Bonus Tax, Philly Fed, Leading Indicators

House Passes 90% Bonus Tax
The House of Representatives passed a quick bill which places a 90% tax on the AIG bonuses, after the US taxpayer, in effect, paid for AIG’s gambling losses, and on bonuses received by the employee of any company that receives more than $5 billion in TARP money. Unfortunately for any sales person who works at Countrywide, Bank of America, GMAC, Wells Fargo, CitiMortgage, etc., this may very well include their sales-incented bonuses for all of 2008. “Ouch” is too light a word for reps if 90% of your bonus disappears because your company has TARP money.

Leading Indicators, Philly Fed
Given that there is no economic news today, just for kicks let’s look at yesterday’s. In addition to Jobless Claims coming in about as expected, we had Leading Economic Indicators falling .4% in February – although six of the ten indicators increased. (Interest rate spread, index of supplier deliveries, building permits, real money supply, manufacturers’ new orders for consumer goods and materials, and manufacturers’ new orders for nondefense capital goods.) We also had the Philly Fed improve to -35 from minus 41.3 in February. Negative numbers signal contraction, and this merely confirmed that manufacturers are scaling back production and reducing expenses as economies around the world shrink. Lastly, the Treasury announced next week’s auctions: $41 billion of two-year notes on March 24, $34 billion of five-year debt the following day and $24 billion of seven-year issues on March 26th.

Rates Worse
So what did the market do? Mortgage securities opened well (up in price, down in rate) on follow through from the Fed’s announcement on Wednesday. However, later in the day originators began selling large pools, which drove down the price and led to several rate changes by investors. Mortgage prices have held in relatively well, especially with the Fed buying a net amount of $20 billion for the week of MBS’s, mostly of 4.5%’s (which generally contain 4.75-5.125% mortgages). This morning the 10-yr is “up to” 2.58% and mortgage prices are worse by about .125.

Daily Humor
A very pretty young speech therapist was getting nowhere with her Stammering Action group. She had tried every technique in the book without the slightest success.

Finally, thoroughly exasperated, she said, “If any of you can tell me the name of the town where you were born, without stuttering, I will show you a wild and passionate time until your muscles ache and your eyes water. So, who wants to go first?”
The Englishman piped up. “B-b-b-b-b-b- b-irmingham”, he said.
“That’s no use, Trevor” said the speech therapist, “Who is next?”
The Scotsman raised his hand and blurted out, “P-p-p-p-p-p- p-p-p-aisley”.
“That’s no better. There’ll be none for you, I’m afraid, Hamish. How about you, Paddy?”
The Irishman took a deep breath and eventually blurted out “London”.
“Brilliant, Paddy!” said the speech therapist and immediately set about living up to her promise.
After 15 minutes of an exceptionally steamy time, the couple paused for breath and Paddy said “-d-d-d-d-d- d-d-d-erry.”