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Friday, October 19, 2007

Hmm, Fed Cut?

The Street is pricing in a high probability of a Fed cut. I still think the Fed doesn't have the margin to do so, but profit statements involved with the "real" economy seem to support the Street. Caterpillar:
The company said several key U.S. industries it serves, including trucking and nonmetal mining, are "in recession," and its machinery sales to nonresidential builders are declining as fast as sales to the residential building industry, which it said was in "severe recession."
Caterpillar said a number of factors weighed on third-quarter results, including higher manufacturing and material costs, which increased core operating costs by $294 million.
It said the tightening of the credit markets in recent months has not had a significant impact on its own borrowings. But it said loan delinquencies of more than 30 days at its Cat Financial unit, which finances equipment purchases by the company's customers, jumped to 2.52 percent at September 30 from 1.89 percent a year earlier.

"Most of this increase is related to North America and is specifically related to the downturn in the housing market," Caterpillar said.
As for profit, 19% of the increase derived from currency fluctuations. Caterpillar's forecasts are based on the idea that GDP in 2008 will grow 1.5%.

There's a nice roundup of housing-related news at Seeking Alpha. Treasuries are shooting up in price (lower yield), and it looks like the weekly gain is going to be the highest in about 5 years. The Super SIV M-LEC has obviously failed to improve the market. Credit swaps are shooting up. The attitude of many observers is best summed up by opening line in this M-LEC article:
YOU know a market has seen better days when some of its leading actors are compared to a deadly virus.
An excellent, excellent post by Tanta at Calculated Risk, but first skim this one. These posts are about FHA downpayment assistance programs. Please keep in mind that delinquency rates on FHA mortgages crossed the 12% line this summer, and studies have proven that down-payment assistance programs from certain types of organizations are strongly correlated to defaults.

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