Monday, August 29, 2011

Market Data: Week Ending August 26, 2011


Market Index 12/31  Close 8/26    Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 11,284.50 4.32% -2.53%
S&P 500 1,257.64 1,176.80 4.74% -6.43%
Fed Funds Rate 0.10% 0.12% 0.09% 20.00%
10 yr T-note Yld 3.29% 2.19% 0.13% -33.43%
5 yr T-note Yld 2.01% 0.94% 0.04% -53.23%
5 yr TIPS - 'Real' Yld -0.06% -0.81% 0.07% -1250.00%
Implied 5 yr Inflation % 2.07% 1.75% -0.03% -15.46%
2 yr T-note Yld 0.59% 0.19% 0.00% -67.80%
2-10 Yr Slope 2.70% 2.00% 0.13% -25.93%
90 day T-bill Yld 0.12% -0.01% -0.01% -108.33%
Gold ($/oz) $1,421.40 $1,797.30 -$54.90 26.45%
WTI Oil ($/brl) $91.38 $85.37 $3.11 -6.58%
VIX "Worry Index" 17.75 35.59 -7.46 100.51%





Credit Spreads 12/31  Close 8/26    Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.68% 0.16% -2.09%
Low Grade Credit Idx 8.32% 8.07% -0.13% -3.00%
Markit CDX Inv Grd Idx 85 126 7.69% 48.24%
Markit CDX Mid Grd Idx 131 207 2.48% 58.02%
Low Grade to 10 yr T-Note Spread 503 588 -26 16.90%

Friday, August 26, 2011

Brief Summary of Bernanke's Speech

From Econoday:
Fed Chairman Ben Bernanke reaffirmed the Fed's commitment to at least two more years of low policy rates. He did not elaborate on any likely new quantitative easing but he did announce that the upcoming FOMC meeting has been expanded from one day to two days to allow for more in-depth discussion about monetary policy. The Fed chief calls on more effective fiscal policy. He sees the need for a more sustainable fiscal path. Bernanke states that the debt ceiling squabble and credit downgrade hurt consumer and business confidence. He also sees the need for effective tax, trade, and regulatory policies. On the news, equities declined further. More detail coming.

Looking at details of the speech, the Fed chairman actually does a little cheerleading, taking the role of a long-term optimist.

"As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives."

But, Bernanke also plays the role of realist, noting disappointing strength in the recovery. Importantly, he still sees a modest rebound in growth in the second half of this year.

Finally:
Overall, Bernanke's remarks were very close to expectations by most analysts. The Fed chairman realizes that with three dissenting votes at the last FOMC meeting, he must act collegially and make sure there is a consensus for further action by the Fed. He also may be providing some cover for Congress to enact more stimulus measures. Markets will be focusing on the outcome of the September 20-21 FOMC meeting and the outcome of the super-committee to determine the details of deficit reduction in the debt ceiling legislation recently enacted.

Monday, August 22, 2011

Market Data: Week Ending August 19, 2011


Market Index 12/31  Close 8/19    Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 10,817.70 -4.00% -6.56%
S&P 500 1,257.64 1,123.53 -4.69% -10.66%
Fed Funds Rate 0.10% 0.03% 0.00% -70.00%
10 yr T-note Yld 3.29% 2.06% -0.19% -37.39%
5 yr T-note Yld 2.01% 0.90% -0.06% -55.22%
5 yr TIPS - 'Real' Yld -0.06% -0.88% 0.06% -1366.67%
Implied 5 yr Inflation % 2.07% 1.78% -0.12% -14.01%
2 yr T-note Yld 0.59% 0.19% 0.00% -67.80%
2-10 Yr Slope 2.70% 1.87% -0.19% -30.74%
90 day T-bill Yld 0.12% 0.00% -0.01% -100.00%
Gold ($/oz) $1,421.40 $1,852.20 $109.60 30.31%
WTI Oil ($/brl) $91.38 $82.26 -$3.12 -9.98%
VIX "Worry Index" 17.75 43.05 6.69 142.54%
Low Grade to 10 yr T-Note Spread 503 614 614 22.07%
Credit Spreads 12/31  Close 8/19    Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.52% -0.07% -5.44%
Low Grade Credit Idx 8.32% 8.20% -0.07% -1.44%
Markit CDX Inv Grd Idx 85 117 0.00% 37.65%
Markit CDX Mid Grd Idx 131 202 -0.49% 54.20%

Sunday, August 21, 2011

Economic Condition Review: August 2011

Looking back since my last review in June the world has recovered from the tsunami and earthquake damage in northern Japan (Japan is still in recovery/clean up mode), the civil revolt and dictator overthrow in Egypt has resulted in a power vacuum which will be resolved by election later, the dictator of Libya, Muammar Gadhafi, has been defeated by his opposition according to news reports. Other uprisings are beginning to build in several other oil producing countries in the region, including Syria and Persian Gulf states. The threat of crude oil shipments being interrupted is a growing concern for all countries importing from this region. Despite these pressures, the price of Brent Oil has softened recently from more the $120 to now $108.62.

In Europe, the socialist government of Portugal has collapsed and is now moving on with a new center-right government. The government of Greece has had to renegotiate the bailout terms with the ECB (Germany and France) as a condition of getting the last installment of their bailout package. The renegotiated plan now calls for Greece to liquidate much of its net worth (state owned assets like airports and transportation services) as well as agree to new austerity. Can it get any more dire in Greece? Misery likes company and Italy, the eighth largest economy in the world, is drawing attention to itself for having public debt at 120% of GDP. That's second, to Greece, in the euro zone. Spain is on the radar screen now as well.

China is still wrestling with internal high food and shelter inflation threatening the massive lower classes, potentially destabilizing the power of the ruling party. Published reports describe interest rate increases are the tool to fight inflation in China, to slow lending for business and personal discretionary consumption.

In the US, the Treasury market is finding some strength on a risk-off move. The yield on the 90 day Bill is 0.00%, the 2 yr T-note is 0.19% and the 10 yr T-bond is 2.06%! The US$ is weak, trending between 73.50 and 76.00 during the past several months, and currently near the 74 mark. 'Risk off' has been a reaction to the US Congress displaying their lack of ability, building the case daily until the beginning of August when they finally extended the US public debt limit. The public display of incompetency was so much greater than expected that some economic activity slowed as a result of the spectacle and resulting loss of confidence in the leadership ability of the US government.

Calculated Risk has a summary of the recent economic reports which illustrate that the economy is not growing, but is not collapsing into recession. New home building is slow and existing home inventory is still large. Industrial production is  trending sideways or improving. Same trend for production capacity utilization.

The Federal Reserve is pulling the strings to guide global perception about the strength of the US$. The Fed has no choice but to continue it's zero interest rate policy and money printing practice. They will attempt to support the Treasury market when the primary dealers and global participants back away more than they have now. As mentioned above, yields are at historic lows. Doug Noland has this caution in his blog this weekend. "Fiscal and monetary policies are rapidly losing credibility.  Treasury prices may be inflated, but don’t mistake this for confidence in our system’s “core”." Financial markets around the world are expecting a return to quantitative easing (QE3) sometime soon. Bernanke is speaking at the annual Fed Conference at Jackson Hole where last year he hinted at QE2. The world will wait for his message on Aug. 26. Calculated Risk has a post on what he expects from this years Jackson Hole speech. There is a building awareness that the Fed is wrecking the currency. On top of the loss in confidence for the US government, the reaction to a new plan of quantitative easing does not guarantee support for financial markets. Doug Noland writes "The American people no longer buy the notion that piling on more debt and “money printing” offers a reasonable solution.  They are appreciating that it’s instead the problem, and there will be less tolerance for this “experiment” going forward."

Monday, August 15, 2011

Market Data: Week Ending August 12, 2011


Market Index 12/31  Close 8/12    Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 11,269.00 -1.53% -2.66%
S&P 500 1,257.64 1,178.81 -1.72% -6.27%
Fed Funds Rate 0.10% 0.03% -0.07% -70.00%
10 yr T-note Yld 3.29% 2.25% -0.31% -31.61%
5 yr T-note Yld 2.01% 0.96% -0.29% -52.24%
5 yr TIPS - 'Real' Yld -0.06% -0.94% -0.26% -1466.67%
Implied 5 yr Inflation % 2.07% 1.90% -0.03% -8.21%
2 yr T-note Yld 0.59% 0.19% -0.10% -67.80%
2-10 Yr Slope 2.70% 2.06% -0.21% -23.70%
90 day T-bill Yld 0.12% 0.01% 0.00% -91.67%
Gold ($/oz) $1,421.40 $1,742.60 $90.80 22.60%
WTI Oil ($/brl) $91.38 $85.38 -$1.50 -6.57%
VIX "Worry Index" 17.75 36.36 4.36 104.85%





Credit Spreads 12/31  Close 8/12    Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.59% 0.25% -3.97%
Low Grade Credit Idx 8.32% 8.27% 0.60% -0.60%
Markit CDX Inv Grd Idx 85 117 12.50% 37.65%
Markit CDX Mid Grd Idx 131 203 20.12% 54.96%

Wednesday, August 10, 2011

If Big Bank in Crisis, Then Precious Metal for Safety

This is an interview of one great mind talking with another. They are James Turk, interviewer, and Eric Sprott, interviewed. This interview took place at GATA's Gold Rush 2011 conference in London on, or near, August 5, 2011. This is a segment of a thirty-three minute interview that is worth listening to for the range of topics and candid observations from two marketers of precious metals investments. They focus on metals they represent, silver and gold, and point to the possibility of copper maybe having a role in this movement. Even though they are "talking their book", they earned my respect by providing investment vehicles that represent direct ownership of the metals, something Sprott states in the interview about his fund.


Monday, August 8, 2011

Market Data: Week Ending August 5, 2011


Market Index 12/31  Close 8/05    Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 11,444.60 -5.75% -1.15%
S&P 500 1,257.64 1,199.38 -7.19% -4.63%
Fed Funds Rate 0.10% 0.10% -0.01% 0.00%
10 yr T-note Yld 3.29% 2.56% -0.24% -22.19%
5 yr T-note Yld 2.01% 1.25% -0.11% -37.81%
5 yr TIPS - 'Real' Yld -0.06% -0.68% 0.16% -1033.33%
Implied 5 yr Inflation % 2.07% 1.93% -0.27% -6.76%
2 yr T-note Yld 0.59% 0.29% -0.07% -50.85%
2-10 Yr Slope 2.70% 2.27% -0.17% -15.93%
90 day T-bill Yld 0.12% 0.01% -0.08% -91.67%
Gold ($/oz) $1,421.40 $1,651.80 $20.60 16.21%
WTI Oil ($/brl) $91.38 $86.88 -$8.82 -4.92%
VIX "Worry Index" 17.75 32 6.75 80.28%





Credit Spreads 12/31  Close 8/05    Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.34% -0.06% -9.21%
Low Grade Credit Idx 8.32% 7.67% 0.27% -7.81%
Markit CDX Inv Grd Idx 85 104 8.33% 22.35%
Markit CDX Mid Grd Idx 131 169 8.33% 29.01%

Sunday, August 7, 2011

Currency Risk, Debt and Gold

This is an interview of one great mind talking with another. They are James Turk, interviewer, and Jim Sinclair, interviewed. This interview took place following Sinclair's presentaion at GATA's Gold Rush 2011 conference in London on August 5, 2011.



Jim Sinclair interviewed by James Turk

Friday, August 5, 2011

Consumer Confidence

The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week. Two of the comfort index's three subcomponents declined last week. The measure of personal finances fell back into negative territory after two weeks of positive readings. The buying climate index fell to the lowest level since early June. The gauge of Americans' views of the economy, which is the difference between those with positive versus negative opinions, rose to minus 86.5 from a more than two-year low. Even here, the news wasn't good. Fifty percent of respondents gave the economy a poor rating, the worst of four categories. That's the highest share in more than a year.

Tuesday, August 2, 2011

GLD May Not Be Good as Gold

The question of whether an investor in GLD owns rights to gold bullion held for shareholders of GLD is relevant. In an old post I asked the question to myself, should I stay or should I go as an owner of GLD shares then. I came to the conclusion that the water is too murky for me to see through and that was perhaps done by design. It is not necessary to be so opaque though and I suspected the big-bank custodians might be being less than honest by providing the appearance of access to bullion for retail investors. I raise this topic still again to point to a legal review of the question initiated by Catherine Austin Fitts. She is an attorney with securities background who hired her attorney to work with her and others to get to the bottom of the question. One paragraph from the summary of their paper, GLD and SLV - Disclosure in the Precious Metals Puzzle Palace, does a great job of describing what I suspected but could not document, as they have.

They wrote: "As we outlined above in the section on exchange traded funds, many of the ETF risks are disclosed in their prospectuses and in the Trust documents filed with the SEC that are available to investors if they look hard enough on the SEC’s EDGAR site. However, we think the complexity of the structure of these funds and the extent of their departure from the usual and expected duties to shareholders make much of the disclosure too complex for the average investor to understand at best and misleading even to experts at worst. We remind readers that market investors thought they understood mortgage-backed securities like CDOs before the financial and housing crises of 2007 and 2008. Since that time, we are assured that few understood what they were getting into."

This paper is easy to read and is thoroughly documented. Recommended.

Monday, August 1, 2011

Market Data: Week Ending July 29, 2011


Market Index 12/31  Close 7/29    Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 12,143.20 -4.24% 4.89%
S&P 500 1,257.64 1,292.28 -3.92% 2.75%
Fed Funds Rate 0.10% 0.11% 0.01% 10.00%
10 yr T-note Yld 3.29% 2.80% -0.16% -14.89%
5 yr T-note Yld 2.01% 1.36% -0.14% -32.34%
5 yr TIPS - 'Real' Yld -0.06% -0.84% -0.21% -1300.00%
Implied 5 yr Inflation % 2.07% 2.20% 0.07% 6.28%
2 yr T-note Yld 0.59% 0.36% -0.03% -38.98%
2-10 Yr Slope 2.70% 2.44% -0.13% -9.63%
90 day T-bill Yld 0.12% 0.09% 0.06% -25.00%
Gold ($/oz) $1,421.40 $1,631.20 $29.70 14.76%
WTI Oil ($/brl) $91.38 $95.70 -$4.17 4.73%
VIX "Worry Index" 17.75 25.25 7.73 42.25%





Credit Spreads 12/31  Close 7/29    Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.40% -0.06% -7.95%
Low Grade Credit Idx 8.32% 7.40% 0.04% -11.06%
Markit CDX Inv Grd Idx 85 96 4.35% 12.94%
Markit CDX Mid Grd Idx 131 156 0.00% 19.08%