by Larry Levin
Whoa - what a reversal! Although we may still be waiting on the Fed, it sure felt like it made a surprise 50-basis point cut this morning. If that had really happened, the bulls would have been even hungrier to buy every offer in sight. When the Fed makes the rare 50-basis point rate, traders on the floor take to it like Pavlov's dogs to the dinner bell. So I say, "Release the hounds."
Although the Fed didn't do anything today, there was a lot of other news to consider. There was a plethora of bullish news this morning that spiked the markets. First up was the heretofore irrelevant ADP jobs data. ADP reported hiring in the private sector expanded at a faster pace in November, gaining 189,000 after a revised 119,000 jump in October. The latest monthly hike is well above forecasts calling for a rise of just 60,000. And even though we usually ignore this report, it was just too good to sweep under the rug this morning.
Other reports were also surprisingly bullish; productivity, unit labor costs, and U.S.-made factory goods were all better than expected. Although this is good news indeed, the "real" news today was that of AIG. American International Group shares rose more than 6% today after Chief Executive Martin Sullivan reassured investors about the insurance giant's exposure to subprime mortgage losses. He said AIG's U.S. residential housing exposures are "manageable" given the company's size, financial strength and business diversification, during an investor presentation.
But it wasn't all Peaches & Cream for the bulls in the pit today (at least not all day). Just when I was about to leave the pit for some grub, the bids evaporated and the S&P tanked. What happened? MBIA happened, that's what! By the end of the day, it tanked 16%.
Moody's Investors Service said it had analyzed MBIA's direct exposure to residential mortgage-backed securities (RMBS) more closely recently. The agency said it now thinks the bond insurer is more likely to face a capital shortfall than previously expected. "Additional analysis of its direct RMBS portfolio leads Moody's to believe the guarantor is at greater risk of exhibiting a capital shortfall than previously communicated; we now consider this somewhat likely," the agency said in a statement.
If this were to snowball into a large problem and spill over to other companies, we won't be hearing "Release the hounds." We'll be hearing, "Look out below!"
Trade Date: 12/5/07
E-Mini S&P Trades*
(before fees and commissions):
8:34 B/A Buy 78.75 = -1.00, +1.50, +.50
8:44 Eng Sell 78.25 = -1.50 all
9:45 ID VA Sell 81.75 = -.50 all
1:01 ID VA Sell 86.00 = +.75, +6.50, +6.00
E-Mini Russell Trades*
(before fees and commissions):
1) Buy @ 9:08am at 763.1 = +.5 & -.7
2) Sell @ 12:56pm at 765.7 = +.7 & +4.0
3) Sell @ 1:58pm at 759.9 = -.7 & -.7
4) Buy @ 2:29pm at 761.8 = +.5 (1 lot)
5) Buy @ 2:45pm at 763.6 = +.5, +.6, +2.0
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