Crisis Diary as it unfolds ….

19-Jan-09 to 01-Feb-09: New trade on the street – Buy hope sell reality. Sigh!

Firstly, I would like to apologize to myself for not doing recap for two weeks. Aniket, don’t be such a bum ass sloth. Secondly, I would also like to apologize to rest of the world for mostly focusing only on US in this crisis diary. But then, this crisis mainly revolves around US (..and I have better access to news and blogs out of US ), so you should not complain rest of the world. For time being we must pay attention to this big bogey bummer and straighten him up first. Hey, don’t complain. You had a chance to decouple. But instead, you decided to couple more and more. Now you are suffering from some serious STDs, not my fault, okay?

The two most important developments of last two weeks were Obama’s stimulus plan and ‘bad bank’ idea gathering momentum. But we shall deal both of them separately. Also, Davos deserves its own space. So let’s look at the rest of the news.

Market Update

When markets come to terms with reality they go down, when Mr. Obama shows his mug on TV and injects new hope they go up again. So new trade is – buy on hope, sell on reality.

Some good news out of the equity markets was the earlier November lows are still intact. Earnings season on Wall st was mix bag. Several technology companies incl. AAPL, IBM, HPQ surprised on the upside. Among industrial names CAT surprised on downside, while X declared decent numbers. Financials continue to struggle badly. Overall, earnings underscored one important fact – rest of the world is somewhat isolating itself from the worries of financials and housing.
Bond markets showed significant trend. 10-yr treasury yields increased significantly and so were the increase in TIPS spread, decrease in TED spread, decrease in commercial papers spread. These are the signs of easing credit crunch, diminishing deflation worries. Also Gold went up by more than 10% (840$/toz to 930$/toz) in last couple of weeks. This is perhaps all-time high for gold in many other currencies considering recent US$ appreciation. What does the gold movement mean? Inflation protection or safe(st) haven (with rapidly declining safe haven status of US$).

Crisis Watch for the week

TED is still signaling easing credit crunch and that is a very good news.
TED spread 0.95
S&P: 825.88 (-2.7%)
VIX: 44.84 (-2.00%)

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February 1, 2009 - Posted by | Weekly News | , , , ,

3 Comments »

  1. Reminds me of that other popular market adage “Buy on rumour, sell on fact”. The Bad bank rally when it started earlier last week with bank stocks sky rocketing was due to the hope that Obama would give the banks some taxpayer money for nothing. Towards the end of the week the hope started to fizzle out as reality kicked in and investors realised that the bad bank idea may not be as easy to implement as it seems.

    Comment by SpinDoctor | February 1, 2009

  2. Yes, that’s true. TARP originally was supposed to be bad bank.
    Nobody knows how to implement the idea such that banks get rid of the trash without taxpayers getting short end of the stick.
    Stiglitz was really critical of whole bad bank idea at davos.

    Comment by Aniket Kanade | February 1, 2009

  3. Originally the bad bank idea have some merit like TARP but the biggest problem, though, is how they implement and use as planned. for what I read from Krugman blog, the Obama administration will be buying the troubled assets in high price compared with market price, this is why Krugman said, it’s hankies pankies II.

    In the end, if the government paid the over market value of the assets, taxpayers would be the ones to absorb losses that could prove to be enormous.

    http:\\danielngsh.blogspot.com

    Comment by Daniel Ng | February 2, 2009


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