Mortgages Higher On Fed Cut, Global Banks Could Lose $1.4b, Jobless Claims Up

Fear and greed… greed and fear. They influence our lives, whether it is on the playground or on Wall Street. We’re dealing with fear right now, but at some point greed will step in. Here’s a decent article on fear and greed.

Global Bank Loss Estimates
The IMF estimates that worldwide, banks may lose $1.4 trillion. (Don’t ask me how they can even approach an estimate…) How do we fix that? Well, here in the U.S., ask the taxpayer to chip in! Treasury Secretary Henry Paulson signaled the government may invest in banks as the next step in trying to resolve the credit crisis, through an option available to boost companies’ capital with cash infusions. Apparently banks worldwide aren’t raising enough capital to offset losses: while posting $592 billion of write-down’s and losses during the crisis, they have added just $442.5 billion of new capital, according to Bloomberg. In Iceland, the government seized control of Kaupthing Bank hf, the nation’s biggest bank, completing the takeover of a banking industry that has collapsed under the weight of its foreign debt.

Citi/Wachovia Drama
Speaking of investing in banks, Citigroup and Wells Fargo aren’t going to sue each other for at least another two days while they haggle over Wachovia. It is believed that they are grappling over the control of some mid-Atlantic bank branches. To remind you, Wachovia has $448 billion of deposits in 21 states, and Citigroup offered $2.16 billion last week for the banking operations – but with FDIC help. Wells Fargo’s bid, at $15 billion, was for the whole company. The takeover of Wachovia also has been held up due to the potential losses from acquiring low-quality assets from Wachovia, the Wall Street Journal reported. “Low quality assets? What low quality assets? We don’t need no stinkin’ low quality assets!”

Economic News
We actually have some scheduled economic news today: the usual weekly unemployment claims, expected -22k to 475k. (Continuing claims were expected to rise by +17k and set a new 5yr high.) Jobless Claims did indeed drop 20k, but continuing claims shot up by 56k, arguably more important. We also have chain store sales, which are expected to drop slightly. I am already hearing warnings in the media about a projected slow Christmas season for retailers – is this a surprise? If my stock market investments are down 33% from last October, little Johnny will probably be seeing a new sweater under the tree rather than the Xbox Deluxe! After the Jobless Claims news, the 10-yr yield moved up to 3.73% and mortgage prices are slightly worse.

Central Bank Rate Cuts Made Mortgage Rates Higher
The rate cuts around the world didn’t help rates, at least yesterday. Later in the day we also heard that the Fed say that it is ready and willing to use its power to boost lender and bank balance sheets through cash infusions. The remainder of the session was choppy, but most investors worsened rates and prices. Treasury prices initially opened higher but the tide turned midmorning and prices headed lower for the remainder of the day on poor showings in Treasury auctions.

Remember that many markets, and many mortgage companies, are closed on Monday for the Columbus Day Holiday, and therefore the bond market will close early tomorrow (Friday). Don’t look for rates to improve on a Friday afternoon prior to a holiday in this environment…

Daily Humor
Daylight Savings Time ends this year on the Nov 1/Nov 2 weekend.

When told the reason for daylight saving time the old Indian said…

“Only a white man would believe that you could cut a foot off the top of a blanket and sew it to the bottom of a blanket and have a longer blanket.”