Monday Morning Musings

This morning is day 2 of this selloff, and today's its the same fears as a couple of months ago that are leading the declines. Of course, the market had a big move off its recent lows, so some of this selloff is likely a move to take profits.

Geithner indicated over the weekend that banks may need even more bailout funds, even as some are returning their TARP loans. I don't see why this is such a big surprise, I think most people knew that bank balance sheets were still stressed. Otherwise there would have been no need to announce this new PPIP plan.

The other news item that is worrying the market is that the govt. auto task force said neither GM nor Chrysler submitted viable restructuring plans. The govt. forced the resignation of GM CEO Rick Wagoner, and said it doesn't believe Chrysler is a viable stand-alone company. Some are now worried that the use of bankruptcy may be required. At least the govt. is using a firm hand with these companies.

Additionally, news over the weekend that the Spanish central bank took control of a large savings bank has rekindled fears of bank nationalizations in Europe (and here). In Britain, Barclays (BCS) refused to partake in the government's toxic asset insurance plan.

The above news led to sharp selloffs in Asia, with many markets down in excess of -4%. The 10-year yield is lower at 2.71%; oil is trading lower near $50, while gold is higher; and the VIX is spiking +11% to 45.70.

Trading comment: I opined last week that the stubbornly high VIX made me think another short, sharp selloff could surface at anytime. This is one of the reasons I kept some small hedges on in the portfolio. The last 2 days certainly qualifies as a sharp selloff, with the SPX -5% off its recent highs.

Nonetheless, my near-term strategy remains to use these dips to put some cash to work and add some long exposure to the portfolios. Last week I added to our biotech (XBI) positions. This week I will look to add additional positions.

long XBI