The market rallied sharply today as investors became enthusiastic again about Obama’s stimulus package and the “comprehensive” banking bailout plan that is going to be announced on Monday. The rally happened on a day that a government report showed the nonfarm payrolls for January dropped by almost 600K, bringing the total losses for the past three months to 1.77 million. The unemployment rate, meanwhile, jumped to 7.6% from 7.2% in the previous month, more than 7.5% expected by economists. On the surface, it may look suspicious that the market is able to shrug off generally poor economic readings and corporate earnings and gain more than 5% for the week. But if one is willing to look beyond one quarter or even one year, the current valuation in many sectors and stocks is probably the best in at least one generation. Recently I’m reviewing important equity purchases made by Warren Buffett since 1980s and one interesting finding is that many of today’s stocks that have the quality Buffett likes are sold at less than half of the price that Buffett actually paid for. In other words, if one is patient enough, the reward will be enormous in the years to come. Of course, one thing that separate Buffett and many ordinary investors is the attitude towards volatility, which is expected to remain at elevated level for the foreseeable future.
Let’s take a look at the three key indicators: 1. VIX: closed at 43.37 compared to 43.73 yesterday; 2. The euro/yen cross: closed at 119 compared to 116 yesterday; 3. The TED spread: closed at 97 bps compared to 97 bps yesterday.
All 10 major sectors finished the session higher led by basic materials and financials. The CRB commodity index rebounded 1.4%. The US dollar was lower against most major currencies. Treasuries dropped with the yield curve steepened. The three-month US LIBOR closed at 124 bps. The VIX index was little changed. The market breath was positive on both NYSE and Nasdaq. The volume was heavier compared to previous sessions.

"Down, up, down, up” and this is the rhythm the Dow is having so far for the week. As we pointed yesterday, the 113-year index seemed to hover around the key 8000 level awaiting some key events to determine its direction. Luckily or unluckily, the dates for those key events are pretty much determined now. Tomorrow, Feb 6th, is the earliest time that Obama’s stimulus package will be passed in the Senate. Of course, a failure of passing the package is also quite likely as there are still some key debates ongoing in the Senate regarding how to slice the stimulus funds. Next comes Monday, or Feb 9th, that Treasury Secretary Timothy Geithner will deliver a speech providing the details of a new banking rescue plan. Similar to the economic stimulus package, there are still many uncertainties surrounding the banking rescue plan. Typical investors are hesitant to place big bets ahead of those key events just as they don’t like uncertainties by nature.
Let’s take a look at the three key indicators: 1. VIX: closed at 43.73 compared to 43.85 yesterday; 2. The euro/yen cross: closed at 116 compared to 116 yesterday; 3. The TED spread: closed at 97 bps compared to 95 bps yesterday. Similar to the major indices, the three key indicators moved little recently in anticipation of some critical events to happen.
All 10 major sectors finished the session higher led by basic materials and energy. The CRB commodity index rebounded 1.8%. The US dollar was lower against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR closed at 124 bps. The VIX index was little changed. The market breath was positive on both NYSE and Nasdaq. The volume was heavier compared to previous sessions.

The market declined modestly on this Wednesday. The Dow, which dropped most among the big three, was dragged by poor performance of several consumer-related names such as Disney and Kraft Foods. Since Jan 15th, the 113-year old index has tested the key 8000 level for 10 sessions and managed to close above or barely below that level in all instances, indicating the market is waiting for some critical events – most likely the detailed banking bailout plan and Congress’ voting on the stimulus package. With such events starting to unveil during the next two weeks, the market will decide on a direction pretty soon. As far as the global economy is concerned, there is some encouraging sign from the bulk shipping front. The BDI shipping index, after bottomed at the beginning of last December, has almost doubled during the past two months. Although it is still 80% off compared to this time last year, it nonetheless stops getting worsening. Commodity prices have to become stable before we can call an end to the global recession – the rebound in the BDI index is certainly a good start. Similar improvements can also be found in memory chip prices, which have risen sharply in recent weeks.
Let’s take a look at the three key indicators: 1. VIX: closed at 43.85 compared to 43.06 yesterday; 2. The euro/yen cross: closed at 115 compared to 116 yesterday; 3. The TED spread: closed at 95 bps compared to 92 bps yesterday. Similar to the major indices, the three key indicators moved little recently in anticipation of some critical events to happen.
Nearly half of the major sectors finished the session higher led by basic materials and energy. Consumer staple was lagging the broad market. The CRB commodity index rebounded 0.3%. The US dollar was mixed against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR closed at 124 bps. The VIX index was little changed. The market breath was negative on NYSE and  positive on Nasdaq. The volume was neutral.

After spending most of the session near unchanged level, the market was pushed sharply higher during the final two hours of trading. However, the critical financial sector failing to join the rally made many market participants wonder whether it was just one more of those one-day rebounds. Finally there is some good news from the housing front as pending home sales for December increased more than economists had forecasted – thanks to multi-year low housing prices and record low mortgage rates. It is hard to believe how the economy landscape has changed since Feb 2007 - exactly two years ago, when HSBC first reported big losses related to sub-prime mortgages. At first, only sub-prime mortgage providers such as New Century were affected. Later, financial institutions that thought home prices could only go up were forced to write down billions of mortgage related assets. Without adequate capital to lend, banks tightened their lending standards to businesses regardless of their sizes – last October, at the peak of the credit frozen even GE and IBM had trouble rolling over their short-term debt. When businesses cannot obtain sufficient working capital through short-term borrowing to pay their employees and suppliers, the only logical thing for business management to do is to cut back capital spending and workforces. Unemployment rate soared as a result. Consumers, employed or unemployed, cut back their spending as a result of falling net wealth and uncertainty regarding future job perspective. The cutback by consumers only served to add more pressure to businesses and financial institutions, which forms a vicious cycle among the three players - households, financial institutions and businesses. In order to break it, a stable housing market is a must. Based on the latest SP Case/Shiller Index, nationwide the US housing price has fallen to the same level as early 2004. In other words, the housing bubble starting from late 2003 has mostly evaporated. But a weakening economy means any recovery in the housing market will be slow.   
Let’s take a look at the three key indicators: 1. VIX: closed at 43.06 compared to 45.52 yesterday; 2. The euro/yen cross: closed at 116 compared to 115 yesterday; 3. The TED spread: closed at 92 bps compared to 98 bps yesterday.
Most major sectors finished the session higher led by transportation and healthcare. The CRB commodity index rebounded 0.3%. The US dollar was lower against most major currencies. Treasuries dropped with the yield curve steepened. The three-month US LIBOR closed at 123 bps. The VIX index dropped 2 point. The market breath was positive on both NYSE and Nasdaq. The volume was neutral.

The market started the new month in a mixed fashion. The Dow, dragged by several industrial names, was off by 0.8%. The Nasdaq, boosted by Microsoft and Intel, gained 1.2%. There is little market moving news. One interesting news item came from the personal saving rate for December, which was at a multi-year high of 3.6% compared to 2.8% in the previous month. After peaking at around 20% in early 1980s, the US personal saving rate has consistently trended lower to an average of 5% during 1990s and then temporarily moved into the negative territory during the early part of this decade. Now the trend seems to be reversed, which is good for the economy in the long run but probably bad for those manufacturers and retailers that are looking for consumers to open their wallets now.
Let’s take a look at the three key indicators plus the iTraxx CDX index: 1. VIX: closed at 45.52 compared to 44.84 last Friday; 2. The euro/yen cross: closed at 115 compared to 115 last Friday; 3. The TED spread: closed at 98 bps compared to 96 bps last Friday; 4. The iTraxx composite spread: closed at 671 bps compared to 695 bps in the previous week.
Most major sectors finished the session lower led by basic materials and industrials. Tech and healthcare are two bright spots. The CRB commodity index dropped 1.9%. The US dollar was higher against most major currencies. Treasuries were mixed with the yield curve flattened. The three-month US LIBOR closed at 122 bps. The VIX index rose 1 point. The market breath was neutral on NYSE and positive on Nasdaq. The volume was neutral.