Morning Market Report

Stocks have kicked off the new year well. They've gotten back most of what they lost in the last trading session. The Dow is currently up 123 points and we have similar percentage gains for the S&P and NASDAQ as well. Stocks all over the world are rallying following good numbers out of the Chinese manufacturing sector.

Stocks and commodities rose on the first trading day of 2010 as China’s manufacturing expanded at the fastest pace in more than five years and the outlook for American job losses improved. Oil climbed after freezing weather hit the U.S.

The MSCI World Index of 23 developed nations’ stocks advanced 0.7 percent at 9:11 a.m. in New York and futures on the Standard & Poor’s 500 Index gained 0.8 percent. The MSCI Emerging Markets Index added 1 percent to a 17-month high. Natural gas for February delivery gained as much as 5.8 percent and crude oil rose for an eighth day, exceeding $81 a barrel.

Meanwhile, businesses appear to be having as much trouble paying back their loans as individuals are on their home mortgages.

Severe delinquencies by small and medium-sized U.S. businesses on the loans, leases and lines of credit to finance capital equipment rose again in November as lenders remained reluctant to extend fresh financing, PayNet Inc reported on Monday.

Accounts behind 180 days or more, and unlikely ever to be paid, rose to 0.91 percent in November from 0.87 percent in October, according to PayNet, which provides risk-management tools to the commercial lending industry

It was the 22nd consecutive monthly increase in loans so far in arrears they ultimately may have to be written off by lenders.

Nestle and Kraft are involved in old fashioned bidding war for Cadbury.

Speculation of a bidding war for British candy maker Cadbury mounted on Monday after Swiss food group Nestle agreed to sell off its majority stake in eyecare unit Alcon and announced a smaller-than-anticipated share buyback program.

Analysts suggested that Nestle could be clearing its decks in preparation to counter a hostile $16.3 billion (9.8 billion pound) cash and shares offer from Kraft Foods

Crude oil has in fact crossed $80 a barrel and is now trading at $81.10 a barrel. Gold is making a move. It's at $1125 an ounce. That's up $25 an ounce today and almost $50 an ounce since hitting recent lows last week. Bonds, on the other hand, are relatively quiet. The ten year is slightly worse at 3.84%. The yield spread between the two and ten year continues to tighten. That's now at 2.72%. The three month t bill is slightly worse and now it's at .071% yield. So, that's gained near ten basis points since falling into negative territory.

The Chinese manufacturing news must have come after their markets closed because things were mixed in the Far East whereas Europe is all positive. The Chinese Hang Seng was down .22%, the Japanese NIKKEI was 1.03%, while the Straits Time Index in Singapore was down .11%. The broader Chinese index was down 1.02%. In Europe, the FTSE in London is up 1.13%, the DAX in Germany is 1.12%, and the Spanish index is 1.13%. Most European indices gained at least 20% in 2009.

The Dollar is weaker this morning. It's off .72% against the Euro, off .01% against the British Pound and off .41% against the Japanese Yen. So, we're back to the inverse relationship between equities and the dollar that Nouriel Roubini has been so worried about.

The Fed Won't Rule Out Repeating History

Fed Chairman Ben Bernanke says that stricter regulations would have prevented the current crisis. He downplayed the Fed, and his predecessor's involvement, and then threw a financial shot across the bow.

Bernanke said, however, in a speech to the American Economic Association, that policy makers can no longer eliminate rate increases from their arsenal to prevent future crises.

"If adequate reforms are not made, or if they are made but prove insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplemental tool for addressing those risks,'' he said.

Bernanke conceded that efforts by the Fed and other regulators beginning in 2005 came too late or were insufficient to slow the housing bubble.

That's nice. The last time the Fed raised rates to stop a bubble was in 1999-2000. That certainly did pop the asset bubble in the internet and technology sectors. That also lead directly to the recession of 2001-2003. Then, the Fed lowered rates furiously leading directly to the bubble that's caused the current crisis.

Now, the Fed has lowered rates so low that they can't go any lower. They're now telling people that future bubbles will be popped by the Fed itself. Of course, last I checked, popping bubbles wasn't in the job description of the Fed chairman. At least this one is being honest. When Greenspan popped the internet bubble, he claimed he was raising rates to head of inflation, which was of course non existent at the time.

Video, Quote and Word of the Day

The premiere is only two weeks away.





munificent (adjective)

very generous

The world owes all its onward impulses to men ill at ease. The happy man inevitably confines himself within ancient limits.

Nathaniel Hawthorne

GITMO to Yemen?

Three Democrats have come out in opposition to this move and you can expect more.

Some Democrats are joining Republican lawmakers in opposing the transfer of suspected terrorists from the Guantanamo Bay prison to Yemen, citing Al Qaeda's increased activity in the poor Arab nation.

President Obama's top counter terrorism adviser, John Brennan, told Fox News that the transfers will continue if the administration deems them warranted.

"The Guantanamo facility must be closed," he said on "Fox News Sunday." "It has served as a propaganda tool for Al Qaeda. We're determined to close it. We're not going to, though, do anything that is going to put American security at risk."

The president himself has identified an Al Qaeda splinter group that was operating out of Yemen as responsible for the planning and operation of the Christmas day hijacking plot.

This practice of repatriating these guys back into their home country was a colossal failure under the Bush administration and it will be under the Obama administration as well if it isn't halted immediately.

There's about 90 Yemeni being held in GITMO now. About half are being scheduled to be sent back to their home country and the rest will be tried domestically in civilian courts.

Diana Vice on Gerard Beloin

Everyone who's read my blog for a while should please go and check out Diana Vice's excellent piece on Gerard Beloin. Diana Vice is from Indiana, and she had a similar experience to Gerard Beloin. There's only one difference. When Vice discovered similar corruption in the bidding process on school roofs, the government recognized it, changed laws, and Vice was recognized for it. Meanwhile, Gerard Beloin has been threatened, harassed, and even jailed. His fight continues. He lives and works in New Hampshire and no local media will pick up his story. That's happening even though Beloin has a massive collection of recordings of power players and friends of politicians speaking of criminality on tape.

Here's his latest recording.

Video, Quote and Word of the Day

wheedle (verb)

to entice by flattery

Let us rise up and be thankful, for if we didn't learn a lot today, at least we learned a little, and if we didn't learn a little, at least we didn't get sick, and if we got sick, at least we didn't die; so, let us all be thankful.

Buddha

An Insider's View of Mortgage Fraud

Al Lewis had done a great job of uncovering a story that should help explain how this whole mess happened.

HR lady pulled Michael Walker into a room and told him he was fired.

The reason: Talking to the FBI. It was a violation of the company's privacy policy.

"I was stunned," Walker told me. "I couldn't believe it. But that's what she said."

Walker, a "high-risk specialist," was then walked out of the building as if he were the risk. His job at Aurora Loan Services LLC, Littleton, Colo., ended on Sept. 4,
2008.

This story is about Michael Walker. Walker worked as a fraud specialist for Aurora Loan Services. Auroro was a subsidiary of the now infamous Lehman Brothers. Aurora had a solid nitch in some of the exotic Alt A loans. Aurora was doing a lot with stated and no and little money down loans. Aurora was also a wholesale lender. That meant that they were getting their loans through mortgage brokers.

Walker was investigating income fraud and so called "straw buyers". Straw buyer are those with good credit put forth to buy a property as a front because the real purchaser had some sort of credit or income issue. Another common scam was to have the same buyer buy several properties all at once and claim all as primary residences because those got the best terms.

Walker was busy. That should surprise no one. If you specialize in stated and low money down loans, you simply invite fraud. As such, he eventually compiled such a massive list that he was contacted by both the IRS and the FBI. For speaking to them, Aurora was fired. That should also surprise no one. That's standard operating procedure for all corrupt firms to deal with whistle blowers. As soon as Walker went and spoke with the feds, he became a whistleblower. He was dealt with.

It's also symptomatic of what was happening at the height of the boom. Many banks convinced themselves that the fraud was fine. These loans were selling. The property values were booming. As I've said before, if you give someone a stated loan with no money down, it's actually a good deal for you if you know that you will have 20% equity in six months. That's what was happening. As such, many banks didn't necessarily want to find too many problems in their portfolios. Finding too many problems might have rocked a boat they didn't want to rock.

Walker was rocking the boat and he was dealt with. Aurora loan services is no longer in business.