Will the Federal Reserve Cut Again? 
The Federal Reserve Open Market Committee (FOMC) meets next week for their last meeting of 2007. As always, the ecomomists and Fed watchers are chattering about the direction the Fed will take regarding interest rates.

Most of us are hoping for a rate cut, thinking it will stimulate the housing market and the mortgage market. Unfortunately, any rate adjustment the Fed makes typically takes 6 months to filter through the economy, so the overall effects are not felt immediately.

What we do feel immediately is a change in the Wall Steet Journal Prime Rate. Prime adjusts almost instantly once the Fed releases its decision. This is great for those of us with Home Equity Lines Of Credit, because our rates drop the corresponding amount.

This is where it can get frustrating. Some banks have a policy that allows them to wait up to 45 days before they drop your HELOC rate. The benefit to the policy is that if rates are on the rise, they typically wait 45 days then as well. The bottom line is that a rate cut always has some positives.

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Merrill Lynch Hires New CEO 
John Thain has been tabbed to become the new CEO of Merrill Lynch. He was the head of The New York Stock Exchange. This is the first time Merrill has hired a CEO that was not a promotion from within, which should be viewed as a good thing in light of their recent troubles.

In early October, Stanley O'Neal, then CEO, thought the write-down for losses due to the subprime market would be roughly $4.5 billion. On October 24th, Merrill reported their biggest quarterly loss in history, driven by a revised bad debt write-down of $7.9 billion, causing O'Neal to resign.

The rather swift choice of Thain seems to be agreeable with Wall Street. Merrill's stock price rose over a $1 per share yesterday.

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Big Banks Post Huge Losses? 
Wachovia released a statement saying it will have increased loan losses in the 4th Quarter, possibly as high as $1.1 billion. They are just another of the major banks that are posting losses of extraordinary amounts.

In other news, Barclays Bank is disputing rumors that they will post a write-off of over $10 billion. That is a huge loss, but again Barclays says it is not true. If it is true, they would experience a roughly 15% drop in share value. That's amazing.

Have a great day.

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Robert Pavlik Interview 
I saw a very interesting interview on CNBC this morning with Robert Pavlik of Oaktree Asset Management. Mr. Pavlik believes that the economy is slowing, but doesn't foresee a recession. He mentioned a number of reasons, but to me the most important reasons are Housing and Oil Prices. He feels that the housing slowdown is seeping into the economy. I think a downturn in construction employment and all related industries is beginning to affect consumer spending. Also affecting consumer spending is the increasing difficulty for some credit impaired borrowers to tap into their home's equity.

Mr. Pavlik also feels that the cost of oil is now being fully felt in the economy, reducing the consumer's availibility of descretionary dollars. I'm sure everyone has seen a large increase in prices at the pump. As of this morning, regular unleaded in Ocean City has increased $.32 /gallon, an increase of over 10%.

On a positive note, Pavlik feels that the softer dollar is good for American companies that have multi-national business models. Maybe that means while gas prices increase, we'll see a drop in some consumer goods, like toilet paper?

Have a great day.

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Corporate CEOs Feeling The Pinch 
The "Credit Crunch" has found its way into the offices of some of the countrys most powerful CEOs.

Citigroup's Charles Prince retired under pressure, saying that retirement was "the only honorable course..." amid write-downs of between $14.5 billion -$17.5 billion on securities tied to subprime mortgages.

Coluntrywide's Board of Directors received a request from a pension plan requesting that Angelo Mozilo, Chairman and CEO, be fired after Countrywide's 3rd Quarter profits dropped 47% after subprime loan losses.

After Merrill Lynch took a $7.9 billion write-off due to losses in the subprime market, Chairman and CEO Stanley O'Neal resigned after underestimating the size of the loss.

At Bank of America, 3rd Quarter profit fell 32%, while non-performing loans doubled to $3.3 billion. Ken Lewis, Chairman, CEO and President, is feeling the heat as delinquency rates rise.

After many months of many Americans struggling to pay their mortgage payments and keep their homes, the decision makers on Wall Street are now feeling some of the pain. The problems that have occurred in the subprime mortgage are far reaching and there is plenty of blame to go around.

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