Monday Morning Musings

The markets picked up where they ended on Friday with a rally. The market bounced from its Friday lows after Obama announced that Timothy Geitner would be named as Treasury Secretary.

Asian markets were lower overnight, but our markets shrugged off their weakness from the start. Of course, its still a long day, so let's hope this rally doesn't fade into the close.

One of the positive developments was the news that Citigroup (C) would receive another $20 billion from the Treasury, in return for preferred stocks and warrants (with a strike price of $10.61). The Treasury and FDIC will guarantee up to $306 billion of trouble assets, with Citi absorbing the first $29 billion in losses.

The market obviously likes the terms, because Citi's stock is bouncing nearly +60% on the news. It is also lifting the rest of the financials. Goldman is up +25%, MetLife is up +13%, BofA is +21%, and Wells Fargo is +13%.

Homebuilders are also getting a nice bounce (+8.8%), despite the existing home sales report that showed median home prices fell -11.3% yr/yr, the largest drop on record. The silver lining is that median home prices are now back to 2004 levels, so we've only erased the last few years of bubble prices.

Obama will be making a statement today laying out his economic plan, which will include a fiscal stimulus plan. Note that the market has often dipped lately when any elected official comes on and speaks.

The dollar is lower today, which is helping boost commodities. The Yen is also lower so far, though I would like to see it fall further. The 10-year yield is bouncing to 3.30%, up sharply from Friday's lows.

And the VIX is lower by -11% to 64.5, still an extremely high level. The next level I am watching is 56-57, which is the 50-day average. A break below that would be a nice start to the VIX moving back down to even somewhat more rational levels. As long as it stays this high, the market is telling us to continue to expect more volatile days, both up and down.

I covered my hedges on Friday, so I am no longer short anything. But since we have not had very many back-to-back up days in the last few months, I want to be prudent in putting my cash hoard to work. There is a lot of ETFs that look attractive down here, but I want to make sure the market doesn't rollover again. Easier said that done.