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Two Ways: Ratings Agencies Rubber-Stamp TALF


Strengthen your portfolio in good times and bad.


On Thursday, the Federal Reserve launched the Term Asset-Backed Securities Loan Facility (TALF), a new rescue effort aimed at easing credit markets. TALF is controversial because it requires that at least 2 of the 3 large ratings firms -- Moody's (MCO), Standard & Poors (MHP) and Fitch Ratings -- bless new bond deals made in its name.

The agencies, which have been blamed for fueling the financial crisis with optimistic ratings on mortgage securities, normally charge $30,000 to $120,000 for every $100 million in structured-finance securities rated. They also cap their fees at a certain maximum when doing larger deals. The Wall Street Journal estimates the ratings firms could make millions if not hundreds of millions once the final size of the TALF program is determined.

If the ratings agencies again miss the mark, the losses will fall on the Federal Reserve and the Treasury, a.k.a. the taxpayer.

From the Bull Pen: It's difficult to recommend trades on the long side after the current run. However, oil may be breaking out here and Professor Jeff Cooper says those bullish can consider Oil Service Holders (OIH) for a trade. Positions can be initiated with a stop at $80.

From the Bear Cave: Those looking for a pullback in the market can consider Discover Financial (DFS). On Thursday, the stock gapped open, then reversed and closed on its lows for the day. This is known as an island reversal. A buy stop could be placed at $6.75, the 50 DMA.

Quick Check Around the World

Asian trading closed with the Hang Seng -2.26%, India 0.39%, Taiwan -1.48% and Shanghai 0.68%.

Glancing towards Europe, we see the CAC -1.02%, DAX -0.73%, FTSE -0.92%, ATX -1.44%, Swiss Market -1.23% and Stockholm -1.46%.

As of 8:00 AM EST, S&P Futures are trading +2.50 to 782.50, and Nasdaq futures are +3 to 1206.50.

A Look At Commodities

Crude oil is trading -0.92 to 50.65. Gold is +1.20 to 960.00. Silver is +0.09 to 13.61, and copper +0.41 to 181.20.

A quick check of the dollar/euro 1.3558 and the yen/dollar 95.516.

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No positions in stocks mentioned.

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