Today's Tidbits

Countrywide Offers to Renegotiate Subprime Loans for Current Customers
From Bloomberg: “Countrywide Financial Corp., the biggest U.S. mortgage lender, plans to refinance or restructure as much as $16 billion of debt for home buyers facing higher payments on adjustable-rate mortgages before the end of 2008. Countrywide has already refinanced $5 billion of loans and plans to contact 52,000 subprime borrowers with $10 billion of debt to offer new loans…It may modify terms on as much as $6.2 billion of mortgages for borrowers ineligible for refinancing…``Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,'' David Sambol, the company's president and chief operating officer, said in the statement.”

Chapter 13 Bankruptcies Rise as Homeowners Struggle to Delay Home Foreclosure
From The Wall Street Journal: “Most consumers filing for bankruptcy continue to do so under Chapter 7 of the federal Bankruptcy Code. Under that provision, a person must forfeit certain assets -- including, in some cases, a portion of home equity. Those assets are sold to pay off debts. While Chapter 7 filings stop foreclosure proceedings, the break is usually only temporary. As a practical matter, many homeowners who file under Chapter 7 lose their homes. In recent months, however, an increasing number of homeowners have filed for bankruptcy under Chapter 13, which staves off foreclosure proceedings while the homeowner works out a plan to pay off mortgage debt and other obligations over time -- usually three to five years. To qualify, debtors must have a regular income and must stay current on their new bills. About four in 10 filers today are filing under Chapter 13 -- up from three in 10 two years ago. The 2005 change in bankruptcy laws was designed in part to shift more filers to Chapter 13, which forgives less debt than Chapter 7. In California, one of the nation's hottest markets during the recent real-estate boom, the number of nonbusiness Chapter 13 petitions in the second quarter of the year more than doubled from a year earlier, according to records compiled by the Administrative Office of the U.S. Courts in Washington. Over the same period, such filings increased nearly 40% in the northern district of Illinois, which includes Chicago, and 70% in Massachusetts…it isn't a strategy that works for everyone. Consumer advocates say the homeowners who are most likely to benefit from Chapter 13 are those facing foreclosure because of a temporary financial setback, but who expect to be able to cover their mortgage payments in the future.

Russia’s Booming Economy Dependent on Immigrant Labor as Population Shrinks
From Bloomberg: “As Russia's booming economy creates greater wealth and aspirations among its citizens…A shrinking local workforce complicates matters, as oil- powered economic growth fuels demand for offices, apartments and shopping malls -- along with people to build and maintain them. ``There is such a deficit of labor all over Russia, just at a time when Russia has woken up,''…Russian economic growth has averaged 6.7 percent a year since 1999. Meanwhile, Russia's population fell to 143.8 million in 2006 from 148.7 million in 1992 and continues to slide by almost 1 million a year, government statistics show. The workforce decline is dramatic. According to the Health and Social Development Ministry, it will drop 12 percent to 65.5 million by 2010 from 74.5 million now because of low fertility rates and the high number of alcohol-related deaths. Mikhailov says 40 percent of his farm and construction workers are foreigners, many of them of Muslims who don't drink. …Life expectancy for Russian men is 59 years… Russia is home to the world's second-largest number of immigrants, after the U.S.”

Disarray in Mortgage Financing Enabling Identity Theft Risk to Rise Substantially
From The Wall Street Journal: “…inside the complex's Dumpster: a cache of 40 boxes of loan files containing Social Security numbers, credit reports and other data on customers of Ameriquest Mortgage Co….Privacy experts say this sort of mishap -- which leaves borrowers vulnerable to identity theft -- is a growing concern in the mortgage industry. The mortgage process has become more complex, with consumer information flowing through the hands of a menagerie of independent brokers, itinerant loan officers, investors and financial middlemen. With the housing downturn forcing many of these firms to sack workers and shut branches, some mortgage files are getting lost in the shuffle, turning up in places like Dumpsters that are easily accessed by scam artists. "In times of organizational change or chaos, we're much more likely to see those kinds of leaks -- what I call inadvertent disclosures," Dartmouth College management professor Eric Johnson says. Experts say that putting numbers on how frequently confidential mortgage data is leaked is difficult, because many breaches go unnoticed. In July, however, Bob Segall, a reporter at WTHR-TV in Indianapolis, tried to get a sense of how bad the problem was around central Indiana. Over three days, he peered into 40 Dumpsters behind loan branches and title companies that handle mortgage documents. In nearly half -- 18 -- he discovered sensitive information about borrowers. "You could see their complete financial lives on paper, dating back 20, 30, 40 years," he said. Among the finds inside the mortgage files: a letter from one borrower's counselor saying he was doing well in alcohol rehab.”

Progress on Basel II Capital Rules for U.S. Banks
From Dow Jones: “U.S. and foreign bank regulators announced major progress this week related to pending international capital standards known as Basel II…Still, it appears likely that U.S. banks might not be able to adopt Basel II until sometime after the planned Jan. 1, 2008, start date, even on a trial-run basis. The Basel II standards are international capital rules that attempt to more closely align a bank’s risk with the capital it holds to protect against losses. Basel II would update a 1988 international capital framework that many banks and regulators have said is outdated. But because Basel II is so complex, critics have questioned whether it could have an unexpected impact on the safety and soundness of banks. This is one reason why it took U.S. regulators several years to agree on how Basel II should work for large banks, such as Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. The OCC, Federal Reserve, and other regulators finally reached a general agreement in July, and Dugan said Tuesday that regulators translated that agreement into the actual text of a final rule this month.”

MISC

From Deutsche Bank: “An anonymous senior Fed official gave an interview to several news services stating that the Fed did indeed support the M-LEC proposal. Still, the approval was lukewarm, given the anonymity and the lack of detailed support points. The bottom line is who will take the losses on the old SIV assets. A clear public auction process to establish market prices would be helpful, but it will still mean that either the SIV investors or the supporting bank would have to take the losses. The participation of a highly capitalized M-LEC would avoid having the bank absorb the assets on balance sheet.”

From Market News: “China has begun laying a 500 mln usd fiber optic cable to the US that will be vital in meeting booming Internet traffic between the two nations…”

From Merrill Lynch: “The bullish case for commodities is largely based on global supply and demand imbalances. Rarely, however, does one hear about the weak dollar's contribution to commodity returns. It appears as though the weak dollar may be contributing as much, if not more, to the commodity story than is global growth. In fact, some commodity index returns during the past year are actually negative in some currencies!”

From Handelsbanken: “The dollar is down by over 7.7% against the yen since the middle of June, and over 6% against the euro over this same period. The trade-weighted value of the dollar has dropped a full 6.7% since June 14…This broad- based decline in the dollar appears to be the result of a decline in both investors’ confidence in the sustainability of the ongoing expansion and in the Fed’s inflation-fighting credibility. The meltdown in the sub-prime mortgage market and the associated FOMC decision to cut rates are key factors behind the bearish dollar sentiment evident in the currency markets…The dollar is likely to come under renewed selling if the Fed cut cutes rates by more than the 25 basis points already priced into forward rates.”

From Barclays: “While risk took a hit last week, it is worth noting that the BRIC markets and their corresponding bull trends have not yet had any material chart damage. These indices are, however, teetering above important support zones”

From Citi: “Each month the Labor Dept. reports the number of firms engaged in "mass layoffs" which are job purges of 50 or more people…the frequency of such layoffs rose by 81 in September versus August. That's about a 7% month-on-month rise. Rising layoffs are not surprising given the ongoing downturn in housing and related areas. We're already leaning toward a 70,000-ish payroll number for October and this report is broadly consistent with that estimate.”

From Credit Suisse: “Weakening earnings (for now mostly contained to financials) raises the risk of reduced labor demand as companies move to cut costs… In general, turning points in earnings revision momentum leads turning points in labor income by six months.”

From Dow Jones: “Target Corp.’s weaker October sales forecast … now expects sales at stores open at least one year to be up 2% to 4% for the month, citing “greater than normal daily volatility and continued disappointing sales results for the first two weeks.””

From Bloomberg: “Wal-Mart Stores Inc., the world's largest retailer, reduced its capital spending forecast for the second time this year as the company seeks to counter slowing
sales growth in the U.S….The retailer said in June it would scale back the number of new supercenters it opens by a third,…”

End-of-Day Market Update

Very quiet day. Treasury curve steepened as two year yields (-3.5bp to 3.82%) fell more than ten year yields (-1bp to 4.40%). Swap spreads

Equities rebounded with the Dow closing up 109 at 13,676 and the S&P 500 closing up 45 at 2799.

The dollar index gave up much of yesterday’s strength, following the G7 meeting over the weekend, to close down -.5 at 77.56. Gold gained back about half of yesterday’s loss to close up $5.75 at $760.

Oil continued to retreat, falling to $85.30.