Fed Extends Lifeline to Mortgage Industry, Stocks Soar

The Fed announced a new creative lending structure to help the ailing mortgage industry, and stocks took off.

Bernanke's latest idea is a Term Securities Lending Facility (TSFL), which will lend up to $200 billion of Treasury Securities to primary dealers (banks) secured for a term of 28 days, rather than overnight. The borrowers will be able to pledge a variety of collateral, including AAA rated residential mortgage-backed securities.

This is a direct attempt to inject liquidity into the mortgage market, and help the ailing housing industry. On its face, it seems like a good idea, and the markets are certainly applauding the effort. But it remains to be seen how effective it will actually be.

For the time being, bond yields are rising across the board, which is a good sign. The 10-year yield is up 19 basis points to 3.62%. And credit spreads are narrowing for the first time in a while. Other central banks have also taken measures to increase liquidity.

Banks and brokers are rallying the most, +5.2% and +4.7% respectively. Healthcare and biotech is lagging, after WLP warned of lower earnings.

Asian markets were higher last night, despite yesterday's poor showing of U.S. markets. And the Yen is sharply lower this morning, -1.8%, a good sign. Oil is lower, but still above $107. And the volatility index (VIX) is down -5.9%.

I still hate strong market opens, so let's hope this doesn't fade. I fully expect the bears to take a swipe at this rally, but hopefully short-covering into the close will help, in addition to the fact that the markets are very oversold.

Engine room...more steam!