每日市场点评 --- February 28, 2008

All three major indices dropped around 0.9% for this Thursday. The economic news for the day was again negative. Start with the closely watched weekly initial jobless claims. Economists expected the number to be somewhere around 350K. Instead, it came at 373K. We had a similar number in late January and it was distorted by the shortened holiday week at that time. This time around, there is little explanation other than that the job market is probably indeed deteriorating. Meanwhile, the continuing claims rose 21K to 2.81 million, the highest level since October 2005. The four-week moving average of continuing claims rose 24K to 2.78 million, also reaching the highest level since October 2005. In a separate report, the revision to the fourth quarter GDP was also disappointing. Economists predicted a positive revision to 0.8% due to narrowing trade deficit. Indeed, we got narrowing trade deficit, which added 0.9% to GDP. But consumer spending, construction, business investment, government spending and inventories were all revised down, essentially offsetting the positive impact from the trade deficit. In fact, if it were not the 0.9% contribution from the narrowing trade deficit, the economy would have already started to shrink in the fourth quarter.

Move on to the second day of Bernanke’s two-day testimony in Congress. There was little new information coming out from today’s testimony. But somehow the market seemed to pay special attention to his remarks that “smaller US banks may fail” due to worsening housing market condition. In our opinion, this is nothing more than a general comment that should be logically expected in any uncertain times. Coincidently, Moody’s downgraded several regional banks today citing the banks’ exposures to commercial real estate. The US dollar hit another all time low while the CRB commodity index closed at another all time high. Gold, oil, soybeans all hit historical high at the same time. Treasuries rallied following today’s negative economic news. One final note: Securities backed by Alt-A mortgages dropped on average 10-15% this month following UBS revealing it intended to dispose part or all of its Alt-A securities holding of around $21 billion. Currently there are about $950 billion Alt-A mortgage securities outstanding, dwarfing $650 billion of sub-prime securities. Can this be the next time bomb?