Treasury could buy Fanniew Mae and Freddie Mac

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

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

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

European Central Bank raises rates ahead of Fed

Treasury 10-year notes rose after the National Association of Purchasing Management-Milwaukee manufacturing index dropped to its lowest since October 2001 and stocks of several financial firms fell.

Citigroup Inc., Merrill Lynch & Co. and Lehman Brothers Holdings Inc. were among the firms that declined. The purchasing association's monthly index of regional manufacturing fell to 39, its fourth straight month below 50. A reading lower than 50 means the number of manufacturers that said business deteriorated was greater than the number saying it improved.
Treasuries earlier fell, extending the biggest quarterly decline since 2004, as inflation in the euro region rose to the highest in 16 years and oil advanced above $143 a barrel.
The retreat pushed 10-year yields up from a three-week low after a European Union report showed the rate of euro-region inflation climbed to 4 percent, bolstering the case for the European Central Bank to raise rates. Why are they ahead of us?

Crude oil for August delivery rose as much as $3.46, or 2.5 percent, to $143.67 a barrel in electronic trading on the New York Mercantile Exchange. It reached $142.99 a barrel on June 27 after the Fed left interest rates unchanged at 2 percent. The market continues to struggle with what to do with the rise in oil.

How do you spell Recession?

Treasury two-year notes headed for the biggest five-day gain in three weeks after the Federal Reserve signaled it won't raise interest rates in coming months and the central bank's preferred inflation measure rose less than economists forecast.

Traders pushed two-year note yields to the lowest level in almost three weeks after U.S. consumer confidence fell to a 28- year low. Demand for the safety of government debt also rose as financial news network CNBC reported Merrill Lynch & Co. may post a second-quarter loss and write down the value of mortgage- related assets by as much as $5 billion, citing unidentified people.

Treasuries are still headed for their biggest quarterly loss in four years because of speculation in past weeks that rising energy prices would prompt the Fed to boost interest rates.
With the economy in a slump, and with prices rising rapidly, the Fed has found itself in a dilemma. Short-term rates already are low, and if the central bank cuts them more to stimulate economic growth, then prices could rise even faster and get out of control. If the Fed raises short-term rates, the result could be a recession (or a deeper recession, if the economy already is in one) and a delayed recovery. The economy cannot handle interest-rate increases. On the other hand, inflation pressure is going up. They're stuck between inflation and recession.

Treasuries and jobless rate

Treasuries fell pushing the two-year note's yield to the highest since January, after a smaller-than- forecast loss of U.S. jobs in April led traders to bet the Federal Reserve will stop lowering borrowing costs. Two-year notes were on course for a third straight weekly decline amid speculation the Fed's rate cut this week will be its last. The two-year note yield rose to within 1.36 percentage points of 10-year rates, the closest in more than three months. The central bank has slashed its main rate a total of 3.25 percentage points since September to support the economy.
U.S. employers eliminated 20,000 jobs in April, after a decrease of 81,000 in March, the Labor Department said. The U.S. hasn't lost jobs for four straight months since 2003. The jobless rate fell to 5 percent, from 5.1 percent in March.
Traders see an 84 percent chance the Fed will leave its target rate for overnight loans between banks at 2 percent at its next scheduled meeting on June 25, futures on the Chicago Board of Trade show. That likelihood has risen from 80 percent yesterday. The rest of the bets are for the Fed to cut the rate to 1.75 percent.

SP 500 daily April 4 targets hit

The fed at work again, even after horrible employment figures we have support ending the day in a doji.

Looks like the market will be hit next week.

Lehmans next with $5 a gallon soon

Well Bear Stearns was saved, Lehmans lost 25% of their value in one day and gasoline could be $5.00 a gallon before labor day.

Seems like this could be a long hot summer.

Some are calling this a bottom. Looks to me like we have been thrown a rope, to hang on to be hanged on. We shall see

Treasuries fell, with the difference between the 10-year note's yield and the two-year rate increasing to near the widest in more than 3 1/2 years, on bets Federal Reserve interest-rate cuts will stoke inflation. Bonds slumped as oil traded above $100 a barrel and gold futures rose to a record high. Treasuries pared earlier gains as speculation eased that policy makers are considering a cut in the discount rate at a meeting of the board of governors today.

A posting on the Fed's Web site said that a board meeting today would include the ``review and determination by the board of governors of the advance and discount rates to be charged by Federal Reserve banks.''

The Fed's first interest-rate response to the August credit collapse was to lower the discount rate, rather than the benchmark federal funds rate target. The market is hyper-sensitive to anything the Fed does.

Inflation, Inflation and a little more inflation

January Import prices soar 13.7%

Inflation, that aint inflation thats just a price adjustment. Yes, we are getting a taste of the value of the dollar. For the past few years the US public has enjoyed our imports from China, the inexpensive and an unexhaustable supply of cheap stuff that we can charge to our credit cards.

Well the flood of US dollars to cover this market has led us to our first rounds of "Price Adjustments." Economists normally call this inflation, and for the most part the backpeddling of the Fed announcing that it could be a little worse that we thought, is probably one of the biggest understatements of the Year.

Looking at Import prices alone, we can see that the January surge of 13.7% is the largest one time price increase since the government started keeping track in 1972.

Lending rates.


US Treasuries are steady this morning, with the 10-yr hovering in the high 3.70's. There is no scheduled economic news, aside from stock markets in Europe and Asia falling overnight. Mortgages, on the other hand, are slightly worse in price after a week of volatility. Prices were helped yesterday by a weak Philly Fed Index result, but lagged Treasury rates. Investor appetite for risk, which includes mortgages, remains low.
Fed funds futures on the Chicago Board of Trade indicate a 94 percent chance policy makers will reduce the target rate for overnight lending between banks to 2.5 percent at its March 18 meeting, compared with odds of 66 percent a week ago. The chance of rates being cut to 2.25 percent are 6 percent, down from 34 percent last week.
Fed policy makers indicated borrowing costs need to be kept low ``for a time". Some foresaw raising interest rates, possibly at a ``rapid'' pace, once the economy recovers. The central bank cut borrowing costs by 125 basis points to 3 percent last month, the fastest easing in almost two decades.