The big news of the day is word that CIT Group has been bailed out by bondholders and should secure $3 billion to avoid bankruptcy. Bondholders Pacific Investment Management Co., Oaktree Capital, Silver Point Capital, and Centerbridge Partners — agreed to the proposal.

The only economic report today is the low impact Leading Indicators. Stocks are moving higher on the CIT news and on news that Goldman Sachs reported that the S&P 500 Index will rise 15% in the second half of 2009.

Taking a cue from foreign airlines, US carriers may start including a fuel surcharge in the cost of a ticket. The added charge could add $100 to $250 to a round trip ticket according to the destination. The airlines are citing the recent rise in oil from $35 earlier in the year to the current price of $64/barrel.

Despite the recession easing it has not yet ended says the National Association for Business Economics’ (NABE) quarterly industry survey. A large majority of the business owners responded that they haven’t seen business bottom out yet, though demand is stabilizing. The net demand index dropped to -5 in the 2nd quarter from the first quarter’s -14. In the fourth quarter it registered -28.

How about this economy? The volatility has certainly increased, with one day rates going up because “the worst is behind us” and then the next day rates dropping because “the economy is still failing”. Obviously the newscasters don’t know. But in traveling around the Northeast (Boston today, Maine this evening), it appears that although the economy is still doing poorly, and given our housing and commercial problems it will continue to do so for a while, people are hopeful that we have seen the worst of it. And psychology plays a large part in decision making!

Last week, more specifically at the end of last week, we had quite a bit of economic news: Housing Starts rose 3.6% in June, as did Building Permits., and this was the fourth consecutive increase in single family starts. But on the flip side the Philadelphia Fed Survey continued to show weakness, the FOMC minutes showed that the Fed doesn’t think that we are out of the woods, and there were 1.9 million foreclosure filings in the first half of 2009! This is a 9% increase in total properties from the previous six months and a nearly 15% increase in total properties from the first six months of 2008. The report also shows that 1.19% of all U.S. housing units received at least one foreclosure filing in the first half of the year. The mixed news continues… 

Wall Street trading desks are really seeing the typical summer trading. “Some activity in the morning on light volume.” “MBS prices have been stuck in a tight range all afternoon.” “Origination around $2 billon today and the Fed bought their daily $4-5 billion, mostly in 4.5% coupons and about 20% FHA/VA securities.” “Asia closed for holiday Sunday night.” “Treasury prices seem like they’re in quicksand.” 

Both Bank of America and Citi released their earnings. BofA earned $3.2 billion, but critics quickly noted that the company generated over $9 billion from selling a stake in China Construction Bank and a merchant processing business, and those helped offset large losses in commercial loans and real estate, along with losses in their credit card division. “The home loan and insurance unit lost $725 million, even as revenue tripled, on credit costs and expenses to help homeowners modify their loans.” “Bank of America saw its residential mortgage income increase more than fivefold in the second quarter to $2.6 billion as it originated $110 billion worth of home loans.” Citigroup made $4.3 billion in the second quarter, also helped by a $6.7 billion after-tax gain from the sale of Smith Barney to Morgan Stanley. 

And continuing with company-related news… 

If you want a phone job and to work in Iowa (actually a pretty nice place!), Wells Fargo has a job for you. They have increased their mortgage servicing staff by 54% since the beginning of the year and have implemented mandatory overtime as it adjusts to rising demand for loan modifications, according to their EVP of servicing.  

MGIC was downgraded by Moody’s Investors Service. They warned of a possible further downgrade further into junk territory in the wake of MGIC’s plan to fund another unit with $1 billion to write new mortgage-insurance policies. This came from MGIC’s announcement of “the Office of the Commissioner of Insurance for the State of Wisconsin (“OCI”) has authorized a contribution of up to $1 billion to the capital of a wholly owned subsidiary, MGIC Indemnity Corporation (“MIC”), to support new mortgage insurance business. The subsidiary will assume the MGIC name and plans to begin writing new business as of January 1, 2010, pending all required approvals. MGIC will continue to issue mortgage insurance policies through December 31, 2009. On January 1, 2010, MGIC will be renamed, and its insurance in force will be placed into run-off, meaning, it will continue to collect premiums and pay claims on that business, but will no longer write new business. At the same time, “new” MGIC will become operational and will offer substantially the same programs, premium rates and guidelines and use similar underwriting, risk management, claims and other operational processes.”