Wake Up Call - Mar 7

Good Morning. The NASDAQ is higher, while the S&P 500 and Dow Industrials have opened lower this morning. As the emerging markets appear to have stabilized, for now, the microscopic focus is tuning onto the subprime loan market, and the risk that liquidity across the broader markets could tighten.

Asia:

Hang Seng Index -0.73%; Shanghai/Shenzhen 300 +2.74%; NIKKEI 225 -0.47%; BSE SENSEX 30 -0.92%; KRX 100 +0.78%

U.K. & Europe:

DJ STOXX 50 Index -0.07%; FTSE 100 -0.05%; CAC 40 +0.11%; DAX +0.17%; Russian RTS Index -0.28%

KEY HEADLINE NEWS

• Ben Bernanke's recent expression of concern regarding the goals of Fannie Mae and Freddie Mac add to our own concern regarding the warehousing of subprime and prime mortgage loans. Recently, investment banks that also participate in the investment of securitized loans indicated there would be a higher level of scrutiny. Freddie Mac reflected those concerns. It is clear that liquidity is drying up within the subprime market, and it's come to the stock market's attention that other lenders face similar risks. General Motors may be on the hook for some subprime loans written by its mortgage lending unit, which was recently partially sold. The repercussions of poorly written loans to unqualified investors, due to pure greed in our opinion, may yet significantly injure our economy. Investments in securitized loan portfolios may put yet undisclosed investors at risk. We could be in store for the worst financial market collapse since the S&L scandal, despite reassuring comments from many participants within the industry.
• Today's ADP report showed slower private sector job growth in February than was expected, and reflects the building scenario that economic growth is at risk this year. Alan Greenspan could yet regain his great stature earned during his time as Fed Chief. We are still in Bernanke's camp, that the economy will slow in the first half of this year, before beginning recovery by the end of the year. However, the risk of recession remains a serious concern in our view, depending on how global markets and the subprime sector progress. We believe the likelihood of market rise is less than the likelihood of its drifting over the next few months.
• Mortgage activity in the week ended March 2nd rose 7.3% on the lower interest rates that ensued as economic concerns mounted last week. Refinancing logically led the charge, with activity rising 15%.

(disclosure)