Monday, August 06, 2007


Wall Street stabilized today with a triple-digit Dow gain as of this writing.

All those Bear Stearns rumors on Friday were totally over-baked and hyperactively alarmist. The firm is money-good and their daily security positions are being financed by their top lenders, including Citibank and J.P. Morgan.

What's more, the two credit rating agencies, Moody's and S&P, gave Bear Stearns a positive and sound outlook with respect to liquidity and credit. S&P downgraded because of the possible likelihood of lower earnings over the medium term. But S&P said liquidity is fine. All the negative speculation and rumors about the firm are just wrong.

Meanwhile, I still believe the Goldilocks economic scenario is alive and well. Jobs came in at 120,000 for the private sector and if government teachers had contributed 30,000 as usual (probably due to a statistical estimating error, they didn't), then the jobs report would have met consensus.

Unemployment has essentially been unchanged at 4.5 percent to 4.6 percent for a year. Weekly jobless claims are low. Wages are running ahead of inflation. The ISM report suggests at least 2.5 percent real growth. The global economic boom continues as commodity indexes are holding the high ground. In the U.S. business loans are growing about 12 percent.

Second quarter profits are running 15 percent on a market cap basis, 11 percent on a net income basis, and 9 percent for continuing operations. Those profits are two to three times higher than consensus expected. Corporate bond spreads and yields are normalizing, but sources tell me that new money is coming in from petro countries and China to bottom fish cheaper corporate loans. All of which are money-good.

The sub-prime mortgage virus is still the biggest issue and no one can be sure how large the total damage will be. But with a global boom abroad and Goldilocks at home, the stock market story is in better fundamental shape than so many commentators would have us believe.

Call it money-good.