Wall Street is bracing for a weaker opening, joining a sell off in stock markets around the world.
Europe's major markets were lower after a selling spree across Asian markets, sparked by credit fears. London's FTSE was down 1.64% and the French CAC was off 1.5% this morning. Losses in Germany's DAX were less than 1%. Overnight, Japan's Nikkei ended 2.19% lower and Australia was off 2.96%. Banking stocks in Asia were especially hard hit, following yesterday's decline in U.S. financials.
Economic data due today includes the consumer price index (CPI), which rose 0.1% in July, with the core rate rising 0.2%, the Empire State manufacturing survey, which came in much stronger than expected and industrial production. The National Association of Home Builders Survey is released this afternoon. CPI was reported at 0.1%, as expected.
Today is an important day for some hedge funds because investors in many funds can seek withdrawals if they give notice 45 days before the end of the quarter. That date is today.
The headlines today are full of stories about the rippling credit crunch, new subprime bombshells and financial institutions fearing each other. The New York Times today looks at subprime turmoil spreading to a type of short-term security held by money market funds. (You know, the cash portion of your portfolio).
The Financial Times front page says nobody listened to European Central Bank president Jean-Claude Trichet this week when he said conditions were returning to normal, and traders instead fixated on fears that the asset-backed commercial paper is showing signs of drying up.
"Liquidity is not the problem. Confidence is," says CNBC's Larry Kudlow.
For that reason, Kudlow said the market's been ignoring things like decent trade figures yesterday, retail sales Monday that showed consumers spending, and the small business survey that showed a pickup in optimism. "Small business runs the country," he said.
"If you obsess about housing and the credit freeze, you could ignore some really good news," he said.
As tropical storm Dean picks up strength, oil is firming this morning after rising 1.1% to $72.38 per barrel. Natural gas was up 2.1% to $6.94 per million BTUs yesterday.
"They're trading the weather," says CNBC's Sharon Epperson who spends her days at the NYMEX. "The ebbs and flows of prices of oil and particularly natural gas are moving with the latest storm forecasts."
As a result, Epperson says that natural gas prices make 25-30 cent moves higher or lower depending on whether the latest headlines say storm activity will hit the Gulf of Mexico or bypass Gulf refineries. Natural gas hit $7 two days in a row on an intraday basis, but didn't settle near those highs.
"Keep in mind there is a record level of natural gas in storage -- nearly three trillion cubic feet. So unless a storm or hurricane actually disrupts supply, prices will probably head lower. "Buy the rumor" appears to be the way most traders are playing the weather right now ... we could see natural gas hit $8 before falling to $5," she said.
Epperson said when it comes to crude oil and products, there's a tug of war going on between headlines on weather, which drive prices higher, and fears that the subprime and credit crises will slow the economy and hurt demand for oil, sending prices lower.
"OPEC said in their monthly report that oil demand may slow down in the second half of the year," she said. "Tomorrow's inventory report could help to support prices if we see a huge decline in crude and gasoline supplies. Platts survey of analysts is looking for a draw down of 2.2 million barrels in crude and 900,000 barrels in gasoline.
Refineries should show a slight ramp up in the run rate, about half a percent, which may add to distillate stocks -- but these refineries are still operating well below the five year average."
What Would Warren Buffett Do?
Buffett's Berkshire Hathaway gave us an idea of what Buffett is thinking when it filed on its recent positions yesterday. Berkshire bought a big stake in Bank of America, dipped in to Dow Jones, added to Wells Fargo holdings and loaded up on Sanofi-Aventis, Procter & Gamble and Johnson & Johnson . However, Berkshire did not discuss the status of its railroad holdings. See Warren Buffett Watch on CNBC.com, a chronicle of all things Buffett, written by CNBC's Alex Crippen.
(By the way, CNBC's Becky Quick is in Omaha where Buffett and his family are hosting a fund raiser for Democrat presidential hopeful Sen. Barak Obama, D-Ill.)
Billionaire investor Carl Icahn, meanwhile, disclosed some of his holdings as well. His fund has taken significant stakes in Alcoa and Alcan . Icahn management also owns Kraft and Macy's.
Main Street's Problem
Thornburg Mortgage COO Larry Goldstone spoke to Erin Burnett and Larry Kudlow yesterday afternoon, after the company said it was considering asset sales and postponing payment of its dividend. Thornburg stock tumbled more than 45% before it was halted late in the day. Thornburg has stopped locking in mortgages for four business days and blames its trouble on "unprecedented and irrational sentiment in the secondary mortgage market."
Goldstone said the company does not expect to go into bankruptcy, and that it is turning the corner in terms of stabilizing the situation. He explained that the company cannot finance mortgages with any of the traditional financing vehicles it used for the past 14 years. Thornburg specializes in jumbo loans, and its average loan size is $640,000. Mortgages greater than $417,000 cannot be sold to Government Sponsored Agencies, Fannie Mae and Freddie Mac.
"I understand there are multiple lenders out there, hundreds, if not more that are not making mortgages, funding loans. They're not taking loan applications. I believe there is a severe mortgage crisis going on in the jumbo or the non government sector mortgage space," said Goldstone.
The Wall Street Journal today reports that big lenders are grabbing a greater share of the market while the smaller lenders suffer.
"The market has a hard time distinguishing high quality assets from low quality assets. We have 58 delinquent loans in 38,000 loans in our portfolio. That is a high-quality lender. We are being painted with a very ugly brush right now, and it's been painful," said Goldstone said yesterday.
Burnett will speak with Goldstone again today on "Squawk on the Street." "This is one of the highest quality lenders in the country," she said. "If they can't do business, then who can? This matters. The mortgage market is $10 trillion."
Goldstone said the company explored whether the Fed could accept different collateral which would relieve the logjam in the secondary market. "We've spoken to our representatives here in New Mexico. We've had communications into the Fed, the Treasury department, the President trying to communicate what we think is a very severe issue for the housing market, and it's not about Wall Street. It's about Main Street because Main Street is being negatively affected by mortgage interest rates for jumbo mortgages today and it's all because of this dislocation that's going on in the credit markets," said Goldstone
As credit worries once more gripped the stock market, the Dow lost 207 points, or 1.6% yesterday, putting it 993 points below its all time intraday high. The S&P 500 yesterday fell 26 or 1.8% and the Nasdaq lost 43 points or 1.7%.