First, a word on the bond insurers:

A Fed rate cut won’t address the risk that an insurer failure could trigger panic selling by bond holders that require AAA ratings to hold their bonds.

The Fed could offer to provide supplemental insurance to investors holding the bonds for a fee (maybe a point), and discount the strike of the put a few points as well. The insurer would continue in first loss position. This would allow investors to ‘pay the price’ to the Fed if they want to keep the AAA rating. Additionally the Fed would take measures to make sure this doesn’t happen again.

Second, commodity markets:

Story today that OPEC still sees demand increasing 1.3 million bpd, even with a slowdown. Not good. Means they retain pricing power.

The unknown is whether they agreed to cut prices in response to the Bush visit.

Third, equities:

Dupont earnings way above expectations on world demand, and price increases on their cost side were more than passed through.

And bank earnings off but all still in positive territory for Q4, indicating losses during what is likely the largest quarter for writeoffs were less than earnings. I’ve seen worse…

Equity markets relatively flat from yesterday, earning look good, particularly ex financial writedowns, as core earnings of the financials look OK as well.

One of the problems with equities continues to be shareholder vulnerability to converts and other dilutions as corporate structure/law rewards management for this kind of recapitalization. This shifts wealth from existing shareholder to new shareholders.

Initial claims estimated at 325,000 for Thursday. If so, I still don’t see much damage to the real economy. Q4 may sink or swim on December export numbers that will be released in February.

The jobless recovery ends with a full employment recession?

2 Responses

  1. “The unknown is whether they agreed to cut prices in response to the Bush visit.”

    Well: “In an ABC Nightline interview, President Bush recently said of Saudi Arabia, “If they don’t have a lot of additional oil to put on the market, it is hard to ask somebody to do something they may not be able to do.”

    So it doesn´t seem very likely.

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