Market Summary: Wed. March 5, 2008

This morning started very well. Then around lunch time the NYSE suspended trading on Ambac. They suspended trading because of the pending news release that was about to come out (discussed below). The market turned downward almost immediately with the news of Ambac and the release of the Fed’s beige book, and it then shrugged off the Ambac issue and surging oil prices to finish up about half a percent. The Dow gained .3%, the Nasdaq was up .6% and the S&P finished up .5%, led by gains in the energy and basic materials sectors.

Remember last week when Charlie Gasparino broke the story that Ambac was going to come out with a plan to bring in new capital and shore up its AAA rating? Well today they came out with the plan… it was worthless. Look at the one-day chart for ABK. Ambac’s plan: attempting to raise $1.5BN (the street was expecting up to 3) and stop insuring mortgage-backed securities. No kidding? They’re going to stop insuring the stuff that’s driving them broke? Well, that’s good. The market was hoping banks or sovereign funds (funds that run some of the extra money of other countries, you know, the ones that aren’t trillion dollars in debt) would straight up buy a big stake in Ambac. Instead, Ambac HOPES to sell more shares to the public. Even with the injected capital, Ambac may not survive. California says they’re done insuring municipal bonds. Municipal bonds were all Ambac and MBIA did until they got greedy and started doing mortgage-backed stuff, they are good at it, but if muni’s stop buying insurance… ABK is up you know what creek without a paddle.

Oil rallied 5 points to a record high close of 104.52. Oil is in what momentum traders call a break out, causing a lot of momentum money to back it up, pushing it even higher. Today it was given an extra boost by an unexpected draw in crude and refined fuels in the US. Every week oil inventory numbers come out, a draw is a decrease, a build is an increase, and the price of oil will move based up on how big the draw or build is relative to expectations and simple supply and demand. Oil’s run comes in the face of weakening demand amid a slowing US economy causing a lot of people to come out and say the fundamentals don’t back the move, which is true on some level, but every time we get a bigger than expected draw, it shoves it in those Bears’ faces. OPEC announced this morning that they are keeping production the same… no big surprise.

Economic news was mixed. Non-farm productivity rose at a 1.9% annualized rate from October to December (1.8% expected). The Fed released a VERY depressing beige book. Eight times a year the Fed releases it’s Beige book in which anecdotal evidence gathered by each Federal Reserve Bank on current economic conditions in its district is published. This one used words and phrases such as, “deteriorating economic activity”, “upward pressure on prices”, “declining home sales”, and a lot of stuff we already knew… they were just extra pessimistic.

In short: Ambac’s plan wasn't great, commodity prices continued to skyrocket, bond yields increased, and the dollar continued to weaken against the Euro (1.5264 dollars per Euro…ow), but strengthened marginally against the yen.

DJIA 12,254.99 +41.19 (+0.34%)
Nasdaq 2,272.81 +12.53 (+0.55%)
S&P 500 1,333.70 +6.95 (+0.52%)
NYSE Volume 4,187,388,000

2-Yr Bond 1.66% +0.01
10-Yr Bond 3.70% +0.07
30-Yr Bond 4.60% +0.08

Dollar Index 73.446 -0.218
Crude Oil (Apr) 104.52 +5.00
Gold (Apr) 988.50 +22.20