"At the bottom of a panic, the news doesn’t have to be good for stocks to rally, it just has to be less bad than what has already been discounted". and in my view the market stil has to reach that sort of a point. More bad news is to come in the folloawing quarters and the stocks should atleast reach the already made lows, if not make new lows. !!
Today the market had an amazing 400 point rally.. The main contributory factor to today’s tightening was the US government’s rescue of Citigroup announced over the weekend. Citi bank will now receive guarantees on over $300 billion of distressed assets and a $20 billion capital injection.
The 400 point rally is preposterous for the Citi bailout.. Housing data was out and it, like any other economic data, was disappointing.. Meanwhile, the outflows from EM is still continuing. For most of the EM, the FDI or FII is a significant contributor for the growth.. so, as long as these withdrawls do not show a sign of revival, the dollar is going to get strong.. and the EM currencies are going to get weaker.. Anyu sign of dollar weakness would be temporary.. I guess, a strong dollar would continue well into 1-2Q of 2009.
With Congress balking at a rescue for the auto industry, and Chrysler and General Motors warning that they could face bankruptcy without one, investors are worrying about financial companies’ exposure to the Big Three, as well as to automotive suppliers and dealers. Over the past three years, big banks like Bank of America, Citigroup and JPMorgan Chase helped the automakers sell more than $56 billion of new debt securities. That figure does not include $47 billion of risky loans made to various affiliates of Chrysler, Ford and G.M. that are backed by auto leases and car loans to individual car buyers, some of whom are now struggling to pay their own bills as the economy craters. Many of these auto bonds and loans have plummeted in value as things have gone from bad to worse for Detroit’s once-proud carmakers. A $7 billion term loan that Ford issued in 2006, for instance, was trading for 32 cents on the dollar late last week in the secondary, or resale, market. Considering this, the banks still have more write offs to go. and not to forget the consumer loans, commercial loans...
Today, I sold my BGU (3X levered Russel Large cap index) too early after I had a return of 30% in two days.. If I had caught the peak, i would have made 50% in two days!! ..It would not be a bad idea to short BGU for the next week or so,, and then buy it back again..
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Gold - I was a eternal bull on Gold, though I wrongly own the equities of a gold mining company. It was a wrong judgement on my part coz, after all a gold mining company's stock is a stock and it would not be spared from the overall equity selloff. The wise thing would be to own the Gold ETF (GLD), or the gold coins. Today Gold rallied and crosse dthe $800 mark, mainly coz the Dollar has weaked against Euro.
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Deflation case:
- The Bureau of Labor Statistics announced last week that the seasonally adjusted consumer price index fell by 1% during the month of October, implying an annual deflation rate around -12%. That's the biggest monthly drop in the CPI since publication of seasonally adjusted changes began in February 1947. The core CPI (excluding food and energy) saw its first decline in a quarter century.
- The yields on inflation-indexed Treasuries for medium-term maturities are actually higher than those for regular Treasuries. If taken at face value, that means investors anticipate an average deflation over the next 5 years at a -1.29% annual rate. A TIPS Treasury is adjusted for inflation and thus is less risky and should yield less than a regular treasury, in nomral inflationary situations..
- Extremely low yields on short-term Treasury bills.
- The rate at which the economists are revising the GDP growth forecast downward is astonishing. Now, US is no longer expected to GROW in 2009.
And the FED is aware that in case of deflation, prevention is better than cure. The traditional means with which the FED could contain the risk of deflation and jump start the economy is to lower the fed funds rate. But, FED slready has lowered the target rate to 1%. But, the bad news is that any lowering of interest rate (though the FED would lower it by 50 bps in its Dec 15-16 meeting) the effective fed funds rate (this is the effective rate at which banks lend to each otehr overnight) and 3 month T-bill are already 50 bps below the target Fed rate of 1%.
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The weekend was fun, 2 days of golf and tennis with Shakib.. :)
Cigs: Friday - 2; Satday - 1; Sunday -0; Monday - 1.
Urge: Friday - 2; Satday -5 may be.. Sunday - 0, Monday - 5!!
Today me Sammie and Harish saw the standup comedy of a British artist Ricky Gervais, writer of The Office (UK version).. Amazingly hilarious.. It was beautiful, the way he builds the story, making it lively and comical as he builds it up, and ends the story in a grand crescendo .. with a bang climax.. Though at times the british accent was hard to comprehend, it was amazing on the whole.
Song: "Stairway To Heaven" - Led Zepp.
This song is an OST of one of my fave movies "Almost Famous". Vamshi hated it.. Well, this song was not made part of the movie coz of the length of the scene..
Mood: "I wish I could DRUM! "
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