Behind the Numbers: January 2010 Market Review

As January goes, so goes the year.

Does this adage hold water? The market direction for the year is correlated approximately 70% of the time with January’s move. I certainly would not make investment decisions based purely upon that rule of thumb. The rule did not hold in 2009 as major equity averages were down 8% last January. That said, 2009 was anything but a normal year given the massive economic and market supports implemented by Uncle Sam.

What rule of thumb would I recommend? Read and review Sense on Cents regularly to most effectively navigate the economic landscape. On that note, let’s review the market moves for January. The figures provided are month end statistics for the respective markets, then month-to-date and year-to-date returns.


The U.S. dollar had a very solid month with the overall index gaining 2.1% on the month. The dollar did weaken versus the Japanese Yen while strengthening versus the Euro. Please be aware the Euro/dollar quote above looks at the currency swap from the perspective of the Euro. Why? Most market participants quote it in that format so it becomes the standard. Red ink there means our greenback strengthened versus the Euro.

Are we witnessing the unwind of dollar carry trades (that is, sell dollars because they can be borrowed so cheaply given the 0-.25% Fed Funds rate and use the proceeds to buy risk-based assets, including commodities, equities, and bonds) that were so prevalent in 2009? I believe we are. Why might these trades be unwound? The expectation that global governments and central banks, including our own, are withdrawing supports for their economies and markets. Why? Fears of asset bubbles and incipient inflation. This dynamic is playing out most prominently now in China where banks are curtailing lending. What impact has this had? Let’s move on to our review of . . .


This sea of red ink is not indicative of expectations of strong future economic growth. The losses here are widely due to the unwind of trades as highlighted above. Within the commodity space, copper specifically got hammered and was down 10% on the month. That base metal is used in both residential and industrial production. Given this move in commodities, no surprise that equities in general and especially within the emerging economies were down on the month. Moving right along . . .


The equity markets were up approximately 2% the first week of the year, but then came off hard. In my opinion, the selloff was a function of the points highlighted previously (withdrawal of government and central bank supports) but also the realization of the following:

1. Global economy remains challenged. Greece is on the edge of a sovereign default.
2. Our domestic economy, especially within the labor and housing sectors, continues to face an uphill climb. State and municipal finances are a mess.
3. Washington is also a political and fiscal mess. You already knew this.
4. Obama’s slamming Wall Street and promoting the Volcker Rule to remodel banks is not exactly leaving Wall Street with a warm and fuzzy feeling.
5. The prices of stocks look quite full relative to earnings generated and earnings projected.

So where are investors putting cash? Moving right along . . .


Interest rates on government debt came down (remember rates down, bond prices up) and other sectors of the bond market held up quite well as investors look for a bit of a safe haven while trying to generate some sort of yield. In my opinion, the bond market looks overpriced given the ongoing risk of defaults (corporate and consumer) but also given the massive deficits at the federal, municipal, and consumer levels. Each of these sectors of our economy have enormous funding needs. As Uncle Sam lessens his ability to provide that funding, I believe interest rates have to move higher.

Risks remain abundant. Navigate accordingly.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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