This Week in Stocks: 8/18 - 8/24/07

**Show-me** · 08-22-2007, 01:39 AM

http://money.cnn.com/news/newsfeeds/...1-19050848.htm

Amateur Hour At The Fed
August 21, 2007: 08:05 PM EST

Aug. 21, 2007 (Investor's Business Daily delivered by Newstex) -- Monetary Policy: Treasury Secretary Henry Paulson says he has "great confidence" in Federal Reserve Chairman Ben Bernanke and his handling of the credit panic. Wish we could say the same.
The former Ivy League professor can be expected to make some rookie mistakes after stepping into longtime chief Alan Greenspan's shoes. But has he learned from them?
Rewind to March. In testimony before Congress, Bernanke insisted the damage to the markets and economy was "contained" within the subprime mortgage sector. "At this juncture," he intoned, "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."
In fact, it had spread like wildfire. By August, investors had learned that Alt-A mortgage lenders, investment banks and even foreign mutual funds had been exposed to the subprime rot.
On Aug. 7, with Wall Street in turmoil, the Bernanke Fed met and acknowledged the crisis. "Nevertheless," it said in a statement, "the economy seems likely to continue to expand at a moderate pace."
So it stubbornly kept interest rates tight, against the better advice of many (including this paper).
Two days later, a reporter asked President Bush about the market meltdown. "I am told there is enough liquidity in the system to enable markets to correct," he said.
He was told wrong. Stocks tanked the very next day, forcing Bernanke to pump some $40 billion into the very system he apparently had assured Bush had plenty of liquidity. He since has injected $60billion more in liquidity.
But the bad news just kept coming. So last week, Bernanke took the rare action of lowering interest rates between meetings. It appeared he finally had seen the error of his ways. After months of assurances that the subprime rot was contained and underestimating the liquidity needs of investors, he finally abandoned his academic models and faced up to the reality on the street.
"Financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward," the Fed said Aug. 17 in a statement. "The downside risks to growth have increased appreciably."
Only, the about-face didn't come with a cut in the federal funds rate -- the Fed's benchmark rate. Bernanke instead cut the discount rate, a largely symbolic move.
Banks only go to the discount window in emergencies -- when they can't get overnight loans from other banks charging the fed funds rate. Very few dollars are lent through the discount window.
It's almost as if Bernanke doesn't want to admit he was wrong not to lower the fed funds rate on Aug. 7, when he had a chance.
Whatever his reasons, the coy discount-rate move didn't calm market fears. It may no be enough to avert a recession.
There are signs the mortgage meltdown is bleeding into the economy. Payroll job growth is slowing. This week, Capital One Financial Corp. (NYSE:COF) announced it would slash 2,000 jobs.
Bernanke is paid to read the tea leaves. Can he not see that the subprime debacle is only the tip of the iceberg?
Trillions of dollars worth of adjustable-rate mortgages will reset in the next few years (see chart). Falling home prices across the country will make it harder for borrowers to refinance. Foreclosures surged 93% in June from a year earlier, hitting a record high.
The wave of resets could kill consumer spending -- and economic growth -- if the Fed doesn't pre-empt the looming disaster with a 50-basis-point cut in the fed funds rate.
It should act now and not wait until next month's meeting.

Newstex ID: IBD-0001-19050848
Originally published in the August 21, 2007 version of Investor's Business Daily.

**fedgolfer** · 08-22-2007, 03:36 PM

Many of these stocks that were in the headlines in the current run up look to be on the edge of falling over and filling their morning gaps... see AAPL, BHP.

IFT deadline sucks. Momentum could send if over, profit takers could start us on the road to a retest of the lows.

**Show-me** · 08-23-2007, 11:43 AM

Bernanke: The un-Greenspan

The Fed may well end up slashing interest rates, but the Greenspan era of pumping up market bubbles with repeated cuts is over, predicts Fortune's Peter Eavis.

By Peter Eavis, Fortune writer
August 23 2007: 6:01 AM EDT

NEW YORK (Fortune) -- It may be the most important development to emerge from the recent market turbulence: The Federal Reserve, under Chairman Ben Bernanke, is going back to being a central bank.

Judging by its cautious and finely-calibrated responses through a very ugly August, the Fed appears keen to put the Alan Greenspan years firmly in the past and take a much more orthodox approach to monetary policy. While the Fed will probably cut interest rates as early as next month, its behavior in August strongly suggests that Bernanke will avoid using interest rates to deliberately spark big increases in lending, the high risk strategy pursued by Greenspan from 2001 to 2004.

"I think Greenspan would have cut rates already. So I do think things are beginning to look different at the Fed," says Paul Kasriel, economist at Northern Trust.

A change at the Fed would have far-reaching consequences for the U.S. economy and the stock market. Initially, a much less accommodating Fed will be perceived as a reason for bearishness. But, over the longer term, market players may well see a less dysfunctional central bank as a good thing that could begin the process of cutting borrowing levels in the U.S., something that has to happen if the American economy is not going to seize up every time interest rates rise.

http://money.cnn.com/2007/08/22/maga...tune/index.htm

**clester** · 08-23-2007, 03:38 PM

I smell a sell off brewing this afternoon.

**Show-me** · 08-24-2007, 11:34 AM

Ford chief urges Fed action

CEO Alan Mulally says economic growth is a higher priority than inflation right now, paper reports.

August 24 2007: 6:54 AM EDT

NEW YORK (CNNMoney.com) -- Ford CEO Alan Mulally became the latest high-profile business executive to suggest that the Federal Reserve needs to cut interest rates, according to a report published Friday.
Noting that credit conditions were posing a "big headwind" to the company's turnaround plan, Mulally told the Financial Times he is concerned about the state of the larger economy.

http://money.cnn.com/2007/08/24/news..._fed/index.htm

**Show-me** · 08-24-2007, 03:07 PM

The headlines today are not looking horrible except for all of the crying about the need for the Fed to lower the rates.

I almost seem like the big boyz are trying to bully the Fed into a rate reduction.

Next week will be a ride with all of the ED out.

**Show-me** · 08-24-2007, 03:12 PM

What a blow out Durable Goods number!

**Birchtree** · 08-24-2007, 04:20 PM

We got a nice rally cooking at this point in time - could today be another triple digit gain? Well, why not. I actually could use some nice K days.

**Show-me** · 08-25-2007, 01:28 PM

Weekly Wrap

Last Update: 24-Aug-07 16:49 ET

It's a stretch to say things were back to normal this week, but there was no denying that the market tone was much improved as the major indices logged sizable percentage gains on the week.

Negative headlines on the subprime exposure - and there were plenty of them - came and went without unraveling the market. Meanwhile, T-bill rates pushed higher again, providing a tacit signal that fears about a liquidity crisis have eased in the wake of the Fed cuttting its discount rate and its accommodative repurchase agreements.

Notwithstanding the Fed's reassuring efforts, a number of mortgage lenders and banks still face difficulties. On Monday, Thornburg Mortgage (TMA) said it sold $20.5 billion of its AAA-rated mortgage securities portfolio in an effort to boost liquidity amid a rapidly deteriorating mortgage market. Capital One Financial (COF) also announced that it will close its wholesale mortgage business, GreenPoint Mortgage, due to challenging conditions in the secondary mortgage market.

Meanwhile, On Wednesday, Lehman Brothers (LEH) said it will close it BNC mortgage unit and cut roughly 1,200 jobs. London-based HSBC Holdings (HBC) and Accredited Home Lenders (LEND) also announced job cuts related to the difficult credit conditions.

However, Wall Street took some comfort in Bank of America's (BAC) announcement that it plans to invest $2 billion in beleaguered mortgage lender Countrywide Financial (CFC) to help it weather the difficulties in the mortgage market. The cash infusion was seen as a vote of confidence in Countrywide's long-term prospects and its important role in the mortgage business.

A spate of deal-related news also lent some support to the market. The Wall Street Journal reported on Wednesday that TD Ameritrade (AMTD) and E*Trade Financial (ETFC) are in merger discussions, and that Dubai World, a holding company for the Dubai government, planned to acquire a 9.5% stake in MGM Mirage (MGM) and 50% ownership of its CityCenter project in Las Vegas.

Overall, it was a light week for economic data. The durable orders report and July new homes sales were the only major releases for the period.

On Friday, the Commerce Department reported orders for durable goods surged 5.9% last month after an upward revision to 1.9% in June. That easily beat market expectations and is encouraging news for business investment and coming manufacturing production. Meanwhile, July new home sales unexpectedly rose 2.8% to 870k after an upward revision to June. While the housing outlook has not improved, the latest figures were moderately better than expected and contributed to the market's climb.

Earnings continued to trickle in during the week, as second quarter earnings season winds down. Home improvement retailer Lowe's Companies (LOW) reported a higher than expected profit on Monday despite weakness in the housing market and a challenging sales environment.

Lowe's report followed last week's disappointing report from rival Home Depot (HD), which is now facing headwinds related to the sale of its supply business, which was expected to close on Thursday. According to The Wall Street Journal, three major banks, who are reluctant to finance the $10.3 billion all-cash deal amid current credit conditions and weakness in the housing market, are currently renegotiating terms of the transaction, which was announced in June.

Target Corp. (TGT) also reported strong results, despite increased consumer pressures, while luxury homebuilder Toll Brothers (TOL) posted grim results due to lower demand and write-downs, but managed to beat analysts' expectations.

A host of other notbale retailers also reported their results, including Gap (GPS), Limited Brands (LTD), Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), AnnTaylor Stores (ANN), Saks (SKS) and GameStop (GME).

Until the market gets a clearer picture on the current problems in the credit markets and the impact on consumers and the economy, stocks are likely to continue to trade in choppy fashion until the Fed meets in September. This week, though, belonged to the bulls.
--Richard Jahnke, Briefing.com

http://www.briefing.com/GeneralConte...terHoursReport