March 19, 2008

Market Comments for March 19, 2008

1) As I suspected, the first sign of stock buying precipitated a major sell of in commodities. The moves down from the Sunday night highs have been breathtaking. Crude is down from $111 to $103. Natural gas dropped from $10.40 to $9.10. Gold has had its worst day in five years, cratering from $1,020 to $940. Trailing stops would have taken me out of all of these positions.

2) The government announced that it is loosening capital constraints on Fannie Mae and Freddie Mac. This will increase their combined mortgage lending capacity by $200 billion. This is kind of irrelevant since bank lending terms are now so tight that few people can qualify. (LTV's of 60%? Minimum credit scores of 740?). But the Dow popped 100 points on it anyway. With this it appears that the government is throwing in the kitchen sink to stop the crisis. Too bad they aren't buying houses in crappy neighborhoods. Yet.

3) A lot of people are watching Wachovia Bank which now has a 10% dividend.

4) Visa's IPO, at $17.9 billion the largest in history, was a blow out success. The IPO price was $44 and the opening trade was $59.5, making an instant $6.3 billion profit for the new shareholders. Good news for the leads, Morgan and Goldman.

5) My alma mater, Morgan Stanley, reported better than expected earnings. The stock is up 40% from the Monday low. Can't keep a good house down.

THOUGHT OF THE DAY

The Fed has made fundamental changes to the US financial system that will have long lasting effects. In a week they have done nothing less than drag the country's creaking financial structure from 1933 into the 21st century. Investment banks can now access the Fed's discount window directly which was previously only open to commercial banks. It will accept mortgage backed securities as collateral. They have put together a series of agreements with foreign central banks to meet the liquidity demands of overseas banks, making it the real central bank to the world. They are formally recognizing de facto changes that the marketplace has recognized for decades, such as the rise of capital markets and the investment banks. The ultimate effect of all of this will be long term support of global asset prices.