The market ended the week and the month in a downbeat note. The Dow joins the other two major indexes that are down over 50% from its record high and it is closed at the lowest level since May 1997. The S&P 500, closing lower in nine out of the past ten sessions, fell 4.5% for the week and 11% for the month, making it the second-worst February for the index. Although today’s revised GDP figure for the last quarter of 2008 came worse than expected and dropped at an annual pace of 6.2%, investors focused more on Citigroup, which reached an agreement with the government that would convert most of its preferred shares into common equity and therefore boost its Tangible Common Equity ratio. Investors are concerned that similar deals may occur to other financial institutions with low TCE ratios and therefore dilute existing shareholders. Below, I list the TCE ratios for the largest US financial institutions at the end of 2008 based on calculation by S&P. Clearly, many banks may have to follow the same path as Citi if they want to boost their TCE ratio to a more comfortable level of 3%. In today’s trading, it is quite obvious that banks with relatively high TCE ratios such as JPMorgan and Goldman are doing better than their peers.

Let’s take a look at the three key indicators: 1. VIX: closed at 46.35 compared to 44.66 yesterday; 2. The euro/yen cross: closed at 124 compared to 124 yesterday; 3. The TED spread: closed at 101 bps compared to 100 bps yesterday.
All major sectors finished the session lower led by financial and healthcare. The CRB commodity index declined 0.8%. The US dollar was higher against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR closed at 126 bps. The VIX index rose 1.7 points. The market breath was negative on both NYSE and Nasdaq. The volume was on the heavy side.

The market dropped for a second straight day with the Dow closing less than 1% above its 12-year low reached on Monday. Investors shrugged off most negative economic news released early in the session and focused instead on the new budget plan proposed by President Obama. The opposite movements in healthcare and financial issues promptly reflected that. The budget request, sent to Congress today, comes with a record price tag of $3.94 trillion, up 32% from one year ago. It would result in a record deficit of $1.75 trillion in the year ending Sep 30th ，equivalent to 12% of the GDP Several interesting items (and will almost for sure incur big debates between the two parties) in the proposal include:

• ·         Up to $750 billion in new financial industry aid in addition to the $700 billion TARP funds already approved by the Congress;
• ·         Taxes increase on couples earning more than $250K a year and on venture capitalists, executives of private equity firms and other investment partnerships
• ·         Paring subsidies to Medicare health-care system by $170 billion

Let’s take a look at the three key indicators: 1. VIX: closed at 44.66 compared to 44.67 yesterday; 2. The euro/yen cross: closed at 124 compared to 125 yesterday; 3. The TED spread: closed at 100 bps compared to 97 bps yesterday.
Most major sectors finished the session lower led by healthcare and consumer cyclical. The CRB commodity index rose 2.4%. The US dollar was mixed against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR closed at 126 bps. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was neutral.

All three major indexes finished the session lower by around 1%. A late-day rebound in financial issues helped lift the market well off its intra-day lows. The focus of the session remained on the banks with the government unveiling the details of the “stress test” to the nation’s largest banks. Some interesting items in the test include:

• ·         Two economic scenarios: a baseline scenario and a more adverse scenario covering two years. Under the baseline scenario, the real GDP is expected to shrink by 2% in 2009 before recovering 2.1% in 2010 and house price is expected to drop 14% this year before a further 4% drop in 2010; under alternative more adverse scenario, the real GDP is expected to shrink by 3.3% in 2009 before recovering 0.5% in 2010 and house price is expected to drop 22% in 2009 and a further 7% drop in 2010. In both scenarios, the government (mainly the Fed and the Treasury) expects the economy to shrink only modestly in 2009 and recession should be over by 2010 – so the “stress test” is not as stressful as some might have expected;
• ·         Terms for the convertible preferred: Conversion price is 90% of the average closing price for the common stock for the 20 trading day period ending Feb 9, 2009. Dividend yield is 9% and after 7 years, it is mandatory to be concerted into common stock;
• ·         Test is expected to finish by the end of April and the results won’t be released to the public. But each bank under the test can choose to make some disclosure of the outcome. Typical regulatory measurements including Tier 1 and Tangible Common Equity will be used in the test.

Let’s take a look at the three key indicators: 1. VIX: closed at 44.67 compared to 45.49 yesterday; 2. The euro/yen cross: closed at 125 compared to 124 yesterday; 3. The TED spread: closed at 97 bps compared to 96 bps yesterday.
Most major sectors finished the session lower led by transportation and industrial. The CRB commodity index rose 2.2%. The US dollar was higher against most major currencies. Treasuries dropped with the yield curve steepened. The three-month US LIBOR closed at 126 bps. The VIX index was little changed. The market breath was negative on both NYSE and Nasdaq. The volume was on the heavy side.

The market had the biggest gain in a month one day after closing at the lowest level since 1997. Short-covering and the Fed Chairman Bernanke’s semi-annual testimony to the Senate Banking Committee are cited as the main reason behind today’s rally. During the hearing, Bernanke calmed fears among investors about nationalizing the banking system by saying that he didn’t “see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary”. The Fed Chairman also forecasted that the recession may end by late this year and a recovery would start in 2010. At close, all three major indexes were higher by at least 3%, essentially recouping all losses from yesterday. However, despite today’s impressive run, it could be just one of those over-sold one-day rallies. Most economic news ranging from housing price to consumer confidence for the session came worse than expected. For instance, the 20-city home prices tracked by the S&P Shiller index dropped 18.5% in 2008 and were back to levels last seen in 2003.
Let’s take a look at the three key indicators: 1. VIX: closed at 45.49 compared to 52.62 yesterday; 2. The euro/yen cross: closed at 124 compared to 120 yesterday; 3. The TED spread: closed at 96 bps compared to 98 bps yesterday.
All 10 major sectors finished the session higher led by financial and transportation. The CRB commodity index rose 1.7%. The US dollar was mixed against most major currencies. But it appreciated significantly against the yen in recent sessions, which could reflect pessimistic views among currency traders towards the Japanese economy. Treasuries dropped with the yield curve little changed. The three-month US LIBOR closed at 125 bps. The VIX index tumbled 7 points. The market breath was positive on both NYSE and Nasdaq. The volume was heavier than the previous session. Over 700 issues hit fresh new lows.

It is another bloody day on Wall Street. The Dow shed off 250 points to its lowest close since May 7, 1997. The benchmark S&P 500 followed suit as it finished at its lowest level since April 11, 1997. Even more troubling, it all happened in a session with little negative news, indicating the worse may still lie ahead. The Dow has dropped over 1100 points since Treasury Secretary Timothy Geithner announced his revised financial bailout plan two weeks ago. One big concern among investors is the possibility of nationalizing the country’s largest financial institutions. And the stress tests conducted by the Treasury as part of the revised bailout plan will only make such concerns worse. It is not a secret anymore on Wall Street that some of the biggest banks are either already insolvent or are heading towards that direction. The so-called “TCE – Tangible Common Equity ratio test” is getting ever more attention these days. In such a test, investors calculate what would be left for common shareholders if the financial institute is being forced to liquidate its assets. Obviously, not many banks are going to pass such a test given today’s depressed asset prices. Under normal condition, an easy way could be to raise common equity by issuing more common shares. But it is anything but normal now. Indeed, Wall Street Journal late Sunday cited sources that Citi is in talks with the government to convert some or all of its $45 billion preferred shares holding into common equity to boost the bank’s TCE. Such a move may help the bank pass the test but it also means massive dilution to its existing shareholders. If all banks follow this path, it would equal to a nationalization of the banking system – exactly what worries investors now.
Let’s take a look at the three key indicators plus the iTraxx CDX spread: 1. VIX: closed at 52.62 compared to 49.3 last Friday; 2. The euro/yen cross: closed at 120 compared to 120 last Friday; 3. The TED spread: closed at 98 bps compared to 99 bps last Friday; 4. The iTraxx CDX composite spread: closed at 775 bps – the highest in 3 months compared to 728 in the previous close.
All 10 major sectors finished the session lower led by basic materials and consumer cyclical. The CRB commodity index dropped 1%. The US dollar was higher against most major currencies. Treasuries rallied with the yield curve little changed. The three-month US LIBOR closed at 125 bps. The VIX index rose 3 points. The market breath was negative on both NYSE and Nasdaq. The volume was neutral. Over 900 issues hit fresh new lows.