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Market On Pause

|Includes: Apple Inc. (AAPL), BA, BAC, ETN, JPM, SWK

"Cause ain't nothin goin on but the rent
You got to have a J-O-B if you wanna be with me
Ain't nothin goin on but the rent
You got to have a J-O-B if you wanna be with me

No romance without finance
No romance without finance"
-Gwen Guthrie

I guess we needed to get whacked just to remind us about pitfalls and discipline. I believe the market overreacted to news from China and Apple (NASDAQ:AAPL), but each are huge success stories that haven't missed a beat. On the other hand, the mortgage mess seems to be part cosmic justice, long overdue, but better late than never (unless you were unfairly foreclosed on and now live in an apartment with all your stuff in storage and credit rating in tatters). In the eye of the storm is Bank of America (NYSE:BAC), which can't sweep the latest fiasco under a rug.

Right after the company stated its exposure to foreclosure adjustments could be $13.0 billion, it was revealed that a law firm sent the company a letter demanding it repurchase up to $47.0 billion in mortgage-backed securities (these MBSs were sold by Countrywide, which was acquired by BAC). Apparently, the firm represents PIMCO, Black Rock, New York Fed, and Met Life along with others. Bank of America has thrown down the gauntlet, saying it is "not responsible for poor performing loans because of a bad economy."

Bank of America has already begun the foreclosure process in 23 states with judicial review, and has said they will start up in the rest of the nation shortly. I'm not sure if they are trying to salvage what they can and get ahead of the put backs, which Freddie Mac says are up 47% from last year and 300% from 2008, according to my friend at Fox Business Liz Macdonald. Worst case scenarios for banks from these moves have been climbing. Last week I read it could be a $50.0 billion hit to banks, then JP Morgan (NYSE:JPM) said $120.0 billion and now Fitch is saying $180.0 billion.

In the meantime, Cook County Shefiff Tom Dart says he will not honor foreclosures on homes by GMAC/Ally, JP Morgan Chase, and Bank of America. These three banks have 1,300 homes out of the 3,700 total currently in foreclosure proceedings. Dart is said to be spying a run at a Chicago mayoral office, and claims the announcement had nothing to do with politics. He called such an accusation "outrageous." But, a similar move a couple of years ago propelled Dart to the national stage. I guess we can call him Sheriff Robin Hood.

No sure how many people have seen New York Gubernatorial candidate Jimmy McMillan but he stole the show at the debate this week. His campaign and political party is: Rent 2 Damn High!

Scorched Earth

China announced it will reduce its exports of rare earth minerals, but it has been more than a month since they shipped rare earth mineral to Japan (since that boating incident) and now they have stopped shipping to the United States, too. In the burgeoning trade war this is one heck of a weapon for China. Crucial for an array of things, especially in the clean energy space:

> Compact fluorescent light bulbs
> Wind turbines
> Batteries for hybrid gas electric cars

Rare earth minerals are also used in mobile phones and military hardware like missiles, range finders, and sonar equipment. China says it only has a 15 to 20 year supply left of the medium and heavy versions, and must take appropriate action. The light version is used in glass, and critical for things like the iPad. At some point we might have to accept imports of cooked chicken from China in order to get the good rare earth stuff that is at the center of the White House economic agenda.

Morning Earnings Color

It was a generally solid quarter for Stanley Black & Decker (NYSE:SWK), which beat on earnings by $0.08 this morning and raised full year guidance nicely. However, there were concerns within the report, including slowing sales sequentially, weak pricing power, and only one business segment delivering operating margin expansion.

Eaton Corporation (NYSE:ETN) reported a strong quarter for its third quarter, beating expectations on both the top and bottom line. On top of that, the Company increased its expectations for the fourth quarter as it sees increased demand for its auto, truck, and hydraulic products.

The Boeing Company (NYSE:BA) posted an $837 million third-quarter profit on Wednesday and raised its profit guidance for the full year as it sold more commercial airplanes. The Company beat on both the top and bottom lines, and raised its guidance for the full year. The aircraft maker is also working to deliver the first 787 and a new cargo version of the 747. The 787 is running more than two years behind schedule, and the 747-8 is also late.