Lots to talk about on this Monday morning. Overseas, it appears as if Treasury Secretary Geithner smoozed the Chinese, helping to smooth relations with their ongoing appetite for Uncle Sam’s debt. China came out endorsing the continued purchase of Treasuries even in spite of our dollar’s weakness. Hum. Wonder what he promised to buy?

Speaking of the Treasury Secretary, his plan for the Public-Private cooperative to buy toxic assets (subprime, Alt A, etc.) is taking shape. For once, he has put forth some details that show a 6 to 1 leveraged partnership with Private investing 1% and Uncle taking the other 6% of the equation. 85% will be funded by the FDIC, 12% by the Treasury, and 3% by Private funds. Private funds will be limited to their exposure within the “non-recourse” program. The Treasury will be hiring (approving) a number of investment managers and funds to manage and purchase the assets. Bill Gross, bond god extraordinaire, has already come out and said that his fund, Pimco, approves the program and will be an active participant. Let me tell you that if Bill Gross loves this deal, there’s money to be made. Given a 6 to 1 leverage and 3% exposure on his side, this thing is a no brainer. If he opens a fund within Pimco to invest in, buy it (my opinion).

Stocks have loved all the action; overseas trade, Geithner, mark to market reform, and Existing Home Sales posting a plus 5.1% gain. The overhang from all the news is the continued movie playing out in Washington. Instead of “ Gangs of New York”, the 2002 movie directed by Martin Scorsese, let’s call the new version “Gangs of D.C.”, directed by President Obama, pitting angry government against the evil people on Wall Street. Stars of the show are Bill the Butcher (Barney Frank) and Amsterdam Vallon (Ben Bernanke). I thought the Constitution was the basis for a government by the people, for the people. Not a government of angry people against capitalism and it’s evil army.

The week ahead will provide a number of high powered economic releases including:

  • Durable Goods, 
  • New Home Sales, 
  • Weekly Unemployment Claims, 
  • GDP (final for Q2), 
  • and Personal Income/Outlays.

As we speak, stocks are up 309 points on the big board, 10 year note down 4/32’s to yield 2.64%, and mortgage backs off 1/32nd, holding steady in quiet action. Overall, our technical chart work still leans to the bullish side as Friday’s retracement (selling) could not take out the 38% Fibo level. Bond bulls will however need to take out the upper regression line that sits at 2.60% yield on the 10 year note for any significant rally to develop. Overlapping patterns suggest that the selling last Wednesday (afternoon), Thursday, and Friday was corrective in nature so the possibility of lower mortgage rates/better pricing has a high probability.