It seems for whatever its worth, cumulative impact of Fed's actions last week has been a positive one so far.

Spreads on AAA commercial mortgage based securities have declined by 75BP. The drop has been a steep one so far, likely due to short covering and reduced illiquidity premiums. I have heard from numerous sources now that many of the most respected names in the fixed income markets have been loading up on the highly rated paper over the last few weeks... This is definitely a positive development for the financial market in general.

Source Markit.com

Lower numbers are better here as they are inversely related to the actual prices of underlying securities

However, no signs of meaningful recovery yet in the residential mortgage backed securities market. The only group that made any kind of serious move has been the AAA and AA 06-2 rated group; very likely driven by one large short covering swoop, the rest of indices have barely budged... Market is still pricing in a significant deterioration in the residential housing prices but with the help from the Fed spillover to commercial real estate market could be less severe than originally anticipated.

As I mentioned last week, I shifted into a temporary "bull" mood, because even though I believe that the final wave of the declines might not be here yet- Fed's massive and unprecedented intervention has triggered massive short covering in many of my favorite sell ideas...

However, given the behavior of stock prices last week with commodities in a "free fall" pattern, and heavily shorted stocks skyrocketing upwards, I would expect a few more hedge fund blow ups announced in the next few weeks... Given the fact that trading gains in commodities have been helping the likes of Goldman Sachs and Lehman to support earnings during the latest quarter, I think that the latest rebound in the investment banks share prices might actually be a good opportunity to sell them short.

Trade safe and cheers,
skepticalcapitalist@gmail.com