My Diary 476 --- The 11K XMAS Gift!

November 20, 2008 --- The 11K XMAS Gift!

Overnight Dow closed below 8K as the impact of potential bankruptcies in the automotive industry loomed over investors after hearings by the chief executives of the Big Three continued. In addition, disappointing economic data was also reported throughout the session reflecting the weak housing environment and a sharp decline in consumer prices. Looking from big picture, it is quite gloomy as commodities retrace, housing industry remains weak, credit market spreads blow out for financials, consumer spending slows & the Fed cut their GDP growth forecasts.

Having said so, the recent credit markets also breathed heavily as CMBS Risk rises after Loan Delinquencies… even the spread of super senior tranches got hit hardly…After CDS of Citigroup widened 130bp to 385(bid) as the firm wind down SIVs ( posted $3.3bn losses), US XLF tumbled 12%. Citi tumbled 23%, BOA dropped 14%, Goldman dropped 11% (the lowest since 1999 IPO, Buffet’s BUY @120); Berkshire Hathaway dropped 12%, the steepest plunge since at least 1985.

My own view continues to be that we lack a clear marginal buyer of equities. Yes there is a lot of cash on the sidelines, but no, it's NOT waiting to be deployed into the equity market. It's either set aside for redemptions, or to be allocated towards better/cheaper opportunities, like CBs and credits. In fact, since 21May, EM Asia has suffered 26 consecutive weeks of foreign outflows, totaling US$52bn…The market talk by SH Securities is China may use FX reserve to buy H shares …Well, that is everybody’s dream, but we are going to have 11000  ‘HSI as our Xmas gift!

Oversea Markets Review

Overnight, globally stock prices fell 4.2% as markets declined nearly everywhere. Equities slipped 0.7% in Japan, fell 3.7% in EU, and plummeted 6.4% in the US. Since September, equities have collapsed 27% in Japan, 23% in the Euro area, and 32% in the US. EM equities have tumbled 30% over the same period.

Elsewhere, 1MWTI oil edged down further to $53.62/bbl. The price of oil is down $14 this month, $46 since September, and more than $90 from its peak this summer. 2yr and 10yr UST yields sank 7bp and 21bp, respectively, to 1.06% and 3.32%. 2yr and 10yr yields have both declined 10 of the 13 business days this month, with 2yr falling 49bp and 10yr falling 63bp over the period. USD rose 0.8% this week to near its peak in late October. The dollar strengthened 1% vs. EUR to a new mult-year high at $1.249, while it dropped >1% vs. YEN to 95.7.