Business-Insider

Equity markets and carry trades had a strong finish on Tuesday, with a good amount of bullish momentum in the last 90-120 minutes in spite of the fact that Citibank will have additional sub prime related writedowns. There were several good reasons for this but probably the most significant was the news that Citigroup named Richard Stuckey to unwind their sub prime positions. What's interesting is that Stuckey was the executive who helped unwind Long-Term Capital Management's bad bets nine years ago.

Meanwhile, in what could be remembered as he quote of the day (month, year?), Lawrence White, professor of economics at NYU's Stern School of Business, said that unwinding Citi's positions might be difficult due to the "opaqueness as well as the stinkiness'' of what Citibank is holding in sub prime paper.

What also helped support the market was a classic case of bad news= good news. The Fed yesterday reported that major banks made it much tougher for all types of customers to get loans over the past three months and that residential mortgages were harder to get than at any time in the 17-year history of the Fed's survey of banks' senior loan officers. The reason why this disturbing news went over so well is because it brings a further rate cut, or cuts, back into play.

And now that the fed is back in play, the Non-Farm Productiviy report will take on special significance because as productivity rises, inflation falls. High productivity basically means that business' can provide goods and services at lower cost at the consumer level becasue their cost of production is low.

Productivity is a key factor that the fed looks at in making their inflation projections and it's something they discuss at every meeting, according to the minutes. So with commodities like Oil (and now gasoline) rising in price, productivity will be especially important for market participants.

In this time of market uncertainty, any bullish momentum will need to see the fed's door open to the possibility of reducing rates further in order to be maintained. Low productivity means higher inflation and far less chance of the fed making another move and as far as this market is concerned, that's an especially bad thing.

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