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Buzz Bits: Dow, Nasdaq Drop Into the Weekend


Your daily Buzz & Banter highlights...

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Job Numbers and the Market's Response - Sean Udall - 2:44 PM

First, if you would have told me yesterday, that we would see real weak jobs numbers combined with a couple past months revised lower -- I would have said the market will generally like that that setup. However, it's a September Friday and that could be enough explanation right there.

Second, if the market is responding to the "current" jobs number (which I think it is), in such a feverishly negative manner is also interesting. After all, this number could easily be revised in either direction by 25-40% (note the large revision to the prior two months). Just a gut call, but I would say the number released today is revised higher.

Lastly, many think the rate cuts won't save the economy. I disagree -- the cuts will help everything a little, but initially 25-50 bps of easing won't be enough to help the areas the most in need (homebuilders, lenders & banks in poor financial condition etc...). However, the cuts will help the strongest the most. This is typical of the bifurcated economy we are in currently. In other words, those that need the cuts the least will derive the biggest initial benefit. Also, as previously stated, the Fed cuts will do more to strengthen the USD than weaken it as growing fears of recession or fears of a recession growing more severe would be worse for the USD than the Fed funds rates declining.

Answers I Really Wanna Know - Todd Harrison - 12:35 PM

  • Why isn't anyone (else) talking about the importance of CFC $18?

  • Y'all see Goldman, Morgan Stanley and Citi flipping the Matador Switch?

  • Will that trigger the "rate cut hope rally?"

  • Or is it a function thereof?

  • IF we get that run, will Under Armor be an "over charmer?"

  • Oh, it's spelled "Armour?"

  • Boy, didn't the Colts look sharp last night?

  • Against what was supposed to be one of the better offenses in the NFL?

  • Breadth isn't getting better with this try?

  • This is a tough tape but isn't it better than the flatliner Sammy we had for so long?

  • If the opposite of love isn't hate (it's apathy), do we have lotsa room to go in the bear scare?

  • Do you see Michael Vick's, er, the VXO pennant?

  • SushiFriday? Today? Off the desk? Really? (yes)


Bond Market Update - Bennet Sedacca - 11:35 AM

Treasuries are incredibly well bid. As are GNMA's and mortgages in general. Subprime ABX is 'offered without a bid'. Why?

If you are holding a bunch of mortgages, your duration theoretically shortens as prepayment risk rises. So what can you do? Buy Treasuries to extend your duration back out, otherwise known as a 'convexity trade'.

But I wonder... will mortgage prepay speeds really explode out? I don't think as much as usual, as housing is so bad that the ability to Refi is diminished.

I will look to sell some of my low coupon agencies I bought a while back into this rally. Why? This will be a source of cash to add to equities at some point in the future as we continue to be severely under wight here.

Ginnie's still look OK to me and my average coupon is 6.5%, so I will hang out and clip coupons.

But the market smells deflation. As do I. It goes along with Zero Hour.

Golden, just as you'd expect... - Lance Lewis - 9:54 AM

Note the Gold vs. GSCI Industrial Metals Index ratio (see the chart below) is making a new 52-week high, as gold continues to increasingly outshine the base metals and trade more based on its monetary characteristics rather than its "commodity" characteristics. Just as one would expect given the weakening US economy and its negavtive effect on demand for the GDP-sensitive base metals.

Likewise, a weak US economy and a weak dollar (along with an easing Fed) make gold all that much more attractive as a store of value.

Click to enlarge.

Position in gold, gold shares.

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No positions in stocks mentioned.

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