Mel's Blog

Stocks are trading sharply higher on sentiment that the worst is over for the credit crunch.  Major investment banks like Lehman, UBS and Deutsche Bank are reporting new capital raising measures and removing sub prime assets from their books.  Stocks, led by the financial sector, are sharply higher on the optimistic outlook.  As a result, Mortgage Bonds are being sold off.

A significant amount of write downs from UBS and Deutsche Bank was announced today.  And although the news is negative, it has given the markets the feeling that these Bankers are throwing in the "kitchen sink" and getting rid of all the bad news.  While it is difficult to say if this is indeed the worst and perhaps the last of the bad news on sub prime, for today at least the markets are celebrating it, thinking that the only place to go from here is up.  

Additionally, US investment bank Lehman Brothers announced plans to raise additional capital by offering three million convertible preferred shares.  The offering is being very well received by the markets, as they are buying it up with both fists.  This news is also being taken as a sign that the damages to major banks caused by sub-prime woes and the ensuing credit crunch may be nearing an end because investors are willing to invest fresh capital into the same financial institutions that have had negative exposure to sub prime. 

The ISM Manufacturing Index for March was reported at 48.6, surprisingly higher than expectations of 47.5.  On the news Stocks moved a lot higher and pressured Mortgage Bonds even lower.

Prices are down thus far, after both favorable economic news and a strong stock market.  But the Bond did dip down to within a whisker of the floor of support at the 50-day Moving Average, and has since rebounded slightly.  This level will be important to watch today, as it has acted as a firm floor for the past couple of weeks.  I will float for now and see if this floor does hold.