Todays market action has been volatile, with a wild see-saw action, as both positve and negative economic data flooded the market. 

The market saw some initial buying interest on a positve report from the commerce dpt that durable good orders unexpectedly showed a substantial increase in the month of February after falling in each of the six previous months. The report showed that durable goods orders jumped 3.4 percent in February after falling by a revised 7.3 percent (from 4.5%) in January. Economists had been expecting durable goods orders to fall by 2.5 percent. Durable good orders is a leading indicator, and it bodes well for the industrial machinary stocks. Some of the stocks that I like in this segment - GE, PRST (though a much grim printing machinary stock), DXPE. 

The markets saw some further upside as a saperate report showed an unexpected increase in new home sales in the month of February. This marked the latest in recent string of positive housing market data. Though the SALES are on the rise, the median price of the homes has not stopped its decline. With high inventory levels and rising unemplyment it is a hard case to make for a housing market stabilization. 

Midday of the session, when DOW was up about 200 points, investors were spooked by the 34 bn 5yr treasury bond auction results. The auction drew a yield of 1.849 percent and a bid-to-cover ratio of 2.02, well below the average of 2.21. (bid-to-cover ratio is an indicator of demand for the treasuries). The failed auction of UK gilt added to the negative sentiment. I am not sure how much to read into the data, as it seems, it is a holiday for Japanese bond markets and Japan is one of the big buyers of US treasuries. 

The new mantra that is driving the markets over this week is the optimism on PPIP. Economists and investors argue on both sides of the arugument whether PPIP will be the savior. Bill Gross of PIMCO endorsed it. Fink of Blackrock,  and the eternal bear Nouriel Roubini expressed an positive opinion. I personally do not think it will work. Zero Hedge has a very interesting table from Goldman Sachs.. It shows Goldman's estimates for how banks are carrying assets like commercial mortgages and consumer loans on their books. The banks, it seems, are carrying those assets at ludicrously optimistic averages of between 89 per cent and 96 per cent of their original purchase price. For the PPIP to be benificial to the banks (which I opine is the main  intention behind the plan), the bids should be north of 90 cents on a dollar, when the market price for the same is speculated to be below 50 cents on a dollar. However, I was wrong many times and so was GoldmanSachs. 

The most repated sentence on CNBS these days -" March 8th bottom is going to hold"!! and that is exactly what they said from Nov through feb.. " Nov 20th bottom is going to hold". As Jon Stewart said - "FUCK YOU"!!! 

Song: "Last kiss" - Pearl Jam

Mood:  "I wish I were right" 

Don't stop dancing!! :)

Somethings, no matter how many times you repeat/undergo, would not give you enough practice to deal with it the next time. No wonder, I lived my whole life in one dilemma or the other!! 

Song: "Dont stop dancing" -Creed

Mood: Philosophical 

PPIP and the 500 point rally..

Today Tim has unveiled his long-awaited (much in the lines of Paulson Plan) to remove bad assets from the books of the banks. This PPIP is intended to take the legacy assets off the balance sheets of the banks, and there by help the banks raise their capital levels and start lending. This program ensures that the private sector is particpated in the buying along side the public sector (backed by and over looked  by FDIC, Treasury and the Fed). This 'program' is supposed to generate a buying power of about 500Bn, with a potential to expand to about 1T. The program will allow banks to identify which assets they wish to sell, FDIC will do an analysis, leverage will not exceed 6 to 1 in debt to equity ratio, and it will include eligibility for all sizes of institutions.  Pools will then be sold to the highest bidder and financing is provided via an FDIC guarantee.  Then the private sector partners will control and manage the assets until final liquidation. 

On teh face of it,  this might seem to be a real good deal for the banks( it might as well be), but I have my doubts. Well, I base my argument based on te response to last week's TALF program. Of the 200Bn plan that was announced, the bids recieved were only of 4.7Bn. Also, the crux of this PPIP  is to set the price for the assets, which is THE million dollar question. If I am an investor planning to but the assets from the banks under PPIP, I would try to pay as less as possible (though FED will lend me money to lever  up my investment 6 to 1, my 16% investment is in the first lein of losses), and that woudl force the banks to write down the remainig assets to the new price, (assuming banks are very much carrying the assets at above market prices) - and more write downs lead to more losses, and more troubles for banks. Say, if I am FORCED to buy the assets at a price above the market price, well, the banks benifit. And, I and the tax payer will benifit as long as my return is more than the cost I paid (maane, the loans turn out to be good loans and paid up in time). But in this environment, I guess it is a hard bet to make. However, What I think as the actual intention of the FED is to CREATE a market for the assets, and FORCE the banks ( as Private Investors) to bid for the assets (of other banks) at a price above the mark, and eventually drag the value of all the assets along. If what I speculate is right, well, I am screwed, as I am short the market. And C and BAC will make an amazing investment decisions even at these prices.  

Oil, after a long time has hovered around $53 dollars. I agree with Pickens in his call that Oil would reach $60 and be at $70 by this year end. Well, it is not that the demand for oil is going to ramp up, but that the pace with which the rig count is droppping is far more worse than the demand itself. U.S. Rig Count down 41 from last week at 1,085; down 699 year over year. Canadian Rig Count down 61 from last week at 159; down 169 year over year. The US Offshore rig count is 43, down 4 from last week; down 14 year over year. If this trend continues, I guess, OPEC would not even have to think about cutting the production to jack up the prices.. Btw, I own commodity etf, in this environment where Dollar devaluation seems inevitable, it is better to invest in 'inflation' trades.

Song: "Everybody's changing" - Keane (This band is known as "the band with no guitars", coz of its heavily piano-based music)

Mood: "Why do I push the things till the last minute"

IBM is in discussion with Sun (JAVA) about a potentail acquisition in a 7Bn deal. This would mean a near 100% premium to Sun's ydays close. I personally think this is not going to bode well for IBM or for the combined compnay. This deal came through on the heels of the announcement made by CSCO the other day about their entry into the server market. Currently the server market is dominated by IBM, and HP. CSCO's (a supplier of blades, swiches to IBM and HP servers) entry into the server market would pose a threat to the market share on IBM. Lets hopw its not another S-Nextel, or Alcatel-lucent deal. 

Unemployment in the UK crossed the 2 million mark and the unemployment rate hit 6.5%, its highest rate in more than 11 years. The number of people claiming unemployment benefit rose by 138,400 to 1.39 million. This was the largest monthly increase since records began in 1971.

http://www.ritholtz.com/blog/wp-content/uploads/2009/03/45279strip.gif

The FOMC has come in with no rate change as we had expected.  When it is already at a near-zero rate policy, there was no other outcome.  The Fed Funds Target Rate was left at 0.00% to 0.25%, and the discount rate was left at 0.50%. The Fed will buy an additional $750 billion worth of agency mortgage backed securities.  It will also purchase an additional $100 billion in agency debt instruments, and it will purchase an additional $300 billion worth of long-term Treasury securities over next 6-months. The magnitude here is that the mortgage backed security purchases are now more than doubled, and the unconventioanl purchase of Treasuries, which would force the mortgage rates lower. Hopefully, this would stop the ever receding housing market. Treasury yields in 10-year and 3-year notes have tanked as bond prices have gone up.  The dollar has also tanked, and gold is up higher as a result. I guess the follwing days trades would be 'inflation' centered. Gold would continue to go up, may touch the 1000 levels again.. TBT and PST would be good buys too.. no downside by quite an upside. 

Tomorrow's trade - BUY BUY BUY, commodities, gold, stocks, bonds. .. SELL SELL SELL Dollar, 

Bear market Rally - Part II

Happy death Anniversary, Bear Stearns! 

A not-so-surprising rally over the last week, S&P up about 12% and everyone on CNBC crappping about equity markets bottoming. The bullish case is pretty easy to make. Commodity prices picking up, lower credit spreads, Fed and Treasury funded programs, banks returning to profitability ( for the first two months), global stimulus packages, TALF & TARP policy initiatives .. Yet, it is not all good as it sounds. 

FUnadentals are still bad, job losses have not yet subsided, House prices have not stabilized yet, consumer confidence still low, bad balance sheets at banks, banks not issuing credit, Manufacturing and productivity at an all time low .. 

Well, my take,, it is easy to get carried away by the bull market action, but the fact is there is a thin line between a bounce and a recovery. Typical bear market is interlaced with 2-3 bear market rallies, and the typical upside in a bear market rally is about 20%.. ( well, i agree, stats lose their relevance in a recession, but no wrong in finding a reason in numbers). And this rally, though is strong ( 4 consecutive up-days), does not have enough fundmental support to morph into a next BULL MARKET. 20% upside from the bottom of S&P would give a close of 811. I would not as much surprised if S&P breaches 800 level, and Dow 8000. Enjoy while it lasts. BTW, I am short the market.. and I kick mymself hard for selling my stake in GE and C minutes before Friday close. 

On sunday, OPEC decided not to cut production. It indeed is surprising when it seemed that the primary goal of the cratel was to puch the price target to abouve $75. Not that the cartel became philanthropic overnight, it is that the world economy is in such a fragile state that any increase in the oil price would do more harm to them and the world than good. 

The American International Group on Sunday released the names of financial institutions that benefited last fall when the Federal Reserve saved it from collapse with an $85 billion rescue loan and then three subsequent bailouts.

$38.8B US Banks

$50.2B Foreign Banks

$12.0B Municipal Bonds

$84.0B Unaccounted for.. (may be bonuses to those very assholes who are responsible for the badbets!!).. And then the bullish guys owe the 'anticipated-bull-market' to the initiatives from Fed and Treasury.. 

AA is the latest addition to the comapnies that cut the dividend. In a measure to cut costs, AA today reduced its dividend to 3 cents to 17 cents per q. This would save about $400 Mn per year. What is surprising is that AA is issuing common stock and preferred at these levels. The problem with Aluminium is that the prices have been down very very sharply, and accoring to the management of AA,  they are expected to drop by another 25% in the first Q. When the prices were on the rise, Chinese factories have incresed their Al production, and now the collective Chinese production is three times that of US. And a big dent in the consumer spending, and Capital expenditure spending continue to hurt every Al producer. Is it a BUY at these levels. May be yes, May be No, or May be I dont know. The post market action ( down 20%) was more of the fear of dilution. If the Al producers start cutting the production to stabilize the prices any near term, owing Call options (2010 exp) is not a bad idea.

Mac and iPod sales continue to be lousy in Feb...

The latest National Association of Home Builders’ survey shows that confidence is unchanged from last month.  This is the second month in a row that the level has remained at 9 for new single-family homes. THis might be percieved as a half-empty-glass case. The number has been at such a low level (50 is the pivot point.. above 50 - expansion and below 50 - comtraction) that it cannot get any worse than this. 

Today, me Harish invited Ranga and Sharmila over for dinner.. and it was amazingly fun.. Three hours of continuos laughter. :) :) .. 

Song: Tainted Love - Marlyn Manson. 

Mood: "Excited" 

A rally long pending..

A rally that was long pending. A positive news from Citi initiated the uptrend even before the market opened. In a internal memo, Vikram Pandit said that the company is profitable through the first two months of 2009 and is having its best quarter-to-date performance since the third quarter of 2007. That initiated the rally, and it did rally strong for the day. Midday, Ben's comments about the economic recovery IF the banks are stabilized added to the optimism of the investors.  

That raises the question about the credibility in Pandit's statement. Well, Citi might be well capitalized and be profitable for the first two months of the Q, but it does not guarantee a equally good last month of the quarter.  Fitch's Prime Credit Card Delinquency Index measures credit card debt more than 60 days late through January, and it surged to a record 4.04% in the most recent month, trumping the 3.75% record set in the previous month. This might as well weigh on the credit card losses of Citi. My take, Citi over the next 2-3 days (this week has no major economic data releases, though US trade data is slated for release on Friday), would trade at the same levels ... but as the earnings date near (in APr) it would fall back to dollar menu.. :) 

Well, as I write this,trade data from China is out, and well, not a good news. The trade gap narrowed to $4.8 billion, about an eighth of the amount (Not a typo,, it is one eighth) in the previous month. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent. The median estimates in a Bloomberg News survey of 16 economists were for a $28.3 billion trade surplus, a 1 percent decline in exports and a 22.5 percent drop in imports.  The corresponding eport drop in Jan was 17.5% and the imports fell  by 43%. There is not hope that the exports figure would improve any time soon. And the imports are very much dependent upon the success of the stimulus plan. The fact that about one third of the goods manufactured in China are exported, and these siginificant drop in exports signals the extent of decline in global economies. 

On the economic front, Jan wholesale trade data came in lower, though not enought to meet with the forecast.  January's inventory levels fell 0.7%, versus the consensus outlook for a fall of 1.0% (which is bad). Even worse if the difference between the sales drop and the inventories drop. Sales dropped 2.9% from December levels, and nose-dived by 15.4% from the prior year period. The sales-to-inventory ratio expanded to 1.3. 

http://1.bp.blogspot.com/_Et4TQ-a0gGU/Sbak1hSSdAI/AAAAAAAABks/pUTcIn8H9Do/s1600-h/sales_inventories_chart.PNG

http://1.bp.blogspot.com/_Et4TQ-a0gGU/Sbak1hSSdAI/AAAAAAAABks/pUTcIn8H9Do/s1600-h/sales_inventories_chart.PNG

High-tech manufacturing company United Technologies Corp. said Tuesday it will issue 11,600 layoffs this year due to the deteriorating global economic outlook. A ray of hope that AT&T Inc. plans to invest up to $18 billion and create 3,000 jobs nationwide this year, to keep pace with demand for wireless, broadband and video services.

An interesting article on Semantic Search. A technology that might provide an alternative to Google.. http://www.informationweek.com/news/internet/search/showArticle.jhtml?articleID=215801388&subSection=News

Quote of the day:  If the banks become stable, the economy may turn. - Ben Bernanke. 

Yes,, infact a BIG IF!!! :) 

Song: Mother - Pink Floyd (They were playing this song on the radio today monring on my way to office :) :) ) 

Mood: "If I keep my eyes closed, would the crap around me disappear!"

Lazy..

Could not figure out whether I am too lazy or too tired to write. !! 

Song: Hurt - NIN 

Mood: "Waiting"

weekend rambling

Consider these data points - the CDS on Berkshire Hathawayare trading at a wider spreads than those of covering Vietnam's debt, and the CDS spreads of GECC are trading at a spread wider than those of Russia's debt.It’s all the more remarkable because Berkshire’s and GE Capital’s debt both carry the highest rating of triple-A from Moody’s and Standard & Poor’s. Wll, that does not actually mean that the companies chances of default is much more than Rusia's or Vietnam's. CDS aren’t always a true gauge of the market’s risk perception.CDS can be thinly traded, and therefore subject to exaggerated movements — or even manipulation. Moreover, there is always an incentive for an Investor (Hedge funds or Institutional Investors) to TWEAK the CDS spreads and take advantage of long/short positions. Its very much similar to shorting a banks stock and spreading rumors about bank going under. No wonder CDS market shoudl be regulated. 

Wells Fargo joins the band of banks/companies which slashed their dividends.  WFC today slashed its quarterly payout to 5 cents from 34 cents a share. 

The U.S. unemployment rate surged in February to the highest level in more than 25 years and the economy lost more than 600,000 jobs for a third consecutive month, this would mean further reductions in spending, more fore closures. The jobless rate surged to 8.1 percent, more than forecast and the highest since December 1983. 

The Markit iTraxx Crossover index rose to 1,170 basis points for the first time. This means it costs 1,170,000 euros to insure 10m euros of debt on an annual basis over five years. The index, which is considered the best gauge of credit sentiment in Europe, has broken through fresh levels all week as concerns over the world economy and financial system grow.

What-If AIG/C/GM goes under!

Today I got a question from a friend of mine. He asked me what would happen if C, AIG and GM go under, and my first line of response was 'we are fucked for the next 2-3 years'.. I asked Bill the same question just to check whether he has any different opinion.. Nope.. 

Well, though i think GM is not as BIG or as SERIOUS as an issue as C or AIG going under, it will have a serious impact on the ecoonomy. Though in longer run it is good for F and Chrysler (provided they survive; F will definitely see the light, considering the fact that it didnt BEG for any bailout money, and that it is in talks with its debt holders to restructure the debt), it is not as good for the auto part compnaies, car dealers,  car rental companies and for institutions that hold GM's debt. In my previous post, I mentioned that 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. In another post, I quoted a study on what-if scenario of all the three car makers go bankrupt. (3M job losses, 400bn loss of personal income in 3 years, 150 Bn in tax losses to US govt in 3 years). If it were GM alone, a simple math of dividing the numbers by three would give a vague idea. 

AIG: Well, the problem with AIG is that it deals with Insurance, on institutions credit in the form of Credit Default swaps. Much worse is that fact the AIG mostly SOLD the insurance. When the economy is good, companies dont go belly up, or the chances of any compnay defaulting its debt would be low, providing a steady revenue stream for AIG, in terms of insurance premiums. When  things go bad,  AIG has to pay the debt to the insurance holders incase of a default. If a firm buys and sells the insurance, the effect would not be as much as it would be with a single mode exposure.Given that, AIG cannot go under, as it would expose a huge counterparty risk and would lead to many other firms writing down or going under. It is the same reason why Mr. Kohn, Fed vice-chairman, declined to make public the counter parties of AIG.  

Quote: 

“You are telling us that the counterparties that got par for their bonds or for whatever — the American taxpayer shouldn’t know who they are? And then you may come back to us and ask for more money for more banks and more corporations? You will get the biggest ‘no’ you ever got.” Jim Bunning, the Republican senator from Kentucky, when Fed vice chairman, Donald Kohn declined to make the counterparties public. 

C: it is simply too BIG to fail.

I rest my case.. and yes, we would be in deep shit for the next 2-3 years (4-5 years would be  a stretch) if any one of or all of the above events happen! 

Hedge funds: There’s a big hole in the hedge fund industry, as nearly $1 trillion in assets has disappeared over the last six months of 2008, according to a study. And I sit here and wonder whether to feel good to be STILL working for a hedge fund, or to regret for the same! 

Citi for a brief period traded below a dollar!! A DOLLAR??? Every time it gets below 1 buck, it is a screaming BUY.. but a risky one though.

What Do AIG, FNM, FRE (and GE) Have in Common?

This article is too insightful, and even more simple. Plagiarized from The Big Picture blog. 

Good Evening: 

Investors were handed various and conflicting pieces of news this morning, but hope for the future won out over worries about the present by day’s end. Word of a second stimulus package being readied in China, some kind words for the stock market from Steve Leuthold, and a couple of decent pieces of economic data represented the positive news that helped boost share prices. On the negative side, some weaker than expected economic news and a continued slide in the shares of GE helped to limit today’s gains. Since GE has received quite a bit of attention of late, I will conclude by offering an opinion of what I think might be driving this AAA-rated company’s share price lower than many investors had ever thought possible.

Global stock markets and U.S. stock index futures were higher overnight in response to a story out of China that another economic stimulus package might be on the way. As a nation of savers, China can probably afford to pump more funds into its economy, a situation U.S. citizens can only witness with distant envy. This proposal boosted not only the CSI 300, but global indexes and even commodities. Index futures here were up 1% prior to the release of the first batch of economic statistics. Mortgage purchase applications plunged to new depths in the latest reporting week, while two different glimpses of the U.S. employment picture were mixed. The Challenger Job Cut report portrayed a slowdown in the intensity of announced layoffs in February, while the ADP report estimated that the U.S. lost almost 700,000 jobs during the same period.

Given ADP’s track record as a misleading employment indicator, market participants seemed to shrug off the gloomy report and pushed stocks almost 2% higher at today’s open. Thirty minutes into the day saw the release of the ISM services survey, and it came in just a hair better than had been expected. The S&P 500, which had easily topped the 700 mark in the early going, eased back to test this level an hour into the session. When 700 held firm, buyers for various ” China plays” emerged and propelled the major averages to new highs by lunchtime. Bloomberg may have added a bit of a tailwind to equities when it posted a story that the well respected money manager, Steve Leuthold, was expecting a rally (see below). And while a sickly Beige Book (see below) and a heaviness in all securities bearing the GE name may have bothered the bulls, they were still able to push the averages to gains of 4% gains in the afternoon before a late bout of selling left the indexes ahead by 2.25% (Dow) to 4.8% (Dow Transports).

Treasurys sank in response as yields rose 6 to 10 bps on supply concerns. The U.S. government will likely have to auction off a cool $2 trillion during calendar 2009, a figure which defies both one’s imagination and quite possibly the combined appetites of global central banks. It wouldn’t surprise me in the least to see the Fed feel the need to put a floor under Treasury prices at some point this year. No doubt it was some of these same worries that knocked the dollar index down 0.8% today. Commodities, however, were Wednesday’s big winner. Dreams of renewed demand from China pushed almost everything but gold higher, and the CRB index closed with a gain approaching 4%.

GE’s stock price approached retirement age earlier this decade, but its shares now fetch no more than hat sizes. So why are both the equity and fixed income securities of this AAA-rated company under so much pressure? Guests on CNBC (which seems to tout its GE parentage less often of late) can’t stop talking about it almost as much as investors can’t stop selling the stock. One reason has to do with capital structure arbitrage. New owners of various fixed income obligations bearing the GE name have been selling short the common equity as a hedge. Momentum and fears that what happened to previously AAA-rated AIG could happen at GE are also exerting a gravitational pull on the share price.

Perhaps the real reason GE shares keep circling the drain has to do what it has in common with not only AIG, but with Fannie Mae and Freddie Mac as well. AIG, FNM, and FRE all hit the wall bearing the highest possible debt rating from Moody’s, S&P, and Fitch, and many rightly worry if GE will suffer the same fate. How is it possible that AAA-rated companies can so suddenly come a cropper? Simply blaming the ratings agencies for not doing their jobs, while correct, does not get to the heart of the matter. Nor does short-sighted management at the firms in question go far enough in explaining these amazing falls from grace.

To me, the real reason AIG, FNM, FRE (and perhaps GE) got into financial trouble had to do with their AAA rating and management’s desire to exploit it — even arbitrage it. Borrowing at the best interest rates available to non government entities, companies like GE and AIG found they could fund sizable financial units much more cheaply than could have been possible if the financial units (AIG Financial Products and GE Capital respectively) had to be funded without parental support. Knowing that the ratings agencies would be loathe to downgrade them (thus admitting a mistake), GE pushed its borrowing as far as they could and bought all sorts of assets with yields higher than its AAA funding costs. Call it a reputational ratings arbitrage, if you will.

GE exploited this “rep arb” so far that PIMCO’s Bill Gross felt forced to publicly cry “foul” a couple of years ago in one of his “Investment Outlooks”. PIMCO even boycotted GE’s commercial paper in protest of this arbitrage because it amounted to nothing more than a huge carry trade. As any carry trader will tell you, the risks are simple: The cost of funding your trades can go up, or the assets you’ve financed can go down. Enough of either can lead to ruin and both scourges are at work inside the opaque GE balance sheet these days. The hubris of GE’s CEO, Jeff Immelt, is only partially to blame. The GE culture under his boss, Jack Welch, set an impossible precedent when GE always beat its quarterly guidance by one penny. Can any assortment of fine industrial businesses be so predictable without a few financial levers being pulled now and then? A financially massaged, “Beat the Street” mentality was in place well before Mr. Immelt took the reins, but it seems to this outsider’s eyes that eventually he eventually tried to engineer what the global economy could not deliver. These thoughts are only a theory — one I readily admit to being unable to prove. But it’s easy to see the results. Too much borrowing was undertaken to buy too many risky assets, and the stock price is itself at risk until this situation somehow reverses.

While slightly different forces were at work when AIG (too much CDS exposure), FNM & FRE (too much residential mortgage exposure) all fell apart, the desire to abuse their AAA-rated funding advantage lay at the heart of all the leverage they took on and later came to regret. The legendary Michael Milken used to look with scorn upon AAA-rated paper, and not just because of the skimpy yields over Treasurys they gave investors. “Things can only get worse at those companies and their ratings can only go down”, he said on more than one occasion. Looking at GE and the others today, I’ll bet even Mr. Milken is struck by just how right his timeless warning has become.

– Jack McHugh

Looking for a leading indicator - Watch China!!!

Much of todays market gain can be attributed to the news from China. Earlier today, Shanghai composite index rose 6%, on the news that China was set to add 4Tr Yuan (about $580 Bn) stimulus package. the talk in the merket is that the new package could as well be 6Tr -8Tr Yuan. On top of that, China PMI beat expectations coming at 49 in Feb, a big imporvment from 45.3 in Jan. 

Had it not been the weak job data from ADP, the market would have ended even  higher. The ADP national employment report showed 697k jobs were lost in February, the worst performance so far in this recession indicating that economic conditions are still deteriorating more than a year into the downturn. Moreover, the prior month was revised down by 92k to -614k. Well, ADP data has always been a precursor to Non Farm Payroll data, and I would not be surprised  if the number for Friday’s nonfarm payroll report standa at 700K, and an 8% unemployment rate. 

Added to this, mid day the beige book report didnt sound any cheerful either. It shows more pain and more suffering ahed, just like the rest of the economic data we have seen lately.  The report puts the likelihood of any near-term recovery as very low.  Only two of twelve districts districts did not see significant deterioration. Significant recovery is not expected until late 2009 or into 2010. Consumer spending remains slow and there is an exceptionally sluggish auto market. Housing price decreases have not slowed with many markets continuing to see double-digit drops.  Mortgage demand is depressed and consumer lending is down while unemployment is up and wage pressure is muted. and the list does not end here!! 

Well, now Do I think todays rally is sustainable.. ?? Hell no!!

On the flip side, things are not as bad as they sound they are.

Though the unemployment data suggests that the rate is racing towards 10%, the worst in layoffs might be behind us. Outplacement firm Challenger, Gray & Christmas Inc. reported that the number of planned job cuts (Lay Offs) announced in February fell for the first time since December. Less layoffs - less future job losses.. however, we may have to endure more 600k-jobloss-months before it gets better.

Added Fed and Treasury are doing their best to stop the bleeding. Apart from the global stimulus efforts, I personally think TALF has the potential to atleast bring optimism/stability to the credit markets, if not, turn it around. The TALF is a loan facility consisting of $100bn equity from the Treasury and $900bn from the Fed. It extends secured lending to holders of newly issued consumer ABS and CMBS in order to get consumer lending again: demand from securitization accounted for 40% of loans extended to consumers.  Lately the securitization market is DEAD. 

GE has traded below 6, alevel not touched since 1990s. Markets are worried about the near term outlook for GE as GECC ( GE Capital) might have an influence on the earnings of GE Industrials. 

Musing, FDIC’s fund fell from $34.6bn in the third quarter to $18.9bn in the fourth. And if Blair has any credibility to what she says, if the economy continues to be in this state over the next year, the FDIC fund might run to zero or even negative levels as bank failures would force the fund insolvent.. WOndering if our deposits which are supposedly be insured are INSURED! ?? 

Mood: "When will this end"

Song:  Shattered - OAR

Ok.. Here I go again.. after a long break..

Well, to cut short what has happened in the last two months, January has been the worst January ever, February is a not an exception either. and today has been marked in history as a worst begining for March. TOld that, what/where do you think the market is headed ???

Look at whats happening around the globe:
China slowed quite sharply at the end of last year. Japan’s January exports are down 46% y/y, the fastest decline ever.
India seems to be decelerating. Malaysia didn’t grow in the fourth quarter.
Thailand’s exports and industrial production fell at a record pace in January.
Abu Dhabi tentative bailout of Dubai.
And the woes at Eastern European countries running a huge public debt and Account deficits.
In Q4 of 2008 GDP fell by about 6% in the US, 6% in the Eurozone, by 8% in Germany, by 12% in Japan, by 16% in Singapore and by 20% in South Korea. So things are even more awful in Europe and Asia than the US.
Standard & Poor’s is reporting that the number of companies poised for a credit downgrade in February was 977, the highest ever.

See you at 6500 Dow!!