What a Difference a Week Makes

This week was certainly a robust one for the majority of equity markets around the world. China, Hong Kong and Singapore were amongst the handful that suffered another leg down, with China now down almost 18% for 2008. The US markets in contrast posted some of the healthiest gains, with the S & P up almost 5%. The FED in a much anticipated move on Wednesday cut another 50 bps, giving a total 125 bp boost to the economy. Further they announced they would make $60 billion available via auction to the banks, just in case there cash drawers are running a little low. The real question is whether it is sustainable, or is to be held suspect as a bear market rally? In this week’s BARRONS Alan Abelson suggests the latter, stating that “Folks are manifestly desperate for any news that might be read as favorable….” He goes on to say that “What we are seeing is a typical bear market rally, predictably paced by the very stocks – homebuilders, financials and the like – that spearheaded the big plunge.” There is likely some great value to be found in bottoms up stock picking, but I still would not trust the overall market.

The latest job report was far from favorable, noting that non farm payroll dropped by 17,000 in January, the first drop in more then 4 years. ( WSJ ) It is going to be important to watch employment and personal income numbers in the next few months to get direction on whether the current problems in the mortgage area are likely to spread in to other types of personal debt. My guess says it is already happening, and I am looking for the numbers to confirm it. As a very smart woman pointed out to me today, it is more normal for delinquencies to start with credit cards and spread in to home equity and mortgages, but this time we are experiencing the opposite. I suspect that the market is going to struggle a little more this week, and continue to be very vulnerable to the latest, breaking news.

Some other disturbing headlines worth paying attention to this week are the following:
- Bristol Myers Squib takes a $275 mm hit from sub-prime. ( WSJ) There are going to be a lot more of these types of announcements coming, a lot more.
- FBI opened criminal inquiries in to a number of companies as to their role in the whole sub-prime mess. Add to this a whole bunch of law suits that are likely to follow.
- UBS takes more write-downs – total of $18.4 for 2007. The problem with the banks is far from over, but will be an opportunity at some point.