Yesterday saw huge relief when the rumors of MBIA’s bankruptcy were squashed and the credit rating agencies maintained their very needed AAA credit rating. From the institutional and international community MBIA and the other bond insurers solvency and rating is a key component to the keeping the banks solvency inline. For sure they dodged a serious bullet yesterday, but it is still not over and the future is uncertain. The unknown risk and future write-downs are still a major concern, but MBIA’s write-down was significantly less than what the many had assume. At this stage the banks and the US economy cannot afford to have the top two financial product insurers fail (at any cost) – collectively the top insurers in the US insure close to $2 trillion in bonds, CDOs, SIVs, and other structured products. Further optimistic news this morning that is getting over-shadowed by the MSFT takeover bid for Yahoo, is that 8 world banks are getting together to discuss securing the bond insurers – while it is only a discussion it is a step in the right direction.
-----------------------------------------------
MSFT bids for Yahoo
YHOO is up big this morning with MSFT open bid for Yahoo, however a bid doesn’t mean the deals done and we don’t know GOOGs reaction. Rumors have already circulated that if MSFT grabs Yahoo that Google will try to snag AOL from Timewarner. Needless to say Yahoo is up (the target) and MSFT is down (the acquirer) – I am sure the ARB traders are already getting their systems in place to start trading this spread. Yahoo could still refuse or demand a higher price. The tech sector will be alive with activity and volatility today. Expect the MSFT bid for Yahoo news to flood the air-waves today.
-----------------------------------------------
Job numbers – LOSS OF JOBS
Economist expected the jobs to increase (even if it was to be rather contracted) – however I think we all expected the job numbers to start falling quickly, with Citigroup, Countrywide, other financial banks and firms, and several other sectors talking about layoffs in the 10s of thousands. However, most thought it would come slower rather than quicker.
The payrolls fell 17,000 in Jan and Jobless rate is at 4.9%. The gain in Dec of 89,000 jobs led all economist to predict an increase even if contracted – consensus (80 economist) was for a contraction to a gain of 70,000 in Jan and it is important to note that not one single economist predicted a actual loss. Many economist after missing the Nov and Dec job numbers by significant amounts (note the consensus was for serious contraction and they were WAY off according to the job reports) had revised their forecasts significantly higher – believing that maybe something is wrong with their model. For the last several months it seems the economist can’t get anything right – which seems like the tail is wagging the dog. Maybe they should just stick to their models instead of trying to second-guess the numbers. Oh well….
Now for the revisions – let’s see how that faired. The Labor Department subtracted 376,000 jobs from the previous estimate for the year ended in December 2007 to 1.137 million. WOW, they over reported by 24% - maybe those economist that had predicted the contractions in Oct, Nov, and Dec (who were WAY off from what the government reported) should of stuck to their guns. As you know (if you read my essay on government numbers) you know what I think.
---------------------------------------------------
Futures Pre-open
The futures fell off heavy after yesterday’s close during the Globex session – however optimism that the bond insurers are getting some relief has given them some boost – then the MSFT initial news had sent a full upside knee jerk to the futures this morning. Job numbers coming in way lower than expected is again putting pressure on the futures. They are seeing some heavy whip-saw action today. I expect Arb traders for the most part are sideline in the pre-open not willing to leg into positions until things settle - specially GOOG, MSFT, and YHOO
-------------------------------------------------
Support / Resistance
It would seem there is still much uncertainty in the market. We still remain range bound not testing supports or resistance.
INDU 12,000 / 13,000 (We got a huge boost yesterday – will optimism that the stop-gap insurance is not having the problems that people had initially thought (or not as bad) – we may yet test 13,000)
NDX 1800 / 1900 (The boost in the tech sector was pretty broad – but today is seeing mix signals – GOOG down big in the pre-open, MSFT down, YHOO up – still range bound)
SPX 1300 / 1400 (We are getting close to 1400 – if we can close above it that would be a fairly good sign – but there are still many mixed signals out there)
RUT 700 / 750 (We are above 700 – which is not much of a support – however if we can continue to build here in the board market that will start showing some strength)
----------------------------------------------
Conclusion
It is still a very unknown and risky market. While MBIA dodge a serious bullet yesterday (of which many people don’t realize the serious repercussions if they would of lost their AAA status and headed towards bankruptcy) – ostensively the bank write-downs pale in comparison to the catastrophe if the top 3 bond insurers would of failed – since not only do the banks rely on that insurance but even more importantly all the state and local governments, pension plans, and the 2 trillion worth of assets insured could create a rapid domino effect that would not be good. The 8 banks meeting to discuss this issue is a first step (and important one) – don’t take your eyes off of MBIA or AMBAC issue – the story is far from being dead.
Gold, Oil, and Currency are all up against the dollar – after the rate cut. The job numbers is going to put more inflation pressure on the back of the US and the FED will most likely cut more and more. Goldman is probably right and 2.5% is in the cards – I would not be surprised if we go lower to 2%. The glimpses of good news here and there are sending some solid spikes to certain parts of the market – but there is still a dark shadow over the economy and this may just be a clam in the storm.
Stay hedged and watch your VEGA !
No comments:
Post a Comment