News for March 2nd 2009

Mortgage Market Minute: With the stock market in the tank, Treasuries are up solidly, and to some degree MBS’s are following with the FNMA 4.5% up +.31 to 100.47, the 5.0% is up +.22 to 101.91, and the 5.5% is up +.22 to 102.69. The 10-year is up +1 to 98-23/32, the yield 2.89% down -.12%. Freddie Mac CEO calling it quits after just 6 months.Freddie Mac Chief Executive Officer David Moffett is quitting after just six months, according to a statement released by the company. In the statement, Freddie Mac said that Moffett wants to return to the financial services industry, where he worked from 1993 to 2007 as vice chairman and chief financial officer of U.S. Bancorp. Jim Vogel, a strategist at FTN Financial Capital Markets in Memphis said, "Whatever the reason Mr. Moffett has determined to leave, the abrupt departure with no replacement in hand is a negative indicator for the company.” According to Fannie and Freddie, foreclosure prevention efforts could worsen the credit profiles of their portfolios in 2009. President Obama outlined a home refinancing and foreclosure prevention plan that relies heavily on the two government sponsored entities. At the same time, the Obama administration doubled its capital commitment to the companies to $400 billion. Freddie Mac expects its regulator to ask the Treasury for $30-$35B to maintain a positive net worth after the company files its 2008 annual report with the SEC. Government ups stake in ailing AIG to nearly 78% with $30B injection. The nation’s largest insurer, AIG, announced this morning that it lost $61.7 billion in the fourth quarter (the biggest quarterly loss in U.S. history), and as anticipated over the weekend, the government once again stepped up to allow the company to draw up to $30B in exchange for preferred stock, in a move that the government says will “further strengthen AIG’s capital levels and improve its leverage.” The Treasury Department also stated that “The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year. The additional resources will help stabilize the company, and in doing so help to stabilize the financial system.” The government now owns 77.9% of AIG through preferred shares, effectively nationalizing the company. AIG was trading at $0.49 per share, up $0.07 (16%), for a total market cap of merely $1.6B. The stock market on the other hand is very bearish, with heavy losses of over -2.5% and the S&P 500 trading at the lowest level since 1996.
Personal spending in January ticks up, snapping 6 months of declines.The Department of Commerce today reported that personal spending, which makes up roughly 70% of U.S. GDP, rose +0.6% in the month, following a decline of -1% in December, and marking the largest increase since May. The key driver was (….drumroll, please…..) pay increases for federal employees. Economists had been expecting a rise of 0.4%. Incomes increased by +0.4%, also posting the biggest increase since May, after December's -0.2% The report also showed core inflation moving slightly higher over the month. The Federal Reserve's preferred measure of inflation, the personal consumption & expenditures (PCE) core deflator, was higher by +0.1% in January, as expected, and follows a flat reading previously. Annual core PCE fell back to 1.6%, four-tenths below the Fed's unofficial target level of 2.0%. Boston Fed president urges speed in removing troubled assets from bank booksBoston Federal Reserve Bank President Eric Rosengren said today before the Institute of International Bankers that troubled assets should be moved off bank balance sheets as quickly as possible in order to speed the recovery “so banks can once again focus on future prospects rather than past mistakes." He went on to say, however, that governments are not good managers of such assets, and that "Removing bad assets and quickly selling them to new owners are steps that are likely to get resources allocated to their best economic use.” He said that banks may be reluctant to sell loans and securities that have been labeled as “toxic”, as this could lead to further writedowns that could threaten the solvency of a given bank. Rosengren said that for securities, where the problem is liquidity rather than credit concerns, "there should be a role for purchasing these assets and reducing the liquidity premium." Rosengren cited past crises in Japan and the United States as evidence that allowing banks to operate with insufficient capital can exacerbate problems with credit availability, as they shift their attention to short-run capital preservation. On today’s date: March 2…1933: "King Kong," premieres at Radio City Music Hall and RKO Roxy New York City1969: 1st test flight of the supersonic Concorde1972: Pioneer 10 launched for Jupiter flyby1977: 1st time Jay Leno appears on Tonight Show with host Johnny Carson1983: Final episode of M*A*S*H; 125,000,000 viewers1991: U.N. votes in favor of U.S. resolutions for cease fire with Iraq