Market Insider

Market Insider/Friday Look Ahead 

Friday's markets will likely continue to be vulnerable to credit worries. There are a few economic data points including import prices and the Empire State survey, both at 8:30 a.m. TIC data from the Treasury is released at 9 a.m. and industrial production comes out at 8:15 a.m. Consumer sentiment is due at 10 a.m.

Fed Governor Frederic Mishkin speaks at Dartmouth College at 1:15 p.m. He speaks on what tools the Fed has for responding to financial disruptions and there is a question and answer period.

Earnings news is light with Campbell Soup , Abercrombie and Fitch and Hormel Foods , reporting ahead of the open.

A stock that should get some attention is Kraft Foods . Warren Buffett's Berkshire Hathaway reported holding an 8.6 percent stake in the company when it released a list of its stock holdings late Thursday. Berkshire also reported holding 1.5 million shares of Glaxo as well. Both stocks moved higher after hours. Also moving higher were shares of Priceline , after it reported profits more than doubled to $32.7 million.

Fear Factor

The worst fears of traders tumbled out of mouths on Capital Hill all day Thursday.  But the one person who really put the market in a tail spin was Fed Chairman Ben Bernanke, appearing before the Senate Banking committee. Bernanke said the Fed is ratcheting down its growth forecast for 2008 but it sees the economy picking up in the second half of the year. The market clearly listened to the first part of that comment.

It also listened when he said he thinks that banks will be taking more write downs. Check out the financials - down two percent. (Also check out UBS and its billions in subprime related losses, announced ahead of the open.)

Treasury Secretary Hank Paulson was no more cheery, but as a former Wall Street chieftain he certainly painted a clear picture of what's ailing the markets and banks and how the credit crunch affects normal people.

Peter Morici, a professor at University of Maryland's School of Business, said Bernanke is failing to address the deeper issues of the financial system. "Since September, the Fed has lowered the target federal funds rate 2.25 percentage points but to little avail, because the bond market no longer trusts the major New York banks to package mortgages into securities. Bernanke has simply not addressed this more fundamental structural problem that frustrates his monetary policy," wrote Morici.

In the other big hearing on Capital Hill Thursday, the future of the bond insurers was discussed. The stocks of Ambac and MBIA had a big up day. It was in part because Moody's, in downgrading smaller rival FGIC, said Ambac and MBIA have stronger capital positions and business franchises.

It didn't hurt that executives of both companies made reassuring comments about their financial positions. In appearances on CNBC around their Congressional testimony Thursday, they also made it clear they don't like investor Warren Buffett's plan to reinsure their muni bond portfolios.

New York's Insurance Superintendent Eric Dinallo said one solution may be to split the insurers apart, separating the muni business from the portfolios that include high risk subprime assets. He also raised the idea of a credit line to help stabilize the industry. Dinallo will be on "Squawk Box" Friday at about 8:30 a.m..

Credit Drama

The auction rate securities market remains crippled, and stock traders are beginning to take note of any new warning signs from the credit world. The problems in that market are resulting in a spike in interest rates for municipalities on short term loans. In part, traders say it appears that banks are holding back from adding liquidity to that market.

Michael Darda of MKM Partners said in a note today that swap spreads have officially entered what he calls "crisis territory."  (in his view, 75 or 80 bps or more)

"This indicator has tended to lead other areas of credit over time, including during the summer and fall of 2007," he wrote. Ouch. He said he had built his bullish view of stocks around a narrowing of swap spreads and the improvement in the commercial paper market. But he said this widening of spreads and renewed weakness in the commercial paper market may be signaling near term equity market weakness.

The Dow fell 175 points or 1.4 percent Thursday, its 20th triple digit move this year. CNBC's Ariel Nelson points out that on a percentage basis, it is the 17th move of one percent in either direction this year. The last time that happened was 1933. The record year was 1932, when the Dow made 20 such moves. Looks like we're heading for a new record.

The Nasdaq lost 41 points or 1.7 percent, and the S&P 500 slid 18 or 1.3 percent. The 10-year fell slightly as its yield rose to 3.818 percent, and the two-year held at 1.892 percent.

The dollar fell 0.5 percent against the euro and 0.3 percent against the yen.

Boiling Oil

Oil rose $2.19 per barrel, or 2.3 percent to $95.46. That was one market that set aside worries about the economy, focusing instead on supply issues.

Energy Secretary Samuel Bodman offered to give Exxon oil from the strategic petroleum reserve if it needs to make up what it is losing in its dispute with Venezuela. Venezuela meanwhile said the crude project it took from Exxon was worth less than $1.2 billion, a tenth of the value of Venezuelan oil assets frozen by courts in the legal dispute.

Questions?  Comments?