Thursday, August 23, 2007

Countrywide Injection Eases Credit Crunch Fears

The market got a nice boost at the open, although as of this writing it is fading a bit. Last night, Bank of America (BAC) said it made a $2 billion investment in Countrywide (CFC). The news helped to ease some of the fears about the current credit crunch. It also emboldened overseas buyers, who sent the markets in Asian sharply higher across the board.

This morning, the Fed has injected another $17 billion of reserves into the system. But the financial stocks arent' really responding. This has some wondering if the strategy is working, and if the Fed will in fact cut rates in September.

Yesterday, PIMCO's Bill Gross came out saying that he expects the Fed to cut 50 basis points by September. I agree with this prediction, although I don't know if we will get the full 50 bps in September. It may take another month or so, depending on developments in the credit and financial markets as well.

Bond yields are steady again, with the 10-year yield at 4.65%. And oil is up a little, testing the underside of $70.

With the market up nicely since last Thursday's lows, some selling wouldn't be surprising. Yesterday I had a debate with Doug Kass about how soon we could retest the lows. He is pressing his short bets, while I think that is a 'crowded trade'.


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