Market Update 226310

1
Market Update2/26-3/10

• Tony Weldon Co-Director of Research

2
Overview

• Acquisitions
• Commodities
• The Dollar
• Bond Insurers
• Municipal Debt
• Housing and Job Markets
• Thornburg Mortgage Inc.
• Commercial Real Estate

3
Acquisitions and IPOs

• Electronic Arts bids 2 Billion for Take Two
  Interactive
• Miners attempt consolidation
• BHP offers 140 Billion for Rio Tinto
• Vale do Rio Doce offers 90 Billion for Xstrata
• Visas IPO
• Expected value of IPO is 19 Billion
• Scheduled to price week of March 17th

4
Commodities

• Gold Other Metals
• Hit record highs over last 2 weeks
• Potential for gold to hit 1000 mark
• Wheat Soft Commodities
• Current prices are seen as very speculative
• Trading volume has soared recently
• Beer makers are raising prices because of high
  price of hops
• 4 in September to 40 now
• PG raising prices on many of its food products

5
Commodities

• Crude Oil
• Currently at 107.92
• Wednesday prices shot up to 104.52 (5) as
  inventories were unexpectedly low and OPEC moved
  to maintain current levels of output
• National Average for gasoline is 3.20

6
The Dollar

• Continues record lows against Euro and other
  currencies
• Fed continues to focus on economic slowdown more
  rate cuts?
• ECB continues to focus on inflation keeping rates
  steady
• Euro is currently 1.53 dollars

7
Bond Insurers

• MBIA and Ambac
• SP affirmed MBIA rating of AAA while keeping
  outlook negative
• Ambac also retains AAA rating while possibility
  of downgrade remains
• Rating affirmations pushed up broader market
• SP cut ratings on XL and FGIC
• XL down to A- from AAA
• FGIC down to A from AA

8
Municipal Debt

• Variable Rate Demand Note begins to see similar
  trouble that ARS market saw earlier
• Veteran investors see increased spread between
  munis and treasuries as buying opportunity
• Last Friday top rated 2 yr. muni debt was
  yielding 60 more than comparable treasuries
• State Pension Funds see growing unfunded
  liability as markets continue to downtrend

9
Housing Market

• Home prices fell 8.9 in Q4 07 according to
  Schiller Home Price Index
• Freddie Mac and Fannie Mae have investment caps
  lifted to 730,000 from 417,000
• Fannie Mae recorded 3.2 billion in derivative
  losses
• Sales of new homes fell 2.8 in January more than
  twice analyst expectations
• More than 2 of the nations mortgages were in
  foreclosure process in Q4

10
Jobs Market

• U.S. employers shed 63,000 jobs in February
  compared to 22,000 in January
• February decline in jobs was most in five years
  and reinforces that U.S. is in or close to
  recession

11
Thornburg Mortgage

• Mortgage lender based in Santa Fe, NM
• Had billions of dollars in collateral seized last
  week and is at risk of going under
• Collateral was seized in response to the decrease
  in value of Thornburgs Alt-A mortgages
• Different than other struggling mortgage lenders
  because it focuses on Alt-A mortgages, which has
  credit quality between prime and subprime

12
Commercial Real Estate Market

• U.S. construction spending fell 1.7 in January
  from December steepest decline in 14 years
• Moodys expects commercial real estate values to
  drop 15 20
• This drop would further weaken a weak U.S. economy

13
Todays News

• Emergency cut
• This morning there was speculation of emergency
  rate cut
• Countrywide
• FBI is looking into Countrywide Financial for
  possible security fraud
• Eliot Spitzer
• Acknowledged that he had participated in
  prostitution ring