Testy Tuesday Morning

It's OK, the markets are safe – LEND got a $200M loan!

That's the word on the street this morning as Farallon Capital Management gives Accredited a 5-year, $200M loan in exchange for 3.3M warrants (12% of float) to buy the stock at $10.  PS – there's also the small matter of a 13% interest rate, which seems like a lot to me but I must not be as clever as all the CNBC reporters who seem to consider that an insignificant detail.  If I were an Accredited shareholder I might be disturbed that I just got dilluted by 12% as a bonus to a loan that costs more money than I write mortgages for, but watch the stock fly today as analysts applaud the move as "proof" that there is still interest in this sector from "money people."

We can't blame ourselves, it's not like we ever could have seen this coming.  Back on Feb 25th, 2004, Alan Greenspan himself endorsed ARMs by saying "Many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages."  This caused millions of people to take on these loans in the subsequent 3-years and stopped Congress from regulating the activity.  Right about that time, the Fed set off on a course to more than double the prime lending rate, from 2.25% to 5.25%, effectively causing all of those adjustable loans to turn into time bombs that will trigger in waves for years to come.

Just keep that in mind when pundits try to tell you how this is just a "bump in the road" that will quickly reverse and neither will the Fed quickly reverse and lower rates, as many seem to be fantasizing.  The Bank of Japan helped us out today by leaving rates steady at .5%, which grants a reprieve to the carry traders and will hopefully prop up US equities – as long as foreign investors haven't soured to them already.  While it's nice to be able to borrow money at .5% to buy stocks with, you still don't want the equities to decline on you!

My favorite thing about the Bank of Japan is the way television reporters avoid saying the BOJ Governor's name like the plague!  But anyway, let's give a big shout out to he-who-must-not be named as we need Japan to take this hit for us while traders figure out how to unwind these deals without unwinding the entire global economy.

The Nikkei did post a 153-point gain as the yen declined, raising exporters up and the Hang Seng put in a 90-point day as well despite a disappointing report from PTR, who cited rapidly rising production costs in slowing profit growth.

Europe is trading flat to down ahead of our open while the ABN/BCS deal moves swiftly along.

Our markets are looking fairly flat ahead of the bell and we're still going to be looking for yesterday's breakout targets, although we are in much better shape this morning overall:

Housing starts were better than expected but permits were off and I'm not expecting too much action ahead of the Fed tomorrow.  In absence of news, I'd be very concerned if we lose any of our green indicators, especially the NYSE.  The SOX barely held it together yesterday and bear watching as well.

ZMan has his eye on gasoline today, ahead of tomorrow's inventory report and we'll keep on top of the situation as we bid farewell to the April contract, currently at $56.75.  There will be a "shocking" jump to nearly $60 tomorrow, a bigger than usual spread from April to May and that seems to fool people every time into bidding up the oil patch.

The dollar will hopefully try to get itself together and get back over the 83.5 mark today but things are looking pretty grim if Bernanke doesn't do more than talk about raising rates tomorrow.  Gold looks like it's preparing for the dollar's demise on a weak Fed statement and we will know something is going wrong if it falls below the 50 dma at $652.

I know it's annoying but I'm still in watch and wait mode today, there will be PLENTY of plays to make after we get the Fed report tomorrow so the best thing to do is make sure we have some cash on the side so we'll be ready to go with the flow.