The market finished the final session of this shortened week in a mixed fashion. Similar to the previous session, the closing price is much higher compared to today’s intra-day low, indicating some buying supports underneath. The Dow dipped below the key 8000 level for all four trading sessions this week. But other than Tuesday, it managed to close above that level for the rest of the week, which by itself is a pretty positive sign. Financials, in spite of today’s modest rally, were down about 10% for the week, extending the year-to-date loss to 36%. Many uncertainties are still hovering around the troubled sector, including how to resolve the troubled assets currently sitting on the books of many banks. One idea that is getting more popular is to create a so-called bad bank that will remove those toxic assets from financial institutions. That idea is actually not new and has been used in the past by many countries, including the US. For example, the Resolution Trust Corporation (RTC) was created in 1989 to deal with troubled assets (mostly real estate-related assets) as a result of the S&L crisis. Despite oppositions and interventions by the Congress throughout its existence, the RTC managed to dispose $458 billion troubled assets between 1989 and 1995, essentially fulfilling its original goal at inception. For those that are interested in learning more details, you can find more information through the links below:
http://en.wikipedia.org/wiki/Resolution_Trust_Corporation
http://www.fdic.gov/bank/analytical/banking/2007apr/article1/index.html
Let’s take a look at the three key indicators: 1. VIX: closed at 47.84 compared to 47.29 yesterday; 2. The euro/yen cross: closed at 115 compared to 116 yesterday. Earlier, it reached a fresh multi-year low of 113; 3. The TED spread: closed at 108 bps compared to 106 bps yesterday.
Most major sectors finished the session higher led by energies and basic materials. Transportation was lagging behind, however. It should be noted that the Dow Transportation Average is quietly breaking its November lows. For those Dow Theory believers, that cannot be a good sign. The CRB commodity index rose 3.3% helped by the gold price hitting a new high for the year. The US dollar was lower against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR rose to 117 bps. The VIX index was little changed. The market breath was neutral on both NYSE and positive on the Nasdaq. The volume was neutral.

The market couldn’t hold onto yesterday’s gain amid a new wave of bad economic and corporate news. Although well off their intra-day lows, all three major indices were still down by at least 1.2% for the session. The biggest hit came from the housing front with housing starts and building permits tumbling to the lowest level since the government started keeping records in 1959. To put things in perspective, today’s population in the US is almost 80% more compared to 50 years ago. In the short term, falling housing starts mean more pain to the housing industry and to the economy as whole. But it is nonetheless the right and necessary step to bring down inventory accumulated during the bubble years. With the US population (currently at 310 million) growing at an annual rate of 1%, an estimated supply of 1.2 million new homes is required to simply meet demands from newly formed families. On top of that, another several hundred thousand new homes are needed to replace old ones. Therefore, the natural demand for new homes should be around 1.5 million per year. Eventually, the over-hanging inventory will be worked out. It is also worth noting that some home builders are currently offering 30-year fixed rate as low as 3.99% to attract new buyers and nationwide, the 30-year fixed rate is below 5%.
Let’s take a look at the three key indicators: 1. VIX: closed at 47.29 compared to 46.42 yesterday; 2. The euro/yen cross: closed at 116 compared to 116 yesterday; 3. The TED spread: closed at 106 bps compared to 101 bps yesterday.
All 10 major sectors finished the session lower led by financials and consumer cyclical. The CRB commodity index dropped 0.6%. The US dollar was higher against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR rose to 116 bps. The VIX index rose 1 point. The market breath was negative on both NYSE and Nasdaq and the volume was neutral.

The market surged following yesterday’s plunge. Financials, which contributed most to yesterday’s drop, provided much support to today’s rally and gained over 14% as a group. However, they are still down over 30% year-to-date. There is no specific news item behind today’s rise. It is likely to be one of those oversold rebounds or short-covering rallies. Whether and how long the rally can be held will depend on the performance in the financial sector. One positive note on the market is that there is no follow-through sell off like we experienced last October and November.
Let’s take a look at the three key indicators: 1. VIX: closed at 46.42 compared to 56.65 yesterday. Despite today’s drop, it is still up 20% year to date; 2. The euro/yen cross: closed at 116 compared to 116 yesterday; 3. The TED spread: closed at 101 bps compared to 102 bps yesterday.
All 10 major sectors finished the session higher led by financials and basic materials. The CRB commodity index rose 1.9%. The US dollar was lower against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR was unchanged at 112 bps. The VIX index dropped 10 points. The market breath was positive on both NYSE and Nasdaq and the volume was neutral.

Panic returned to Wall Street just as Obama officially entered the White House. The KBW Bank Index dropped 19.7% in a single session and brought its total year-to-day loss to an inconceivable 40%. With the banking shares tumbling, the market had their worst start of the year and all three major indices finished the session lower by at least 4%. Market is always driven by greed and fear. Obviously, the latter dominates investor’s psychology these days. But it is exactly at these difficult moments that we need to separate ourselves from the rest of the market. We need to take a step back and move our eyes away from the flashing screen so big picture won’t be lost.
I spent some time over the weekend reviewing the S&L crisis along with the real estate crisis 20 years ago. Remarkably, what is happening today is strikingly similar to what happened then. Of course, differences still exist. The real estate bubble in late 1980s was mostly around commercial properties while today’s is all about residential. The nominal GDP in 1990 was $6 trillion while today it is $15 trillion or 2.5 times as large. Total banking assets under FDIC was around $2.8 trillion back then and today it is around $13.5 trillion or 5 times the size. The increasing ratio between banking assets and nominal GDP reflects the trend of using more debt to finance growth and consumption over the past two decades. Citicorp was the biggest bank in terms of assets back then and as recently as last October, it was still the largest bank in terms of assets. Even more interestingly, the three biggest banks(Citicorp, Chase Manhattan, and BankAmerica) in early 90s lost on average 72% of their market cap in a time frame of 15 month triggered by the real estate crisis, which by the way was cited as the main reason that led to the 1990 -1991 recession. The outgoing president Bush’s father lost his campaign to Democratic candidate Clinton in 1992 mainly due to that recession. Today, the three biggest banks (JPMorgan – which later merged with Chase, Citi – which later merged with Traveller and BankAmerica) also lost on average more than 70% of their market value during the past 15 months. For those interested, I have attached two articles regarding Citi corp in early 90s at the end of today’s comments (one by the Wallington Post dated on May 16, 1993 and the other appeared on Fortune’s Jan 14, 1991 issue).
Let’s take a look at the three key indicators plus the iTraxx CDX index: 1. VIX: closed at 56.65 compared to 46.11 yesterday. It is the highest closing in more than one month; 2. The euro/yen cross: closed at 116 compared to 120 yesterday. Clearly investors are fleeing away from risky assets and choose the dollar as a safe haven; 3. The TED spread: closed at 102 bps compared to 103 bps yesterday; 4. iTraxx CDX composite spread: closed at 657 bps compared to 604 bps in the previous week. Most of the increase occurred in North America credit products.
All 10 major sectors finished the session lower led by financials and basic materials. The CRB commodity index dropped 2.4%. The US dollar was higher against most major currencies. Treasuries were mixed with the yield curve steepened. The three-month US LIBOR dropped to 112 bps. The VIX index jumped 10 points. The market breath was negative on both NYSE and Nasdaq and the volume was neutral.
Artical One: The Saving of Citibank; Partnership of Regulators, CEO Brings Firm Through Crisis
Artical Two: CITICORP'S WORLD OF TROUBLES Add real estate and LBO loans to LDCs, and you've got mega-problems right here in Fat Citi. The crunch has made John Reed admit he needs more than mini-capital.

Market is closed for US holiday.