Market Summary: Tues. April 1, 2008

We had a huge day today. The three major indexes were all up well over 3%. The leaders were the financials. It was a flat out money moving party. Investors fled from the safe havens of treasuries and gold for the riskier pastures of stocks.

This was a classic relief rally. All the sectors that are screwed in a bad economy got a nice little bounce, i.e. auto-makers. A key learning point from today’s bounce is how do you know to get long at yesterday’s close? You don’t. If you would have tried to call this bottom you would have tried to call about 50 bottoms over the last few months. Bottom picking is dangerous and not worth it.

The rally was led by the financials, which were up 7%. UBS jumped 15% after a quarterly loss of more than $12BN on more than $19BN of write downs and the company asked shareholders to approve up to $15BN in additional financing. Wait… what? Yeah read the previous sentence again. The UBS reaction shows how bad expectations in the financials had gotten. Given that UBS has handled this mess worse than almost everybody, the perception is that they now have it all out in the clean and they’re going to be able to make it. Deutsche Bank had their first big write-off, $3.9BN, and jumped 4%. Having the “facts” from these banks helps to dispel rumors that had been building about more Bear Stearns-type of things happening, but make no mistake, more write-downs are still to come. Goldman analysts expect another $17BN of write-downs in the quarterly reports coming up. Write-downs will probably be led by, guess who, Citi.

The real big financial news came from Lehman Brothers. They announced plans to offer 3 million convertible preferred shares. Convertible means they can be converted to common stock in the future, preferred means they get dividends before common stockholders. The deal was way oversubscribed (investors wanted way more than the 3 million shares). According to the Lehman CFO the demand was more like $14BN instead of the anticipated $4BN. This is a great sign of institutional investor confidence in Lehman, the stock was up almost 18%.

With the jump in the financials some are saying the bottom is past, others are saying this is a mirage. I agree 100% with the following quote from Rich Bernstein, chief U.S. strategist at Merrill Lynch, “If one assumes that the only problems out there are related to sub-prime mortgages and domestic real estate, then one would be that the worst is over. I'm skeptical of that assumption, though. People are underestimating the depth and the scope of the global credit bubble.” Ditto, I don’t think it’s over. Home prices are still going down, the consumer is still in trouble, and overall, as Americans, we still suck at taking on too much and not paying down debt.

What else drove stocks up today? Well, we got some economic data. The Institute of Supply Management’s (ISM) index of manufacturing activity rose to 48.6 for March (anything below 50 is bad, but the operative word was rose).

On to commodities...the saying is, “ gold takes the stairs up and the elevator down.” It’s on the elevator. It’s nearing past areas of resistance but has plummeted over the last few weeks and slid another 3.6% today.

Crude oil is in a very interesting place. At just over $100 it’s perilously close to changing it’s chart into bearish mode, for all you technicians. In the next few days oil will either establish some resistance around the 100 level or break 95 and be headed back probably below 90 in a hurry.

The dollar was making a comeback, up about a percent today.

Tomorrow Bernanke is going to talk, so it’s sure to be an interesting day. A CNBC commentator said she wished Bernanke had more testosterone…take what you want from that, but I know I wish that too. Expect the same old nap-time lyrics: we have economic problems, were watching inflation but we’ll deal with that later.

Remember, today is not the end, nor the beginning. Three of the last four Tuesdays have been up 390 points or more on the Dow. Volatility is going to continue and people are still unsettled about credit conditions affecting the market, but for today, we’ll take it.

DJIA 12,654.36 +391.47 (+3.19%)
Nasdaq 2,362.75 +83.65 (+3.67%)
S&P 500 1,370.18 +47.48 (+3.59%)
NYSE Volume 4,808,055,000

2-Yr Bond 1.80% +0.18
10-Yr Bond 3.57% +0.12
30-Yr Bond 4.40% +0.10

Dollar Index 72.563 +0.761
Crude Oil (May) 100.98 -0.60
Nat Gas (May) 9.724 -0.377
Gold (June) 887.80 -33.70