Farrell: I'm Not Paranoid, But Why Are You Looking At Me Like That?

I am fixated on this notion that has been proposed requiring the Fed to get permission from the Treasury before it acts in any emergency. It's letting the White House, via the Treasury, into the formerly independent Fed.

The Los Angeles Times points out in a story that President Obama will soon be able to appoint 5 of the 7 Fed Governors. A Governor's appointment is for 14 years. The Fed Chair is a four-year post, and Ben's term of office ends in January of 2010. Because of early departures and retirements, the L.A.Times says the President will replace five of the seven Governors in the next 18 months. That includes Ben's job. I think it is absolutely critical for Ben to be reappointed. The independence of the Fed seems to be a jump-ball.

The May existing home sales reportwas a bit below expectations, but good enough in a not-so-good world. Annual sales were 4.77 million, up from 4.66 last month but below hopes of 4.8 million. It is the third month in a row of better numbers, so there is some stability in the market. Foreclosures were 33% of sales, and that is down from last month's 45%, and that is good. Inventories of homes for sale dropped to 9.6 months from last month's 10.1 months and are also down from the peak of 10.9 months. But the recent back-up in mortgage rates and the existence of a "shadow inventory "of homes waiting to come back on the market mean we won't be getting greener shoots from the housing market, but, as I said, there are signs of stability.

Chris Verrone, ace tech analyst at Strategas, my pal Jason Trennert's shop, had a very interesting market read: Yesterday was the 15th time since 1929 that a rising 50-day moving average crossed through a falling 200-day moving average. I have heard this referred to as the Golden Cross. While it has usually been followed by a short-term choppy market, the average gain in the market six months out has been a positive 6.8%, and 11 of the prior 14 occurrences have seen a positive data point. I defer to Chris as far more expert in these matters. But this fits with our thesis that we are in a short-term correction that could bring the market down by 1/3 of the March advance, or to the 825-840 area in the S&P, before recovering.

From a more fundamental viewpoint, Mike Santoli's Barron's columnlast weekend noted that 45% of the companies in the S&P have seen their earnings estimates raised recently. He figures the consensus for earnings is now around $60 for this year. That would a nice 20% or so above last year's $48.50. It's worth noting that, with all the changes in the make-up of the S&P, earnings last year would have been $68 had the changes been in effect (GM and C out, for instance). I haven't seen too many $60 guesses. Morgan Stanley went to $51 recently. But if it were to be $60, the S&P is at a fair enough value of about 15 times.

Our lodging analyst, Jake Fuller, covers his companies from a lot of angles. He recently did a survey of Marriott room rates and found reason for encouragement. Surveying 1600 hotels, he found rates up 0.6% sequentially after a 0.5% sequential decline in June and -2% in May. The second derivative (change in the rate of change) appears to be positive. Christine Woo, in a recent upgrade to Hold on Hertz , has seen firmness in car-rental pricing as well. I love these back-door indications of what is going on in the real world. I would also note that Jake did a survey of hotel rates in Europe and found no such improvement yet. It probably shouldn't have surprised us, then, that the Euro zone services PMI was a bit disappointing when it was released Tuesday.

The two-year note auction was a big success. The bid-to-cover ratio was a strong 3.19 times, with the last five auctions at 2.7 times. Indirect (foreign) buyers were 68.7%, against a five-auction average of 31%. US paper, at least the short stuff, is in strong demand. The longer-dated stuff is more of a problem. We'll see how the seven-year goes on Thursday.