Bank stocks are getting crushed overseas. Barclays is laying off 2,000 today after dismissing the same number yesterday. Citi, whose largest shareholder is now the US government, is trying to reinvent itself and the market hates it. JP Morgan is to announce earnings and markets expect the worst. And, as suggested yesterday, Bank America is may be going to a hat size, below $10. Deutsche Bank Warns of Deep Loss
The December unemployment numbers will look like a cake walk compared to January.
Global trade is falling world-wide as reported on front page of WSJ.
US savings rate is going up, as it usually does during recessions. We are moving away from being a consumption society. Every dollar saved is a dollar not spent.
Moody’s, perhaps more vigilant after failing to spot the mortgage problems last year, is now thinking junk bonds will experience a 15% default rate this year. That would up from about a 4% rate last year. There were about 110 defaults last year but the numbers were accelerating as the year wound down, twenty in December. Fifteen percent would be an historic high and erode my idea that junk bonds could and would precede an equity revival. I will tighten my stop on JNK, the junk bond ETF.
It seems the plot is thickening with Madoff to include captive brokerages. How these brokerage firms, with shared offices, didn’t know of the front running scheme seems far fetched. Things are just developing in what may turn out to be a much larger scandal. Feeder funds and funds of funds did a horrible job of vetting Madoff’s investment strategy, if he ever had one. When junior compliance people warned of pending doom they were rebuffed by senior executives all over the world.
Hedge funds lost $350 billion last year for their clients.
Bunge, the firm I raved about two weeks ago, lowered earnings guidance this morning and the shares are lower this morning on light volume. I was stopped out of my position with a 7% stop loss.
All this increases my enthusiasm for stops on positions and reduces my enthusiasm for mutual funds. I tend to hold mutuals too long, buy more as they go down and watch assets erode. With ETFs I can set a stop 7%, or so, below the market and avoid steep losses. And, so long as I don’t violate the wash sale rule, buy back-in when things turn around. Further, if I firmly believe in a rally I can buy the entire market and not be dependent on the questionable prowess of a portfolio manager. Actively managed accounts have added little over the last decade.
Finally, my interpretation of the TED spread may be upside down. I had been taught that as the spread approached 1.40/1.50 it was an indication of banks being freer with loans. Well that spread approached one yesterday and I wonder if credit is any freer today than it was last fall. Bloomberg.com: Investment Tools
We could still have a rally form oversold market but the morning look doesn’t look great. I bought more SDS, an inverse ETF, yesterday.
