Will stocks get a Bernanke bounce? That's certainly what some traders are hoping for ahead of Fed Chairman Ben Bernake's testimony before the Senate Banking committee Thursday. But of course, there's always the chance his comments could bring on a Valentine's Day massacre.
Bernanke appears along with Treasury Secretary Hank Paulson and SEC Chairman Christopher Cox at the 10 a.m. hearing, which promises to be the highlight of what could be a very busy day in the markets. Their topic is the financial markets and the economy.
Some important earnings are on the calendar - including UBS and Commerzbank. Also reporting are Comcast , Goodyear and Marriott .
Insurers In Bondage
Wall Street will also be watching a second important, Washington hearing. The House Financial Services Committee capital markets subcommittee holds a hearing on bond insurers. The guest list includes N.Y. Gov. Eliot Spitzer; N.Y. Insurance Superintendent Eric Dinallo, and Pershing Square Capital's Bill Ackman. Rep. Paul Kanjorski, D-Pa., who chairs the subcommittee, will be on "Squawk Box" in the 7 a.m. hour as will Gov. Spitzer.
The stock market is sensitive to news on this sector as we saw on the upside Tuesday, after investor Warren Buffett offered to reinsure the muni bond portfolios of three troubled monoline insurers - Ambac, MBIA and FGIC. The insurers have not embraced the Buffett plan. It would basically leave them with their troubled CDO portfolios, the heart of their problems.
The insurers have been a source of worry for the markets. Investors are fearful ratings agencies will downgrade them, weakening the ratings of the muni bonds they insure and causing them to mark down the value of the rest of their portfolios, creating a ripple effect in the banking industry.
The credit crunch continues to cause pain in some corners of Wall Street, and the latest agony affects the muni market.
It's been apparent in the auction rate securities market, a short term paper market which includes a variety of issuers but predominantly muni bond and student loan issues. Billions of dollars have come up for auction this week, and buyers for those types of securities have been scarce, except when prices come down and yields get very high.
"Billions in writedowns are crippling some of the activities where investment banks are necessary, like in the auction rate securities market," said CNBC's Rick Santelli. "They used to take inventory to make sure these auctions went smoothly, and they now don't have the balance sheets to do this," he said.
"Municipalities will just have to use new longer term fixed-rate paper," he adds.
Jeffrey Rosenberg, head of credit strategy research at Bank of America, said the failure in this market is the the latest and most pressing development in the credit crises. "Basically, this is a market that was primarily retail investor and corporate cash investors used these securities to manage their cash, and the bottom line is effectively the market is failing, and so what you thought was cash is not longer cash," said Rosenberg on "Kudlow and Co" Wednesday.
Rosenberg said a fix for the bond insurers would also help stocks. "(Tuesday's) Yesterday's stock market rally is a dress rehearsal for what could happen to stocks when you alleviate the overhang of concerns of the monolines," he said.
"I don't know whether it's going to be someone buys them out, but there's going to be some sort of arranged solution to alleviate the worst case scenario," Rosenberg said.
Santelli said the markets could get spooked by the House hearing on insurers because traders will worry that government involvement will prolong the process of rescuing the bond insures. "It will give threads of hope to some of the participants, but if there was a lesson to be learned from the Buffett rally, it was because his plan would be easy, fast and not involve the government," Santelli said.
Reuters late Wednesday reported some good news from the credit world. Morgan Stanley and Bear Stearns apparently were able to price $1.2 billing commercial mortgage-backed securities on Wednesday in the first deal of the year.
On the economic front, weekly jobless claims are released at 8:30 a.m., an important number after January's surprise negative jobs data. International trade data is also reported at 8:30 p.m.
Stronger-than-expected retail sales data helped pump up stocks Wednesday. The market has also gotten some reassurance from the government's stimulus package, signed into law by President Bush Wednesday. The Dow finished up 178 points, or 1.45 percent. The Nasdaq was up 2.3 percent, or 53.89 points, and the S&P 500 rose 18, or 1.35 percent.
On Thursday, there will be plenty of Fed (and former Fed) speak besides Bernanke. Former Fed Chairman Alan Greenspan is spending his Valentine's Day with Cambridge Energy Research Chairman Dan Yergin, CNBC's global energy analyst. Greenspan is the scheduled dinner speaker at CERA's annual week long energy conference in Houston.
Chicago Fed President Charles Evans speaks on the economic outlook at 1:30 p.m. in Chicago.
It must be Exxon
A U.S. judge in New York confirmed the freezing of $300 million in Venezuela's oil assets as part of its dispute with Exxon , over a nationalized crude project. Venezuela Tuesday said it would stop selling oil to Exxon. And to show it's not unreasonable, Venezuela's state-owned oil company PDVSA said talks with Conoco Philips over compensation for Conoco's nationalized crude project are going very well. Oil prices, meanwhile, shrugged off Venezuela's action. NYMEX crude closed at $93.27 per barrel, up $0.49 on the day.
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