Feb 1. Bearish reaction to strong GDP
In spite of robust 5.7% growth rate for Q4 GDP, stocks fell and bonds rallied. (ten yr yield to 3.61% from 3.66). SPX had an outside month in January: higher high, lower low, lower close. (I would note that in the rally from 2003 to 07, this happened at least 5 times without lasting damage, but the following month went lower). China shares dropped below 200 day moving average. In fact, emerging economy stock markets are generally indicating weakness. I looked at Brazil, Russia, India and China on weekly charts compared to 26 week moving averages and only Russia is holding above (SPX is currently right AT 26 week ma). Best quote I saw from Davos: “Emerging markets used to be associated with indebted governments, lax monetary policy, suspicion of markets, a polarized electorate and a suspect private sector,” Mr. Rajan said. “Now, that description better fits the world’s advanced economies.”
–From zerohedge: “The most disturbing observation from this month’s RealPoint CMBS analysis, aside from the surge in delinquencies to an all time high of $42 billion, is that the average loss severity on CMBS liquidation has just hit a record of 52.7%. That means that on average less than half the loan is recovered in liquidation.” At least perhaps, the losses are taken, rather than strung along like residential.
–Former Treasury Sec’y Paulson claims that Russia, in 2008, tried to get China to sell GSE debt to cause a bailout. Reminds me of the scene in Austin Powers where Dr Evil, having returned after unfreezing, proposes several outlandish plots against the western world in order to extort ransom. Here’s one: “We’ll install an Austrian body builder as the governor of a large state and watch as it goes bankrupt.” Number Two, “That too, has already happened.” [State Controller John Chiang issued a stern warning Friday about California’s cash reserves, telling legislative leaders and Gov. Arnold Schwarzenegger they must act on nearly $9 billion in budget cuts the governor is seeking by March — or the state will run out of cash to pay its bills].
–PI and PCE expected +0.3%. ISM expected 55.0 from 55.7.
