Strangely enough, in my opinion, stars are now aligned for a broad based stabilization/recovery of the banking stocks (avoiding the weaker ones like NCC and SOV could still be a prudent bet...) Hedge fund "liquidation driven" selling pressure is not going to impact financial stocks as they have certainly not been the "favorite asset class" on the "long side" to begin with...

Futures are now pointing to a 100% chance Fed will cut rates... The only question is how much and when? I personally think we might easily see a 50-75BP cut next week with financial sector certainly benefiting in the short term as funding gets cheaper...

Raising the FDIC insured deposit limit to $250K could very well contribute to the continued outflow from commercial paper market to bank CDs...

"Rescue plan" is a clear positive for the banks in the short term regardless of the "ideological issues" one might have with it...

Governments all around the world are now much more likely to step in to prevent additional large bank failures as the "moral hazard" issue became pretty much irrelevant with the"rescue plan" passage...

And finally, recovery in the values of both residential and commercial mortgage based securities has been quite significant and widespread during the last several weeks. Look for more to come as some values are clearly irrational and imply the "end of the world" scenario...

Residential AAAs continued to recover despite the "lockup" of the credit markets...

Source: markit.com

Commercial spreads stopped widening (lower values mean higher prices)

Source: www.markit.com

Stay safe out there, skepticalcapitalist@gmail.com

I am not a frequent NY Times reader but thought this article was a pretty good description of how events unfolded last week...

"If we don't do this,we may not have an economy on Monday." Ben Bernanke

"Panic can cause a prudent person to do rational things that can contribute to the failure of an institution." -- William A. Ackman of the hedge fund Pershing Square Capital Management.

Credit markets are completely frozen, fear is everywhere, but selling is so irrationally uniform that I am starting to feel like a "kid in a candy store with his dad's wallet"...

I'll post my new buys tomorrow but anything that has large hedge funds as investors is being sold off for redemptions just as I expected- agriculture, commodities and other "quant" picks... Bank stocks have held up quite well and preferred stocks seem to have bottomed as well- I can't post the names yet as I am still buying but will give specifics over the weekend...It is now virtually guaranteed that we are in recession but with a "rescue plan" going through tomorrow and possible rate cut to go with it we might just get enough positives to offset the possible "upset" with job numbers tomorrow...

Look for a lot more choppy trading and multiple bankruptcies over the weekend...

US Fed Discount Window Borrowing Continues To Hit New Highs

The Fed on Thursday said total borrowing at the discount window, including both depository institutions and primary dealers, rose more than 50% to $409.52 billion Wednesday from $262.34 billion in the prior week. Total average daily borrowing also jumped to $367.80 billion in the week of Oct. 1 from a previous record $187.75 billion in the prior week.

Lending through the primary credit facility, used by commercial banks, Wednesday rose to a record $49.52 billion, from $39.32 billion set last week. Average daily lending through the primary credit facility also continued to soar, climbing to $44.46 billion from a prior record $39.36 billion in the previous week, the report said.

VIX is once again flashing a temporary "buy" signal... But be very cautious - I am personally buying only on big down days for now- until we have 3 solid up days in a row- we are officially in the "bear territory"

skepticalcapitalist@gmail.com

A word of caution for all the bullies from my friends at Trim Tabs...

Mutual Funds Show Huge Sept. Outflows With Flight to Mattress Equivalents

Santa Rosa, Sept. 30 - TrimTabs Investment Research estimated today that the U.S. lost 231,000 jobs in September spurred by the credit crisis which has caused a virtual employer hiring strike. TrimTabs, which makes its estimates based on the daily withholding tax inflows into the U.S. Treasury of all salaried employees, estimates that the U.S. lost 974,000 jobs this year.

TrimTabs said that amid the credit crisis and economic uncertainty there was a $41 billion outflow from equity mutual funds and a $22 billion outflow from bond funds for the month through Friday, September 26, even before Monday's market meltdown in which stocks lost $1.4 billion in value.

TrimTabs said the September fund flows through Sept. 26 compares with outflows from equity funds of $75 billion and inflows of $95 billion into bond funds for the eight months of 2008 through August 31.

"Money is leaving the stock market and money market funds for the equivalent of the mattress, seeking safety in Treasuries and accounts in strong banks," said TrimTabs CEO Charles Biderman. "Individuals are scared and have no confidence in our system and whether our leaders know what they are doing.

Biderman said, "There is a huge amount of sideline cash that wants to return to the stock market. What's necessary for that to happen is a return of confidence in the system."

Source: TrimTabs investment research

Thursday could be an ugly day if BLS confirms this data...