Vince Farrell of Scotsman Capital-Verbatim

From: vince farrell [mailto:vfarrell@scotcap.com]
Sent: Thursday, January 31, 2008 3:51 PM

S&P rating agency yesterday downgraded a zillion dollars worth of subprime mortages and Collateralized Debt Obligations, which are bunches of subprime things. An analyst at CIBC who correctly predicted that C would be forced to cut its dividend said tens of billions of writeoffs lay ahead since the insurers of a lot of the downgraded junk would lose their AAA credit rating and the banks that rely on the insurance to insulate themselves from loses would have to bite the bullet and mark the paper down. Where was S&P before this ? They wait till now ? They had rated this stuff AAA and now get religion? Anyway, the market started the day on a sour note but MBIA, the largest of the insurers, came out and said their AAA was ok. A huge sigh of relief, at least for now. Who knows if it will last. But the financials are leading the market today, and to me that is always a sign of good leadership.

Bad news this AM came from the unemployment claims. They were up a lot to 375,000 vs. 301.000 last week, the highest weekly level in 27 months. The four week moving average was up 10, 000 to almost 326,000. I have repeatedly said (look at your notes) that claims spike as recession sets in. This is a spike, but it is just one week. Let's keep an eye on this, but not good news.

OPEC meeting tomorrow. Don't expect anything. The potential fireworks come from the jobs number. Talk with you then.