Wall Street Wrestles

Wall Street is wrestling with the subprime mortgage problem.Subprimes,issued to borrowers with flawed credit,have been defaulting at a high rate.Bonds which are backed by subprimes have consequently been put at risk.Bear Stearns(BSC),a leading investment firm,has had to scramble to save two hedge funds that contain these bonds,which are called collateralized debt obligations(CDOs).Many prominent firms,such as J P Morgan Chase(JPM),Merrill Lynch(MER)and Deutsche Bank(DB),held over 20 billion dollars in such securities.The fear that the subprime failure will spread to corporate credit is adding to market nerves.It is a climate of complexity,uncertainty and leverage,according to Jay Mueller of Wells Fargo.In such times,investors might consider quality income funds such as Blackrock's BNA or Lehman Brothers' AGG.

Rite Aid On Right Track

Rite Aid Corporation(RAD) has closed on its acquisition of 1854 Eckerd and Brooks drugstores in 18 states,as well as 6 distribution centers.The pharmacy chain,based in Camp Hill,Pennsylvania,plans to open 1,000 new stores as well.Led by CEO Mary Sammons,whose photograph is sometimes featured in Rite Aid circulars,the firm's marketing is characterized by a rebate program,as well as "buy one get one free" promotions.Rite Aid's logo is a red,white and blue shield that is more striking than the logos of rivals CVS and Walgreens.Rite Aid is the third largest drugstore chain behind Walgreens and CVS.

Inflation Data Looms

Two key readings on inflation will be released Thursday and Friday.Should there be a pronounced uptick in the core Producer Price Index(PPI) and Consumer Price Index(CPI),stocks may be expected to decline.Any such indication that the Federal Reserve will be more likely to raise interest rates in order to rein inflation in,will bring the bears out in force,resulting in a wave of selling.Stocks are already under pressure from a rise in government bond yields.One approach to this danger is to keep new money in money market funds through at least the weekend.

Bond Rates Climbing

As treasury bond yields near 5%,many are wondering if stocks will decline as a consequence.Investors could settle for the certainty of the bonds,rather than the bumpy ride of a stock.Ten year government bond rates are rising worldwide.The U.S. ten year is at a nine-and-a-half month high.Charlie Smith of Fort Pitt Global Group says corporate earnings are driving bonds up,but they will not be attractive below 5.75%.Smith Barney's John Manley thinks rates are probably finding their top now.If they do crest 5%,though,this will eventually harm the stock market.