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MV Weather Report: Bond Auction Sweeps the Clouds Away?


Rain or shine, we review the day's biggest stock stories.

The big story during today's trading session was the news that the Treasury will allow certain banks to repay TARP. Ten of the nation's largest banks will return up to $68 billion of funds back to the treasury. The 10 banks are: JPMorgan (JPM), Goldman Sachs (GS), Morgan Stanley (MS), BB&T (BBT), American Express (AXP), US Bancorp (USB), Capital One (COF), Bank of New York (BK), Northern Trust (NTRS) and State Street (STT).

On today's Buzz and Banter, our resident bank expert, Minyan Peter, weighed in with his thoughts:

"I wish I could be more positive on the repayment of the TARP announced by Secretary Geithner this morning, but to me, the whole thing flies in the face of 'financial staying power.'' Maybe it is just me, but in a world of too entwined to fail, the system is only as strong as its weakest link. And nowhere in the stress-test capital requirements did I see a placeholder for 'just in case.'

"Unemployment and too much debt are a toxic combination. Until there is improvement in both, I am afraid it is way too soon to declare victory. And I can't help but feel that everyone -- the regulators, the bankers and investors -- have forgotten that it was immediate gratification that got us into this mess in the first place."

As Minyan Peter said, the prospect of paying back TARP seemed to have little effect on the banks; the group traded flat for the session. The market essentially did the same -- except for technology, which was driven up on positive news from Texas Instruments (TXN).

The market has obviously stalled again here; 950 is a very important level for the S&P 500 to break through. One potential catalyst could be the coming bond auctions this week.

In Bond Auction Could Spark Real Rally?, Professor Brendan Rife gave his thoughts:

"Just a friendly reminder: Please remember how important tomorrow's 10-year auction will be for near-term equity direction. And with regard to Thursday's 30-year auction: The market will extrapolate how that will go based on tomorrow's 10-year results.

"If the auction goes well (i.e. no large yield tails, a good bid to cover, a good amount of indirect bidders), and bonds mount a nice rally, then the S&P should react in kind -- and you'll see 950 in the rearview mirror. A breach of 950 will then set up a test of target levels (at 980)."

In addition to tomorrow's 10-year auction, traders will also be watching economic data. Before the bell, the trade balance numbers will be released; at 2 p.m., all eyes will be on the Fed's Beige Book.

Have a great night, Minyans!
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No positions in stocks mentioned.

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