What a Morning! Financials Capitulating?

I wanted to jump on real quick with a note as the markets go haywire this morning. Fannie and Freddie are crashing on insolvency worries. Oil is also going through the roof on reports that Israel may be getting ready to attack Iran.

In case you woke up late, here is what happened this morning.

"July 11 (Bloomberg) -- U.S. stocks tumbled, extending the longest stretch of weekly losses for the Standard & Poor's 500 Index in four years, as oil jumped more than $5 a barrel and financial stocks fell on growing concern about the health of Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, each lost nearly half of their value, dragging down shares of Bank of America Corp., Washington Mutual Inc. and Wachovia Corp. Wal-Mart Stores Inc. and Walt Disney Co. declined after crude advanced to a record above $146 a barrel, leaving consumers with less money to spend as fuel bills increase.

The S&P 500 lost 15.9, or 1.3 percent, to 1,237.49 at 10:27 a.m. in New York, its lowest level in two years. The Dow Jones Industrial Average fell 161.7, or 1.4 percent, to 11,067.32. The Nasdaq Composite Index slid 26.83, or 1.2 percent, to 2,231.02. About three stocks fell for each that rose on the New York Stock Exchange.

``It's the worst of both worlds,'' said Matthew Kaufler, portfolio manager at Clover Capital Management Inc. in Rochester, New York, which oversees $2.7 billion. ``Watching two government- sponsored entities evaporate before our eyes from an equity perspective, and the damage that does to investor confidence on the one hand, and watching the price of oil, which is clearly meaningful from a consumer and business perspective, continue to escalate upward creates other pressures.''

Quick Take:

I am amazed at the speed at which Fannie and Freddie are falling apart. How the government decides to handle this problem will tell us a lot in terms of where we go from here.

Paulson and Bernanke will have some long sleepless nights this weekend. The sad thing is I don't know what they can do other than try to keep this crash orderly. Paulson's statement was bland today because they are trying to figure out what in the hell to do.

Stocks are deep in the red. The financials seem to be capitulating. Anyone short in this sector might want to take some profits due to the threat of a huge bounce based on government intervention.

I really don't know what to say here folks. I am speechless. Oil, financials, Fannie and Freddie. we are witnessing unbelievable destruction today. If Fannie and Freddie go under there is no housing market so I assume the government will do something to keep them alive.

Remember folks, no bank wants to do loans without the government backing of Fannie or Fannie. Expect interest rates to shoot up to the 9-10% area if a solution to the Fannie and Freddie situation isn't found.

Whats scary is I still don't see market capitulation! Until this happens we are going lower. The debt bubble is blowing up.

DOW 9000 at some point? Its not out of the question.

Stay tuned.