Standard & Poor's wide-ranging downgrade of major banks was expected, and it should not move these stocks very much tomorrow. BAC at 5 or below looks very, very interesting to me. This move had been telegraphed by the ratings agency, which had previously said it planned to update its credit ratings on the largest 30 banks in the world by November's end.

The market was expecting a broad downgrade of the banking industry.

The fact that there was "only" a one notch downgrade may be viewed as a mild positive surprise in my view.






The S&P 500 is at approximately the same price that existed in December 1998, so a lot has already been discounted.

I read that Bill Gross was on CNBC late in the afternoon discussing his downbeat monthly commentary. Gross sees years of slow growth and little upside to risk assets. I agree completely on his assessment of slow growth, etc., but I would remind investors and Mr. Gross that the S&P 500 today is at approximately the same price that existed in December 1998.

In other words, in the market, a lot has already been discounted.






Run, don't walk, to read a letter sent yesterday from Leon Cooperman, head of hedge fund Omega Advisors, to President Obama.

The letter is an informed and intelligent plea to the president -- it might be the best 15 minutes of reading you have engaged in for some time.






There is a lot of doom and gloom on housing today. The September Case/Shiller Home Price Index dropped by 0.6% (month over month) compared to expectations of flat pricing. This result was the greatest drop in almost eight months, with 15 of 20 cities surveyed showing price declines. The year-over-year Case/Shiller Index is down by about 3.5% this year.

But I believe some of the negativity on housing is misplaced, as overall pricing and turnover is being affected by broad differences in regional locales. The national housing market is bifurcated. There is strength in regions that are not exposed to the shadow inventory of foreclosed and near-foreclosed properties -- like the corridor between Washington, D.C. and Boston.

In areas like Florida; Nevada; Orange County, Calif.; Phoenix; -- all of which are inundated with shadow inventory for sale -- pricing is still very weak.

Areas not plagued with shadow inventory are likely a harbinger of better times even as Florida et al. are still weighing on average industry pricing.

The good news is that, very slowly, foreclosure inventory is dropping. Better is that in some areas of the country it is now cheaper to buy than rent, mortgage rates remain attractive and new-home production is well below demographic and household formation trends.

The U.S. residential real estate market is in the process of bottoming and is making a cyclical low. While the housing recovery will be muted in the year ahead, and for possibly several years, a multiyear recovery (from very, very low levels!) can now be expected.






Peter Boockvar from Miller Tabak is saying that Yellen's words almost guarantee QE3:

Likely confirming QE3 on Dec 13th when the FOMC next meets, Fed Gov Yellen, part of the Bernanke, Dudley trio said while the "Fed continues to provide highly accommodative monetary conditions to foster a stronger economic recovery in a context of price stability," she said "the scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer term financial assets." Fed members pick their words very carefully and she wouldn't be saying this unless they were prepared to act. Other voting members saying the same recently have been Dudley, Evans and Tarullo and Bernanke's beliefs are along the same lines. Thus, those that want even more Fed action already have 5 of the 11 voting members. This meeting will come days after the EU fiscal union will be enhanced at the Dec 9th EU summit with hopes of some that the ECB will follow with something more.

Sir Peter concludes that "notwithstanding all the worrisome European headlines, if there is one thing markets like, it's central bank juice."

I agree.






From Yellen:

* "Scope remains" for additional Fed easing.
* Fed can ease with rate guidance or asset purchases.






Run, don't walk, to read Pimco's Bill Gross's latest monthly commentary, "Family Feud."

Below are some of his conclusions:

* "Investors should recognize that Euroland's problems are global and secular in nature; it will be years before Euroland and developed nations in total can constructively escape from their straitjacket of debt."
* "Global growth will likely remain stunted, interest rates artificially low and investors continually disenchanted with returns that fail to match expectations."
* "Investors should consider risk assets in emerging economies, such as Brazil and Asia, and bonds in the strongest developed economies, where the steep yield curve may offer opportunities for capital gains and potentially higher total returns."