Monday Morning Musings

The Treasury threw a figure on their plan to clean up the mortgage mess, saying they want to spend up to $700 billion to buy distressed mortgage-related debt from struggling financial institutions. President Bush urged Congress to quickly pass the bill approving the plan.

The dollar is weaker this morning, on concerns that the cost of the bailout plan could strain the financial strength of the US and push rates higher. While this could occur shorter-term, I think that longer-term it will strengthen the US as it will speed up the eventual resolution of this credit crisis and prevent further failures of large financial institutions.

The weak dollar is pushing oil and gold higher, as well as other commodities. Oil is trading near $108, while gold has pushed higher to $890. The 10-year yield is also higher to 3.89%, a huge leap from the 3.30% levels touched last week.

There were several share repurchase programs announced this morning: Microsoft (MSFT) announced an additional $40 billion buyback, Hewlett-Packard (HPQ) announced a $8 billion buyback, and Nike (NKE) announced a 4-year $5 billion buyback. These buybacks should support these shares, as well as spur other Boards to consider similar actions.

Also, the Fed agreed to convert Goldman Sachs (GS) and Morgan Stanley (MS) into bank holding companies, officially ending the era of the stand-alone investment bank. The move will allow them to take on more deposits, but will also place them under additional regulartory oversight, and prompt further deleveraging of their balance sheets.

Mitsubishi UFJ said it plans to buy between 10-20% of Morgan's common stock, which is pushing shares of MS +11% higher, while GS is only up slightly.

Most think that the market is lower this morning over uncertainty as to how the market views Paulson's $700 billion plan. But I think the market is simply lower due to the huge short squeeze we saw on Friday related to options expiration, and the normal post-expiration hangover that often shows up in the market in the ensuing week.