Just as the book stores are making room in the business section for all of the books coming our on the credit crisis they better add some more room for the books that will be written on the bond insurers and the ratings agencies. What a mess…

I said last night that the bond insurer issue had reached the "unbelievable" stage. And indeed that is where it is. One ratings agency said in previous statements that capital infusion into the insurers would not make a difference. And another ratings agency maintains the AAA rating on the insurer getting a capital infusion. Not even the ratings agencies can agree.

Perhaps it really comes down to which ratings agency has the most to lose if they should cut their clients ratings. Remember, the ratings agencies get paid by the insurers to rate them, they are not independent. This ’soap opera’ is not over yet.

The full market wrap tonight.

Keeping AAA ratings on the two largest bond insurers, S&P managed to rally the Dow to close at 12570.  It looks like most were playing the rally cautiously, selling into the rally.  What does this AAA ratings "save" mean?  In a nutshell, it saves financial markets from yelling "Timber!"  It was a small reprieve, but right now, we’ll take it.  The derivatives problem, along with the economic slowdown, is bad enough.  Let’s not make it worse at this point.  This is all about buying time to find solutions.  And I mean solutions that will benefit those who created this stinking mess to begin with.  So far, all proposed solutions from bail-outs of bond insurers to stopping foreclosures, means the US taxpayer’s great-grandchildren will be footing the bill.  No matter how many sweet-smelling, pretty roses you wrap around this garbage, it all still stinks!

This is the latest news in the saga of bond insurers:

S&P Bond Insurer Ratings Actions: MBIA’S AAA FINANCIAL STRENGTH RATING TAKEN OFF WATCH, OUTLOOK NEGATIVE; AFFIRMS ABK’S AAA RATING, REMAINS ON NEGATIVE WATCH
- XL Capital cut to A- from AAA
- FGIC cut to A from AA

Believe it or not, I’m going to tell you the market is weak this morning.  The indices are in positive (intraday) territory, advancers lead decliners by a fraction.  But, the volume is weak and questions about the bond insurers are yet to be answered.  If, or when, we get news on the insurers, any rally will have to be played with caution.  This is a market where you need to trade technicals and keep your stops tight and closely monitored.  That’s the way I’m trading things.

From Wire headlines:  Any ABK deal would likely be early next week, not today or tomorrow. 

MBIA (MBI) releases a letter sent to NY and Illinois Insurance Departments criticizing Mr. Ackman’s plan for the Bond Insurers.

- We believe this proposal is simply a continuation of Mr. Ackman’s campaign to profit from his short positions and credit default swaps in the bond insurance industry,"
- Ackman has only two objectives: to impede the ability of companies who are trying to strengthen their financial resources to meet the needs of existing and future policyholders, and to further his own personal agenda and financial objectives. His calculated practice of using the media to broadcast his self-serving and misleading letters, reports and presentations is, we believe, clear evidence of his agenda.

Sounds like sour grapes to me.

Home Sales were not as terrible as expected, so the markets are happy.  Sales are down, but we are in the "Twilight Zone" here.

 

US EXISTING HOME SALES 
Units Sold (in mlns)         Jan     Dec     Nov (DecPrev) Jan07
Total Existing Homes      4.89    4.91     5.02     4.89     6.38
Single Family                 4.34    4.32     4.41     4.31     5.59
Condos/Co-ops             0.550   0.588   0.611   0.580   0.788

Units Sold, % Change     Jan     Dec            (DecPrev) Jan08/07
Total Existing Homes      -0.4    -2.2               -2.2      -23.4
Single Family                  0.5    -2.0                -2.0     -22.4
Condos/Co-ops              -6.5    -3.8               -3.3     -30.2

                                      Jan     Dec     Nov (DecPrev) Jan07
Total Median Price       201.1   207.0   208.8   208.4   210.9
Median Pct Change         -2.9    -0.9                    -4.6
Average Price            247.7   254.0   255.7   254.9   257.3
Average Pct Change        -2.5    -0.7                    -3.7
Units Available (mlns)   4.191   3.974   4.217   3.905   3.539
Months Worth of Suppl    10.3     9.7    10.1     9.6     6.7

February Dallas Fed Business Activity: -21.4 v -20.7 prior; Manufacturing Production Index 7.1 v 17.7 prior  (Yea, that’s a reason to rally).

JAN existing home sales:  4.89M V 4.80ME
- prior 4.91M

Sales are down.  Inventory up.  We’ll get a “trend” chart on this later.  4.6% y/y fall in median home prices.

FDIC’S Ms. Bair says an over-reliance on ratings was "pervasive" and that "traditional credit culture" was replaced by those ratings.  She says it’s possible that government regulation played a role and bank rules may push non-transparent models.  Talk about stating the obvious! Better late than never?  We’ll see.

Home supply chain Lowe’s Corporation (LOW) released earnings this morning and once again they are lowering their forward guidance.

REPORTS Q4 $0.28 V $0.25E, R $10.38B V $10.6BE, SSS -7.6%
- Guides Q1 EPS $0.38-0.42 v $0.43e.
- Guides Q1 SSS down 5-7%.
- Guides FY08 EPS $1.50-1.58 v $1.74e.
- Guides FY08 SSS down 5-6%.

It is being reported this morning (again by Charlie Gasparino of CNBC) that Ambac (ABK) is still near some kind of a deal. And that negotiations with the ratings agencies was the current hurdle. This brings into question the entire ratings business. What is the purpose of having ratings if the ratings are "subject to negotiations"? We still stand by our view that a capital infusion of new money into the bond insurers is only a temporary measure and not a long term fix to the problems. This bond insurer issue has turned from bad to worse, from worse to terrible, and from terrible to now just simply unbelievable. Stay tuned for more on the "Bond Insurer Soap Opera".

This weeks schedule:

Monday

• 9:50am Fed’s Kroszner will speak on risk management in New York
• 10:00am: January existing home sales
• 11:00am: US Treasury’s 2 and 5 year note announcement
• 3:30pm: Fed’s Mishkin will speak on inflation in North Carolina

Tuesday

• 7:45am: ICSC/UBSW Chain store sales
• 8:30am: January PPI
• 8:55am: Redbook retail sales
• 9:00am: December S&P/Case Shiller composite
• 10:00am: February consumer confidence, February Richmond manufacturing index, Q4 House price Index
• 12:15pm: Fed’s Kohn will speak on the economy and monetary policy

Wednesday

• 7:00am: MBA mortgage applications
• 8:30am: January Durable Goods Orders
• 8:30am: ECB’s Wellink speaks in New York
• 10:00am: January New Home Sales
• 10:00am: Fed Chairman Ben Bernanke testifies before the House Panel on monetary policy
• 10:30am: Crude oil inventories
• 1:00pm: US Treasury’s 2 year note auction

Thursday

• 8:30am: Preliminary Q4 annualized GDP, Q4 personal consumption, Q4 GDP price index, Initial jobless claims
• 10:00am: January ‘help wanted’ index
• 10:00am: Fed Chairman Ben Bernanke testifies before the Senate Panel on monetary policy
• 10:30am: Natural gas inventories

Friday

• 8:30am: January PCE deflator, PCE core, personal income, personal spending
• 9:45am: February Chicago PMI
• 10:00am: University of Michigan confidence
• 11:00am: Fed’s Mishkin and Rosengren will speak on monetary policy
• 12:15pm: Fed’s Lockhart speaks on subprime crisis
• 1:30pm: Fed’s Evans and Poole will speak on monetary policy