John Tuggle

As negative as we have been on the economy and the time it will take to recover, I admit this morning that markets are becoming even more concerned. We were expecting the equity markets to have more confidence in the stimulus plan and the mortgage work out plan. While we don't believe either is the answer to turning the economy, we thought markets would, at least for a few months. Not so; markets have adjusted to the reality more rapidly than I thought they would. Yesterday the DJIA ended on a new low from the Nov lows, but by fractions; overnight the US equity market trading blew through the Nov lows and are opening substantially lower into new low territory this morning. The government is tossing trillions at the economy, markets however are uniformly believing it won't succeed in the manner the administration and markets had expected. The bearishness is increasing much more rapidly than we expected, unfortunately the markets are correct. What we have now is an almost universal belief that all we'll get from the government as a result of all the efforts to stem the tide will be a huge federal deficit but no quick end to the economic decline and increasing unemployment. Please go to www.johntuggle.edicypages.com for complete story. ________________________________________ PRICES @ 10:00 AM 10 yr note 99.26 +22/32 2.78% -7 BP * Mar 10 yr note contract 123.18 +33/32 5 yr note 99.25 +13/32 1.79% -7 BP 2 Yr note 99.28 +3/32 0.93% -5 BP 30 yr bond 98.12 +50/32 3.59% -8 BP * Mar 30 yr bond contract 128.15 +70/32 Libor Rates 1 mo 0.472%; 3 mo 1.248%; 6 mo 1.761%; 1 yr 2.075% 30 yr FNMA 4.5 Apr 100.23 +9/32 (+9/32 frm 10:00 yesterday) 15 yr FNMA 4.5 Apr 101.21 +5/32 (+7/32 frm 10:00 yesterday) 30 yr GNMA 4.5 Apr 100.22 +7/32 (+9/32 frm 10:00 yesterday) 15 yr GNMA 4.5 Apr 102.16 +6/32 (+8/32 frm 10:00 yesterday) Dollar/Yen 94.12 +0.14 yen Dollar/Euro $1.2601 -$0.0055 (dollar better) Gold Apr $995.70 +$19.20 Crude Oil Mar $37.64 -$1.84 Goldman-Sachs Commodity Index 307.42 -10.49 DJIA 7380.96 -84.99 NASDAQ 1436.82 -6.00 S&P 500 770.01 -8.93 Friday, 2/20/09 10:30am

Below is a list of key elements of the plan outlined Wednesday by President Obama that aims to aid as many as 9 million households in fending off foreclosures: Allows 4 million–5 million homeowners to refinance via government-sponsored mortgage giants Fannie Mae and Freddie Mac. Establishes $75 billion fund to reduce homeowners' monthly payments. Develops uniform rules for loan modifications across the mortgage industry. Bolsters Fannie and Freddie by buying more of their shares. Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities — a $50 billion increase. Please go to www.johntuggle.edicypages.com for additoinal details and resources for other questions.

Treasury will sell record amounts of 2-5-and-7-yrs next week offering $40B 2s, $32B 5s and $22B 7s (the first issue of that maturity since 2000), Tues, Wed and Thurs respectively, along with $31B 3-mo and $30B 6-mos. This morning we were estimating a total of $97B so this is $3B less, but still a major increase in borrowing as Treasury funds the government spending to attempt to get the economy turned around. Sooner rather than later the massive borrowings will have a negative impact on US interest rates. The WSJ reports on a survey of company chiefs and CPAs, "About 83% said they were "pessimistic" or "very pessimistic" about the U.S. economy over the next year. Just 5% said they were "optimistic" about the outlook. In November, more than 40% said they expected a recovery in the second half of 2009. Now just 30% expect that, while 41% expect a recovery to begin in the first half of 2010 and 20% expect the turnaround to start in the second half of next year." The details of the mortgage plan to bail out defaulting buyers are still coming out, we will not have the complete details until March 4th according to Pres Obama in his speech yesterday. That said, the reception on Wall Street and in Chicago at the Merc is a chilly one. No bounce in stocks today and interest rates are in a bearish mode. Part of the selling in treasuries today is setting up for the auctions next week, but some is a reaction to the continual spending plans that so far can only be judged successful when argued against doing nothing. Obama administration officials have decided to limit refinancings of "underwater" Fannie Mae and Freddie Mac mortgages to a loan-to-value ratio of 105% so the new mortgages can be securitized, according to Federal Housing Finance Agency director James Lockhart. "That is why the line is drawn there," Mr. Lockhart said at a meeting of government accountants. The refinancing program is designed to lower borrowers' mortgage rates, which the Federal Reserve Board and Treasury Department are trying to drive down by aggressively purchasing GSE mortgage-backed securities. About 75% of the mortgages with LTVs above 80% the government sponsored enterprises own or guarantee fit under the 105% cap. If the program is successful, four million to five million mortgages may be refinanced. Servicers are already "overwhelmed," Mr. Lockhart said, and they didn't want to push the LTV any higher because of capacity issues. He also noted that the GSEs have other loan modification programs to deal with more problematic underwater mortgages. (Nat'l Mtg News) Tomorrow the only data is the Jan CPI at 8:30; expectations are for the overall CPI is +0.3%, the core rate at +0.1%. This morning the Jan producer price index jumped unexpectedly to +0.8% overall and the core at 0.4% taking the yr/yr core producer inflation rate to 4.2%. It is mostly oil prices through most of last year; we don't see any inflation coming, but if tomorrow's CPI renders another shock the bond market will take it hard and drag mortgage rates up along with treasuries. Technically the 10 yr still has strong support at 3.00%, but if next week's auctions are not well bid, especially from indirects the 10 will likely break 3.00% and move quickly to 3.25% taking mortgage rates up 25 basis points. The DJIA low last Nov was 7449.38, today's low hit at 7447.55 at 3:42 PM; all the stimulus and mortgage relief plans have gained zero enthusiasm from markets so far. We continue to look for the support to hold or if cracked won't fall much below the low. If we are wrong and the DJIA does make a sustained run under the Nov lows the index may fall another 1000 points or more; a move we were not expecting until later this spring or summer. The DJIA did manage to hold albeit 2 points lower than the Nov level. Continue to keep all rate locked loans locked overnight. -------------------------------------------------------------------------------- PRICES @ 10:00 AM 10 yr note 99.07 -20/32 2.84% +7 BP * Mar 10 yr note contract 122.18 -36/32 5 yr note 99.14 -7/32 1.87% +5 BP 2 Yr note 99.25 -1/32 0.98% +2 BP 30 yr bond 97.09 -51/32 3.65% +9 BP * Mar 30 yr bond contract 126.25 -60/32 Libor Rates 1 mo 0.473%; 3 mo 1.250%; 6 mo 1.789%; 1 yr 2.101% 30 yr FNMA 4.5 Apr 100.16 -7/32 (+2/32 frm 10:00) 15 yr FNMA 4.5 Apr 101.18 -3/32 (+4/32 frm 10:00) 30 yr GNMA 4.5 Apr 100.17 -6/32 (+5/32 frm 10:00) 15 yr GNMA 4.5 Apr 102.12 -2/32 (+5/32 frm 10:00) Dollar/Yen 94.37 +0.72 yen Dollar/Euro $1.2664 +$0.0100 (dollar weaker) Gold Apr $974.90 -$3.30 Crude Oil Mar $38.95 +$4.33 Goldman-Sachs Commodity Index 317.91 +11.14 DJIA 7465.95 -89.68 NASDAQ 1442.82 -25.15 S&P 500 778.95 -9.47 Thursday, 2/19/09 4:30pm

Below is a list of key elements of the plan outlined Wednesday by President Obama that aims to aid as many as 9 million households in fending off foreclosures: Allows 4 million–5 million homeowners to refinance via government-sponsored mortgage giants Fannie Mae and Freddie Mac. Establishes $75 billion fund to reduce homeowners' monthly payments. Develops uniform rules for loan modifications across the mortgage industry. Bolsters Fannie and Freddie by buying more of their shares. Allows Fannie and Freddie to hold $900 billion in mortgage-backed securities — a $50 billion increase.

The federal stimulus package signed into law today is expected to save or create 52,000 jobs in Alabama, according to White House data. Alabama Congressman Spencer Bachus voted against President Barack Obama’s $787 billion American Recovery and Reinvestment Act, but his district stands to gain the most jobs in the state. The act, passed without a single Republican Congressional vote, is projected by the White House to save or create 3.5 million jobs over the next two years, with more than 90 percent in the private sector, according to the Council of Economic Advisers. Bachus, R-Vestavia Hills, represents Alabama’s sixth Congressional district. White House figures predict 8,200 jobs will be saved or created in Bachus’ district through the stimulus. Rep. Artur Davis, D-Birmingham, represents the state’s seventh district, which the Obama administration projects will see 6,800 jobs created or saved. Davis’ district, which comprises Birmingham and much of the Black Belt, would see the least amount of job creation among the state’s seven congressional districts. The jobs broken down by congressional district : • District 1 - 7,400 • District 2 - 7,200 • District 3 - 7,500 • District 4 - 7,200 • District 5 - 7,700 • District 6 - 8,200 • District 7 - 6,800 The 10 states where the largest number of jobs would be created are: • California -- 396,000 • Texas -- 269,000 • New York -- 215,000 • Florida -- 206,000 • Illinois -- 148,000 • Pennsylvania -- 143,000 • Ohio -- 133,000