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Financials Are Market Focus--Again

Oil is below $140, indeed all commodities are down, but it is having little effect on stock futures, which have merely come off their lows for the day. The lack of a positive response from stocks indicates that the Street is once again focused on financials,particularly the undercapitalization of Freddie Mac and Fannie Mae. Today, however, Fannie and Freddie are both up about 7 percent pre-open.

Another issue weighing on financials is the gradual realization that the government is dead serious about additional regulation, particularly of brokerage firms. Fed Chairman Ben Bernanke, speaking at an FDIC forum, argued that the Fed should have broader power to monitor the financial system.

Brokerage firms have dealt with the credit crises, the slowdown in housing, and a slowing consumer and commercial lending environment. Now they are facing the prospects of dealing with additional regulation. Additional cooperation between the SEC and the Federal Reserve, and indeed additional cooperation with other agencies outside the United States, seems inevitable.

The downside, as Dick Bove and others have pointed out, is that regulation will make brokers less competitive and less profitable, and make money more scarce.

Elsewhere:

1) Office Depotdown 13 percent as they essentially pre-announced an earnings disappointment; same store sales were down nearly 10 percent year over year.

2) Du Pontearnings estimates for 2008-2009 are lowered at Bank of America, noting rising material costs and weaker trends in autos and construction.

3) Alcoawill report after the bell today and will provide important insight (hopefully) into global growth and the cost of energy. The general view is that alumina and aluminum prices are stable to slightly higher, but they will be offset by higher energy costs, as well as higher costs for raw materials like caustic soda.

4) Cardinal Healthannounced a restructuring, splitting operations into two segments and cutting about 600 jobs, or 1.5 percent of its workforce.


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