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每日市场点评 --- February 25, 2008

(2008-02-25 14:09:09) 下一个
The market started the new week in a definitely positive tone with all three major indices closing the day higher by more than 1%. Similar to last Friday, the trigger for today’s rally was due to positive developments in bond insurers. Standard & Poor’s, one of the top three rating agencies, affirmed AAA credit ratings for MBIA and Ambac. Although both bond insurers still have their credit ratings under negative watch list, meaning a downgrade is still possible in the future, investors seemed to be relieved that a short-term threat to the financial market has been removed. As a result, equities rallied and treasuries fell across the yield curve.

So far, the bond insurers have already helped Dow rally more than 400 points from its low in the past two trading sessions. Why does it have such a huge impact? The most obvious explanation is if the bond insurers were downgraded, the financial industry would face more than $70 billion related to insurance losses right away. Right now, as the short-term uncertainty has been removed, therefore a rally seems to be quite reasonable. But one needs to remember that the root of all this sub-prime mess is declining house price. Unless the house price gets stabilized rather quickly, all those structured products such as CDOs and ABS surrounding the sub-prime mortgage loans( and in some cases prime mortgage loans) will suffer further losses and in the end, someone has to pay for the losses. The credit ratings of the bond insurers were being saved after banks agreeing to inject billions of fresh capital into the troubled insurers. But what if the injected capital is again depleted? Are banks willing to inject more capital? Those are questions left to banks.

Separately, the National Association of Realtors said today that sales of existing homes dropped 0.4% last month to 4.89 million units. It was the slowest sales pace in 9 years but still managed to beat economists’ forecast of 4.80 million units. The median price dropped 4.6% from one year earlier and more important, the inventory of unsold homes jumped to a 10.3 months’ supply. Back in 2005 when the housing boom was at its heyday, the inventory was a mere 4.5 months’ supply. The US dollar was mixed against major currencies while the CRB commodity index hit another record high led by higher agriculture products. One final note: the spreads between the US treasuries and investment grade corporate bonds/agency notes remain at an elevated level despite the aggressive rate cuts by the Fed. It seems that the credit market has a different view towards the economy these days.

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