每日市場點評 --- January 17, 2008

Bears are in full control of this market. For the second time this week, all three major indices dropped more than 2%. The news this morning was simply horrible: Merrill posted larger than expected loss although its write downs were pretty much in line with Wall Street expectation; Moody’s reported that it had put bond insurer Ambac’s credit rating under review, renewing concerns of possible bankruptcy and credit market turmoil that may follow; both Housing starts and building permits came lower than expected – actually the permits number was the worst in more than 16 years; Philly Fed Index came at -20.9, a level not seen since Oct 2001, one month after 911. The only positive news was the initial jobless claims unexpected dropped 20K vs. a small increase expected. But despite all the negative news, the market actually opened higher and stayed in the positive territory until the Fed Chairman Bernanke started his testimony in front of House Budget Committee. Bernanke basically repeated his view from the previous week when he was speaking about economic outlook in Washington but he did mention that a quick fiscal stimulus package would be beneficial for the economy to recover from its recent weakness. When asked about his opinion about apparently different monetary policy paths between Europe and US for the near term, Bernanke replied that EU doesn’t have the same housing problem as US has right now, indicating the Fed is ready to take its own action of fighting economic weakness despite lacking similar actions in their European counterparties. But all in all, traders cannot find the urgency of the current economic situation they are looking for from the Fed chief so a wave of selling quickly followed.

The selling activity got worsened in the afternoon and finally we started to see some panic selling as evidenced by more than 16% jump in the VIX. However, even after today’s jump, the current VIX level is still not extreme enough to trigger a capitulation rally. The US dollar was mixed against major currencies and treasury bonds rallied sharply, pushing 5-year note yield below 2.9%. At the current inflation rate level, this means bond investors are willing to get no real returns on their money for 5 years. Truly amazing! We are going to get the OE day tomorrow so some extra volatility during the early trading should be expected. In addition, the Richmond Fed President Lacker is scheduled to discuss economic outlook before the market open.