The battle between risk aversion and risk taking continued to play out in the NY session. Ultimately the flight to safety won out as horrendous US housing data outdid comments from Fed Chairman Bernanke that nationalization of US banks is not the goal. Existing home sales plunged -5.3% in January to a 1997 low run-rate of 4.49 million. This was well below the expected increase to 4.79 from 4.74 last month. Months' supply jumped to 9.6 from 9.4 and home prices slipped to a -14.8% annual rate to boot. If this wasn't enough, the report also noted that fully 45% of sales were homes where the sellers were in distress. So the bottom in housing still eludes us.

US equities shed about -1% on the day after a very choppy session. Treasuries sold off as Bernanke continued to suggest that he wants to see results of the MBS purchase program before contemplating buying US paper. The 2-year yield jumped 10bps to 1.07% while the 10-year added 14bps towards the 2.93% area. Gold came off -$10 to 952 as month-end looks to be eliciting some profit taking on the recent run up to 1000/oz.

In FX, the USD was unsurprisingly the currency of choice once again. EUR/USD sank more than -75 pips in the session and was sitting just above the 1.2690 intraday lows. The bias remains lower while below 1.28 here and any negative follow-through from US to global equities should see losses accelerate. USD/JPY added more than 80 points towards 97.40 after making a session high near the 97.80 level. Hourly trendline resistance now lurks near 98.20/30 and this looks like the next major hurdle to upside. Should open up potential to a test of 100 if above there.

One of the other news items was the Treasury's release of more details regarding the Capital Assistance Program and consequent stress tests for banks. The bottom line is that through the CAP program the government hopes to stimulate an ''increase in lending'' and continues to hope that this will restore the economy to ''a path of robust economic growth.'' The biggest problem here is that the government continues to go back to the notion that you can solve the fundamental problem of too much debt, with more debt.

Neither the Treasury nor the Fed have capitulated to the fact that the US consumers' appetite for lending is a huge factor in this equation and that the household is in balance sheet repair mode – reducing debt not taking more on. The consumer has realized that it is time to pay the piper after a near 20-year secular credit expansion which was evidently unsustainable. When government officials will wake up to this is anyone's guess.

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