My Diary 508 --- It signals a bad 2009!

February 02, 2009 --- It signals a bad 2009!

The -8.6% S&P in Jan, worse than the 7.6% drop at the start of 1970, is the steepest Jan decline in its 81yr history (Dow -8.8% for the worst Jan in 113yr history). The Jan barometer signals that S&P will record a loss for 2009. The theory developed by Yale Hirsch says that S&P’s Jan performance sets its course for the year. Since 1950, the barometer has been at least 80% accurate (1978 was an exception, S&P rebounded from a Jan drop of 6.2% to close 1.1% higher).

Growth wise, the BTE US Q4 GDP (-3.8% vs. -5.5%) was not enough to calm the investors’ nerves due to weak forward looking data (Chicago PMI =33.3 vs. 35.1 in De) and more jitters about jobs. Looking at details, the upside surprises are coming from inventory, trade balance and federal spending (+0.4 vs. -0.2), but domestic and private sectors are all WTE, with a sharp 8.9% yoy decline in nominal consumer spending, the largest quarterly setback on record since 1947. In other regions, we also see worse than expected December data (yoy), including Japan IP (-20.6%, biggest since 1953) and UNE rate (4.4%, biggest jump in 41 yrs), Korea IP (-18.6%, biggest on record), EU UNE Rate (8.0%) and Jan CPI (1.1% y/y)

Earnings side, profits decreased 41.6% for the 236 companies out of S&P 500 that released 4Q08 results since 12Jan. Last quarter is projected to mark the 6th-straight profit decline, the longest streak on record. Stock wise, P&G (-6.4%) reported WTE sales and cut its full year outlook. Financial sector took another setback (Citi -9.0%, BOA -3.0%, GS -2.4%, MS -5.4%) as a “Bad Bank” plan may be on hold as regulators and lenders are unable to agree on pricing the hard-to-value assets.

So far, momentum chasing was not a successful strategy in any market this month as trends fall prey to ranges. Looking at X-asset classes, equity lost, bond flat, while gold and oil focus on inflation and currencies.  Gold stands out for its $928 close and its trend sustaining. For FX, the movement in EURJPY mimics the equity weakness and drives the risk-off barometer.  Here in CN/HK, there is still no news of the next Chinese stimulus measures. The FT reported Premier Wen Jiabao saying further stimulus measures are still under consideration. It remains to be seen how the A-shares will react today.

Overseas Market Reviews

It is a reporting card day. Global equity prices fell 7% in January with -9.8% in Japan, -8.3% in US and -4.4% in EU. EM equities outperformed, sliding just 3.2%, compared to a 7.4% contraction in DMs. Elsewhere, USTs were about flat with 2yr, 10yr, and 30yr each down 1bp to 0.95%, 2.84%, and 3.60%, respectively. Yield curve in January moved up and steepened considerably as 2yr rose 18bp, 10yr jumped 63bp and 30yr surged 92bp. 1MWTI oil finished near $42/bbl—down $5 this week, and lower $3 since the start of the year. USD vs. EUR closed o $1.278, up 8.5% this year. The Dollar was flat vs YEN at 90.0, down ~1% ytd.