/en/topics/etrade/news/stockreportchev.html

Swiss shares closed Monday's session in the black, recovering from last week's losses. Strong financials and sharp gains in Swatch following better-than-expected full year results supported the index.

The Swiss Market Index closed 124.07 points or 1.42% higher at 8,841.70 with all 25 blue chips pointing north. The broader Swiss Performance Index jumped 101.62 points or 1.46% to 7,064.57.

Swatch closes sky high

Swatch bearer shares closed 5.03% higher at CHF 318.25 and registered shares gained 4.88% to CHF 64.50 after the watchmaker today published expectation-beating full-year figures. Net profit climbed to CHF 830 million, up from CHF 621 million in 2005, boosted by improved sales particularly in the core watch and jewellery segment. In addition, the group announced a new CHF 400 million share buyback programme and said it expects further sales growth and profitability in 2007.

Banking groups up on takeover speculation

UBS jumped 1.45% to CHF 70.10 and Credit Suisse surged 2.32% to CHF 86.05, boosted by merger speculations involving Dutch banking group ABN-Amro and Britain's sector peer Barclays. Julius Baer soared 3.46% to CHF 161.30 after the banking group today announced that the Monetary Authority of Singapore has granted in-principle approval for the bank to establish a wholesale bank branch in Singapore.

/...

1:56
Dow 12,226.97 Up 116.56 (0.96%)
Nasdaq 2,396.92 Up 24.26 (1.02%)
S&P 500 1,402.28 Up 15.33 (1.11%)
10-Yr Bond 4.569% Up 0.024
NYSE Volume 1,760,279,000
Nasdaq Volume 1,072,094,000

1:30 pm : Stocks continue to post sizable gains even after investors recently discovered that home builders were less optimistic about the housing market earlier this month. At the top of the hour, the National Association of Home Builders/Wells Fargo index of sentiment fell to 36 this month from February's revised reading of 39, a seven-month high.

The NAHB said some builders see the effects of the subprime shakeout on current home sales and are uncertain about the impact tighter mortgage lending standards are having on sales from. Nonetheless, both equity and bond traders are evidently waiting for more quantitative data from the likes of tomorrow's more influential Housing Starts and Building Permits reports, and perhaps new wording in Wednesday's FOMC policy statement, to provide a clearer picture about the state of housing. DJ30 +110.32 NASDAQ +20.55 SP500 +13.92 NASDAQ Dec/Adv/Vol 936/2039/984 mln NYSE Dec/Adv/Vol 708/2459/760 mln

1:00 pm : Today's session on Wall Street is one residents of Pamplona, Spain, could appreciate as traders have been running with the bulls since the start of trading.

The indices are off their best levels of the session, but continue to sport good-sized gains that are being underpinned by broad-based leadership. All ten economic sectors are on positive ground with the all-important financial sector (+1.00%) playing an influential role.

Consistent with a market that has a feel-good vibe to it, small-cap issues are outperforming their larger counterparts.DJ30 +106.39 NASDAQ +20.24 R2K +1.10% SP500 +13.61 NASDAQ Dec/Adv/Vol 890/2064/880 mln NYSE Dec/Adv/Vol 646/2493/677 mln

NEW YORK (AP) -- Stocks rose sharply Monday as Wall Street joined overseas stock markets in riding a wave of merger news to bounce back from a losing week. The Dow Jones industrials at times rose more than 100 points.

The buyout news, particularly the possibility of an enormous deal that would unite Dutch bank ABN Amro Holding NV with British bank Barclays PLC, propelled stocks higher as investors theorized that companies remain upbeat about the economy if they're willing to cut new deals.

The advance came at the start of an important week for economic data; the first reading, a report from the Chicago Federal Reserve, said regional manufacturing slowed in January. The market was also waiting for Tuesday's start of the U.S. Federal Reserve's two-day meeting on interest rates. While few expect the Fed will adjust short-term interest rates, investors will be looking for any change in the central bank's posture that could hint at where rates are headed in the coming months.

"I think the markets are very sentiment driven. It does also appear that when the global markets see recovery in one area they all seem to move up and when they see concern in another market they all seem to move down," said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc. in Toronto.

more...
http://biz.yahoo.com/ap/070319/wall_street.html?.v=30

CHICAGO (AP) -- Lawn care and pest control provider ServiceMaster Co. agreed Monday to be bought by an investment group in a cash deal valued at $4.5 billion, as the company tries to recover from years of declining financial results.

Bowing to shareholder pressure, the owner of TruGreen Lawn Care, Terminix pest control and Merry Maids cleaning service announced a deal with an investment group led by private equity firm Clayton, Dubilier & Rice Inc.

The announcement came nearly five months after the Downers Grove, Ill.-based company said it was exploring strategic alternatives.

The move followed pressure from shareholders Ariel Capital Management LLC and Newcastle Capital Management LP to consider a sale or buyout.

more...
http://biz.yahoo.com/ap/070319/servicemaster_acquisition.html?.v=9

AMSTERDAM, Netherlands (AP) -- Shares of ABN Amro Holding NV, the Netherlands' largest bank, surged 9.4 percent Monday on speculation that British bank Barclays PLC may make an offer for the business.

Both companies declined to comment on a report in Britain's Sunday Times, which cited anonymous sources as saying Barclays had approached ABN Amro to discuss a takeover. If Barclays does buy ABN, it would be one of the largest cross-border banking acquisitions in European history.

Barclays said Monday it would update the market on its position toward ABN by Tuesday. ABN Amro spokesman Neil Moorhouse declined to comment.

ABN shares rose 9.4 percent to euro29.86 ($39.74), continuing a climb that began in December and accelerated in February, when hedge fund TCI said the shares were undervalued and management should split or sell the company. After Monday's rise, its market capitalization is about euro57 billion ($76 billion).

more...
http://biz.yahoo.com/ap/070319/netherlands_abn_amro.html?.v=6

NEW YORK (AP) -- Semiconductors stocks inched down in Monday's trading, led by Sirf Technology Holdings Inc., which got a boost thanks to an upgrade.

The Philadelphia Semiconductor Sector Index was down 1.45 points, or .3 percent, at 470.54.

NetLogic Microsystems Inc. got dinged after CIBC analyst Allan Mishan initiated coverage of the stock with a "Sector Performer" rating, and suggested expectations may be "too high."

Shares of NetLogic, which have traded between $17.55 and $45.03 over the last 52 weeks, were down $1.05, or 3.9 percent, at $25.62 in afternoon trading on the Nasdaq.

more...
http://biz.yahoo.com/ap/070319/sector_snap_semiconductors.html?.v=1

NEW YORK (AP) -- American shares of companies based in India were up Monday as markets were strong worldwide.

The 30-stock Sensex Index of the Bombay Stock Exchange gained 1.7 percent, while the National Stock Exchange's "Nifty Fifty" was up 2 percent.

American depositary shares, or ADSs, represent an underlying security traded in the country of issue.

Shares of Mumbai-based private sector bank HDFC Bank Ltd. climbed $2.90, or 4.5 percent, on the New York Stock Exchange.

more...
http://biz.yahoo.com/ap/070319/india_sector_snap.html?.v=1

LONDON (AP) -- European shares rose Monday as deal speculation prompted gains for Dutch bank ABN Amro and tobacco company Altadis. Shares of TUI advanced as it agreed to merge its tourism operations with First Choice Holidays.

The U.K. FTSE 100 index closed up 1 percent at 6,189.40, the German DAX Xetra 30 Index rose 1.4 percent to 6,671.41 and the French CAC-40 index climbed 1.4 percent to 5,458.95.

"A level of calm seems to have returned with greater stability in prices and some tentative upward momentum being re-established in major indices," said Paul Niven, head of asset allocation at F&C Investments.

U.S. stocks helped European gains by opening higher.

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http://biz.yahoo.com/ap/070319/european_stock_roundup.html?.v=1

WASHINGTON (AP) -- U.S. home builders reported declining sales conditions in March for the first time in six months, reflecting worry about worsening credit in subprime mortgage markets, according to an industry survey released Monday.

The National Association of Home Builders' index of sales activity for new, single-family housing fell to 36 this month from a downwardly revised 39 last month, initially reported as 40.

When the NAHB's housing market index is under 50, the number of builders who see "poor" sales outnumber the number who see "good" sales. With housing markets cooling over the past year, the index has stayed under this threshold for 11 straight months after holding above it the previous 10 years.

"Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity," said NAHB Chief Economist David Seiders.

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http://biz.yahoo.com/ap/070319/home_builders_index.html?.v=1

March 19 (Bloomberg) -- Copper prices in New York rose to a three-month high after inventories of the metal used in pipes and wires fell by the most in two weeks.

Stockpiles monitored by the London Metal Exchange declined 2,225 metric tons, or 1.1 percent, to 192,175 tons today. Inventories have dropped 7.6 percent this month, and prices, up for the fourth session in a row, have gained 9.8 percent this month.

Copper will be ``tight'' in the second quarter amid rising Chinese demand, BHP Billiton Ltd., the world's largest mining company, said in a presentation on its Web site. The metal ``remains very vulnerable to supply disruptions and problematic ramp-up of new production,'' the company said.

Copper futures for May delivery gained 1.05 cents, or 0.4 percent, to $3.0215 on the Comex division of the New York Mercantile Exchange. Earlier, prices reached $3.0435, the highest since Dec. 19.

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http://www.bloomberg.com/apps/news?pid=20601012&sid=alSm.wRmX7BQ&refer=commodities

NEW YORK (AP) -- Shares of Gateway Inc., which have not traded above $3 since 2005, jumped more than 8 percent Monday amid speculation that the computer maker may be an acquisition target.

A group of ThinkEquity analysts, in a tech industry update, said that when J.T. Wang, the chairman and chief executive of Taiwanese computer maker Acer Inc., said the company was "hoping to make an acquisition this year," sources indicated he meant Gateway.

Gateway's shares climbed 12 cents, or 5.3 percent, to $2.37 in afternoon trading on the New York Stock Exchange. Earlier in the session, the stock rose as much as 8.4 percent to $2.44, approaching its 52-week high of $2.45.

A U.S. representative for Taipei-based Acer was not immediately available to confirm or deny the reports.

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http://biz.yahoo.com/ap/070319/gateway_mover.html?.v=1

March 19 (Bloomberg) -- Take-Two Interactive Software Inc., the money-losing maker of ``Grand Theft Auto'' video games, delayed its shareholder meeting and said it may sell itself after dissident investors announced plans to seize control of the company.

The shares jumped as much as 8.7 percent after Take-Two said it is considering alternatives to present at the company's annual meeting. The gathering, scheduled for March 23 in New York, will now be held on March 29, Take-Two said today in a statement.

Shareholders with 46 percent of the company, including Steven Cohen's SAC Capital Advisors LLC, said on March 7 they plan to install their own directors and management. Take-Two has had five quarters of losses while failing to find hits to match the ``Grand Theft Auto'' series. Former Chief Executive Officer Ryan Brant pleaded guilty last month to charges stemming from a probe into improper options grants.

``The company's trying to see if it can come up with an alternative option for shareholders to consider besides the one proposed by the group,'' Edward Williams, an analyst with BMO Capital Markets, said in an interview.

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http://www.bloomberg.com/apps/news?pid=20601087&sid=asB86kIZlOhQ&refer=home

March 19 (Bloomberg) -- Gold rose in New York on speculation that the U.S. Federal Reserve may cut interest rates this year, boosting the appeal of the precious metal as an alternative investment to the dollar.

Gold, sold in dollars, often moves in the opposite direction of the U.S. currency. Options traders are predicting a 24 percent likelihood the Fed will lower its target rate to 4.5 percent by the end of this year from 5.25 percent now. A rate cut would weaken the U.S. dollar, which fell 1.3 percent against a basket of six major currencies last week as gold gained 0.3 percent.

``A rate cut in the U.S. dollar would likely encourage sidelined metals buyers and current dollar holders to start buying'' gold once again, Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co., said in an e-mail today.

Gold futures for April delivery rose 40 cents, or 0.1 percent, to $654.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices have risen 18 percent in the past year.

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http://www.bloomberg.com/apps/news?pid=20601012&sid=aCeZVzJ2ztqw&refer=commodities

March 19 (Bloomberg) -- U.S. Treasury two-year notes fell for a fourth day amid concern the Federal Reserve may not soften its bias against inflation and as equity gains in the U.S., Asia and Europe curbed demand for government debt.

The yield on the benchmark 10-year note touched the highest in a week. Fed policy makers are forecast to keep borrowing costs steady for a sixth consecutive meeting on March 21. Wholesale and consumer prices rose more than economists forecast last month.

``The likelihood of the Fed doing anything anytime soon is becoming more distant,'' said David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors. ``The things that would have given bond bulls a good feeling, like seeing inflation wane, haven't developed yet. Equities seem to have stabilized. Treasuries are bleeding a little because of that.''

The yield on the two-year note, more sensitive than longer- maturity debt to interest-rate changes, rose 3 basis points, or 0.03 percentage point, to 4.63 percent at 3:01 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 3/4 percent security maturing in February 2009 dropped 2/32, or 63 cents per $1,000 face amount, to 100 7/32.

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http://www.bloomberg.com/apps/news?pid=20601009&sid=aUUFAeCBIAHg&refer=bond

NEW YORK (AP) -- Airline stocks rose Monday, after JP Morgan analysts said balance sheets at U.S. carriers are improving and industry consolidation is still likely over the next two years.

The Amex Airline Index added 1.8 percent in afternoon trading, with 9 of its 11 component stocks rising. Most of the biggest percentage gainers were network, hub-and-spoke airlines, with low-cost carriers flat or posting more modest increases.

Helping all shares was a barrel of oil slipping 15 cents to $56.96 on the New York Mercantile Exchange, as jet fuel is one of the industry's top costs.

In a discussion with several airline analysts about the overall industry's prospects, JP Morgan's Mark Streeter said he thinks there's at least a 75 percent chance of an industry merger announcement over the next three to 24 months. After that, there is at least a 50 percent chance that a deal would move forward, he said in a transcript of the discussion released Monday.

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http://biz.yahoo.com/ap/070319/airlines_sector_snap.html?.v=1

3:12
Dow 12,212.79 Up 102.38 (0.85%)
Nasdaq 2,390.31 Up 17.65 (0.74%)
S&P 500 1,400.30 Up 13.35 (0.96%)
10-Yr Bond 4.571% Up 0.026
NYSE Volume 2,192,846,000
Nasdaq Volume 1,322,650,000

2:55 pm : Stocks are holding on to most of their intraday gains as buying remains widespread across most areas. Bonds, however, recently closed lower as their safe-haven status became less appealing compared to the renewed interest in beaten-down equities.

It is worth noting, though, that selling pressure was modest, barely lifting yields across the curve, and that weakness in Treasuries was also attributed to the Fed possibly softening its bias against inflation, which is bullish for stocks. DJ30 +112.21 NASDAQ +21.45 SP500 +14.90 NASDAQ Dec/Adv/Vol 1013/2012/1.26 bln NYSE Dec/Adv/Vol 776/2451/988 mln

2:30 pm : More of the same for stocks as bargain hunters continue to sideline much of the negative sentiment that has weighed on stocks of late. As reflected in the A/D line, advancers outpace decliners on the NYSE by a more than 3-to-1 margin while those on the Nasdaq hold a 2-to-1 edge. The ratio of up to down volumes paints even more of a bullish picture at the Big Board and the Composite.

A 12% decline on the VIX (CBOE Volatility Index) further underscores the renewed optimism to own equities on the heels of last week's pullback. The index spiking lower suggests investors are actively buying call options in anticipation that a short-term bottom has been put in place. DJ30 +104.62 NASDAQ +21.87 SP500 +14.07 NASDAQ Dec/Adv/Vol 926/2090/1.13 bln NYSE Dec/Adv/Vol 711/2502/890 mln

CHICAGO (AP) -- Grain futures finished mixed while soybeans ended higher Monday on the Chicago Board of Trade.

Wheat for May delivery fell 5 3/4 cents to $4.55 a bushel; May corn fell 1 1/2 cent to $3.98 a bushel; May oats rose 2 1/2 cents to $2.77 a bushel; May soybeans rose 6 cents to $7.59 1/2 a bushel.

Beef futures ended higher while pork finished mixed on the Chicago Mercantile Exchange.

April live cattle rose .70 cent to 97.80 cents a pound; April feeder cattle rose .47 cent to $1.0652 a pound; April lean hogs fell .03 cent to 64.37 cents a pound; May pork bellies rose .35 cent to $1.0320 a pound.

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http://biz.yahoo.com/ap/070319/board_of_trade.html?.v=3

NEW YORK (AP) -- After rising nearly 39 percent in little more than a week, shares of premium soda maker Jones Soda Co. hit a new high Monday following an interview with former hedge fund manager turned television personality Jim Cramer.

"I think what's moving the shares is Cramer," said ThinkEquity Partners analyst James Maher. "It's a contributor to today's action."

Shares climbed $1.02, or 5.4 percent, to $19.87 by the afternoon after topping out at $20.77, a rise of 10 percent and a new high for the stock. Shares have traded between $6.55 and $20 in the past year.

The shares have been moving up since March 8, when Jones Soda reported fourth-quarter profit that more than tripled, and said it would expand sales of its pure cane sugar soda to several major retailers, including Wal-Mart, Safeway and Kroger.

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http://biz.yahoo.com/ap/070319/jones_soda_mover.html?.v=1

NEW YORK (AP) -- Shares of hospital operators caught a boost Monday after Community Health Systems Inc. announced a $5.1 billion cash bid for Triad Hospitals Inc.

The buyout offer tops a previous $4.7 billion bid for Triad by a group of private investors and included an affiliate of Goldman Sachs and a JPMorgan & Co. chase spinoff. Triad has agreed to the Community Health Systems buyout and is canceling the private equity group agreement.

The offer spiffs up the shine on the sector months after HCA Inc. went private in a $21.3 billion buyout.

Triad shares jumped $2.63, or 5.3 percent, to $51.99 on the New York Stock Exchange in afternoon trading. The stock has traded between $36.44 and $49.95 over the last 52 weeks. Community Health shares dipped $1.36, or 3.7 percent, to $35.44 on the Big Board. Those shares have traded between $31 and $39.18 over the last 52 weeks.

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http://biz.yahoo.com/ap/070319/hospital_operators_sector_snap.html?.v=1

NEW YORK (AP) -- Shares of used car retailer CarMax Inc. rose Monday after Goldman Sachs analyst Matthew J. Fassler said the company's overall exposure to the subprime market is minimal and said delinquency rates are stabilizing.

The stock added $2.95, or 5.8 percent, to $53.95 on the New York Stock Exchange, on more than double normal trading volume

Subprime lenders, which lend money to those with risky credit, have faced recent stock volatility as default rates on mortgages have jumped. Many subprime lenders issued loans to people with poor credit during the housing boom, and now borrowers are missing payments and financial backers are cutting lenders off from borrowing more money, given the slump in housing prices.

Fassler, who has a $48 price target on the stock, said Carmax offers no credit to subprime customers, and does little business with subprime customers using other credit options.

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http://biz.yahoo.com/ap/070319/carmax_mover.html?.v=1

NEW YORK (AP) -- Shares of copper producers rose Monday, after Freeport-McMoRan Copper & Gold Inc. said it completed its $26 billion acquisition of rival Phelps Dodge Corp.

The deal creates the world's largest publicly traded copper company. Bear Stearns analyst Anthony B. Rizzuto Jr. lifted his rating on the combined entity to "Outperform" from "Peer Perform," saying he expects copper demand to remain strong ahead.

Shares of Freeport added $1.73, or 2.9 percent, to close at $62.44 on the New York Stock Exchange, while shares of Phelps Dodge Corp. added $1.28 to end the session at $129.78.

Southern Copper Corp. added $2.84, or 4.2 percent, to finish the day at $70.03 on the Big Board, Australian copper producer BHP Billiton Ltd. advanced $1.11, or 2.7 percent, to close at $41.89.

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http://biz.yahoo.com/ap/070319/copper_producers_sector_wrap.html?.v=1

NEW YORK (AP) -- Shares of a number of auto suppliers got a boost Monday, driven by a strong market and positive comments from one analyst.

The Dow Jones industrials rose 115.76, to close at 12,226.17.

American Axle & Manufacturing Holdings Inc. posted some of the largest gains in the sector, rising $1.06, or 4.1 percent, to end at $26.90 on the New York Stock Exchange, after peaking at $27.16 earlier in the day and flirting with its 52-week high of $27.36.

KeyBanc's Brett D. Hoselton said after speaking with industry sources, he believes American Axle's earnings could top $3 per share by 2009.

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http://biz.yahoo.com/ap/070319/sector_wrap_auto_suppliers.html?.v=1

NEW YORK (AP) -- Internet stocks climbed mostly higher Monday, with Google Inc. leading the pack amid speculation that the online search leader could be working on cell phone software.

The Wall Street Journal, citing unnamed people familiar with the matter, reported that the company is developing software that goes "well beyond" its existing applications for phones.

Google, which is facing a $1 billion lawsuit from media conglomerate Viacom Inc. over its YouTube video sharing site, saw its shares jump $6.38, to close at $447.23 on the Nasdaq Stock Market.

Shares of Yahoo Inc., meanwhile, added 15 cents to $30.03 on the Nasdaq, and online retailer Amazon.com Inc. rose 60 cents to $38.45.

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http://biz.yahoo.com/ap/070319/internet_sector_wrap.html?.v=1

NEW YORK (AP) -- Biotechnology stocks edged higher Monday, buoyed by a more confident economic outlook in the overall market and positive clinical trial and earnings results sprinkled throughout the sector.

The American Stock Exchange's biotechnology index gained 9.4 points, and the Nasdaq Stock Market's biotechnology index gained 6.6 points. The Dow Jones Industrials gained 115.76 points, and the S&P 500 gained 15.11 points, on a wave of merger news and sharp gains in overseas stocks.

The gains for biotech stocks are also coming at the opening of Lehman Brothers 10th annual global health care conference in Miami. The conference will feature a variety of biotechnology and pharmaceutical companies, with many expected to release new or updated data on ongoing clinical trials.

Drug developer Acadia Pharmaceuticals Inc. saw its shares more than double to close at $13.61 on the Nasdaq Stock Market after it reported positive results from a midstage clinical trial for its schizophrenia treatment candidate ACP-103. The study involved the drug candidate being given in conjunction with risperidone or other modern atypical antipsychotics.

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http://biz.yahoo.com/ap/070319/sector_wrap_biotechnology.html?.v=1

ISSAQUAH, Wash. (AP) -- A federal grand jury has issued a subpoena over Costco Wholesale Corp.'s stock-option granting practices, following an internal investigation that found "imprecisions" with stock grants last year.

Costco officials said the company will cooperate fully with the federal inquiry, which it said came from the U.S. attorney's office in Seattle.

Costco, the nation's largest wholesale club operator, is among more than 200 companies that have disclosed federal or internal investigations into their stock options practices, according to an Associated Press review.

Company officials declined to make additional comment Monday. In a statement issued late Friday, Costco said it remains confident in the findings of the internal investigation.

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http://biz.yahoo.com/ap/070319/costco_stock_options.html?.v=1

Message removed by moderator. Click here to review the message board rules.

Court overturns class status in Enron suit

Reuters
40 minutes ago

HOUSTON (Reuters) - A federal appeals panel in New Orleans said on
Monday that a lower court judge improperly granted class-action status
in a $40 billion lawsuit by Enron Corp. investors, a big victory for
the investment banks Merrill Lynch and Co Inc. (NYSE:MER - news) and
Credit Suisse Group (CSGN.VX) that sought to have the ruling overturned.

The banks had argued that Judge Melinda Harmon in Houston federal court
wrongly allowed investors to allege Merrill Lynch and Credit Suisse were
primary participants in the fraud that eventually led to Enron's collapse.

In a 53-page ruling, the U.S. Court of Appeals the 5th Circuit wrote that
Judge Harmon's decision to grant class- action status to the case was
partly based on "legal error" regarding the banks' liability and sent the
lawsuit back to the lower court for reconsideration.

"We are very disappointed," said William Lerach, a lawyer for the Enron
investor plaintiffs. "We respect the court, but we think the decision is
clearly wrong."

-snip-

http://news.yahoo.com/s/nm/20070319/bs_nm/enron_lawsuit_dc

Who got deleted?

Dow 12,226.17 Up 115.76 (0.96%)
Nasdaq 2,394.41 Up 21.75 (0.92%)
S&P 500 1,402.06 Up 15.11 (1.09%)
10-Yr Bond 4.571% Up 0.026
NYSE Volume 2,777,176,000
Nasdaq Volume 1,727,130,000

4:20 pm : Stocks recouped nearly all of last week's losses Monday as investors embraced a round of encouraging M&A news that added to the belief that stocks are oversold on a short-term basis and may have found a bottom. The Dow, S&P 500 and Nasdaq closed up 1.0%, 1.1% and 0.9%, respectively.

The biggest news item making waves was confirmation that Barclays PLC (BCS 53.43 -0.07) is in "exclusive preliminary discussions" with ABN Amro (ABN 41.36 +5.12) over a potential blockbuster merger. Such a combination would create a banking powerhouse with a market capitalization of roughly $156 bln.

Also helping participants look past recent subprime concerns was a deal involving ServiceMaster's (SVM 15.14 +1.67) decision to go private for $4.7 bln. The 16% premium to Friday's closing stock price renewed enthusiasm for an investment banking group that has been at the heart of our Overweight rating on the Financials sector since September. Morgan Stanley (MS 75.02 +0.61) and Goldman Sachs (GS 202.44 +3.44) acted as financial advisers.

Aside from the all-important Financials sector playing an influential role, M&A news also gave the Health Care sector a boost. Community Health Systems (CYH 34.78 -2.02) confirming it will pay $5.1 bln in cash for Triad Hospitals (TRI 51.95 +2.59) - canceling a $4.5 bln private equity bid - kept other hospital names in play as possible takeover targets.

The Utilities sector was another bright spot for investors following reports that a Blackstone-led group is looking to trump a record-breaking $32 bln bid for TXU Corp. (TXU 64.28 +1.53).

The day's best performing sector today was Energy. Not even a nearly 1% decline in oil prices was enough to attract sellers as bargain hunters, embracing a 2.7% surge in gasoline futures instead, scooped up beaten-down drillers and refiners.

A rally in overseas markets, as a falling yen eased liquidity concerns tied to a potential unwinding of the carry trade, also helped restore optimism among investors also weighing the possibility of policy makers softening their language in this week's Fed policy directive. A more balanced approach to monetary policy Wednesday afternoon and improvement in the interest rate outlook would be welcome news, especially since lowered earnings expectations of late restrict the upside potential for equities.

Volume on the NYSE just barely exceeding its slowest day of the year, and the lack of participation from transports, a leading economic indicator, diminished some of the excitement, however, behind the day's broad-based bounce. BTK 1.3% DJ30 +115.76 DJTA +0.3% DJUA +1.2% NASDAQ +21.75 SOX -0.6% SP500 +15.11 XOI +1.7% NASDAQ Dec/Adv/Vol 1024/2036/1.69 bln NYSE Dec/Adv/Vol 816/2458/1.37 bln