Friday, October 31, 2008

Credit Markets Continue To Show Improvement

The credit markets continue to show improvement today. 3-month LIBOR rates are down -5.3%, the TED spread is lower by -6.4%, and US commercial paper soared its most on record after the Fed CP program kicked in. This is all good news, and as the credit markets heal, it should improve sentiment in the stock market as well.

The insurance stocks are all down materially today (HIG, PRU, CI, etc), and those are the worries du jour. I suspect these companies will look to the Fed as so many other companies seem to now be doing.

Asian markets were mostly lower overnight, despite the Bank of Japan cutting its lending rate to 0.3% from 0.5%. Some were disappointed that they didn't go to 0.25%. Nonetheless, these low rates could spark another round of yen carry-trade action if and when sentiment improves. Also, Japan's stock market had bounced some +26% in just 3 days, so a pullback is expected.

The dollar is higher today, after resting for a few days. Oil is trading lower, near $65. Energy and material stocks are lower as well. The 10-year yield is down at 3.91%.

And the VIX is also lower, to 61.86, after a nice drop yesterday. I would like to see the VIX move below 60 for starters, and then continue to work its way lower from there.

The market has retested its October 10th lows successfully, and now looks poised for a least a multi-week move to the upside. How much gusto it has remains to be seen. But the market is still oversold, and a 10-15% move would not surprise me.

I have started adding to some of our positions. The 2 ETFs (IEO, MOO) I started with last week are both higher this week. And yesterday and today I began adding to AAPL and GOOG, as both stocks are depressed and should lift with the market.



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