Monday, November 28, 2011

Market Data & Graphs: Week Ending November 25, 2011

Market Index 12/31  Close 11/25  Close Week Change Simple YTD %
Dow Industrials Avg 11,577.50 11,187.00 -4.93% -3.37%
S&P 500 1,257.64 1,153.40 -4.98% -8.29%
Fed Funds Rate 0.10% 0.07% -0.01% -30.00%
10 yr T-note Yld 3.29% 1.96% -0.05% -40.43%
5 yr T-note Yld 2.01% 0.93% 0.01% -53.73%
5 yr TIPS - 'Real' Yld -0.06% -0.82% 0.01% -1266.67%
Implied 5 yr Inflation % 2.07% 1.75% 0.00% -15.46%
2 yr T-note Yld 0.59% 0.27% -0.01% -54.24%
2-10 Yr Slope 2.70% 1.69% -0.04% -37.41%
90 day T-bill Yld 0.12% 0.02% 0.02% -83.33%
Gold ($/oz) $1,421.40 $1,688.50 -$36.60 18.79%
WTI Oil ($/brl) $91.38 $96.77 -$0.90 5.90%
VIX "Worry Index" 17.75 34.47 2.47 94.20%

Credit Spreads 12/31  Close 11/25  Close Week Change Simple YTD %
Inv Grade Credit Idx 4.78% 4.85% 0.13% 1.46%
Low Grade Credit Idx 8.32% 8.45% 0.39% 1.56%
Markit CDX Inv Grd Idx 85 146 7.35% 71.76%
Markit CDX Mid Grd Idx 131 268 10.29% 104.58%
Low Grade to 10 yr T-Note Spread 503 649 44 29.03%

Sunday, November 27, 2011

The Commodity Story: Bull Horns or Bear Tracks

Commodities are used in the creation of economic activity around the world. So a review of the markets that are sensitive to commodities is one method of watching the condition of many pieces in the global economy and some individual markets. It is also worth noting how Federal Reserve policy can influence prices of commodites, such as the price inflation observed early this year created by excess liquidity finding value in commodites which are both a real asset and have scarcity.

The economy of South Korea provides an interesting window to their primary trade partner, China. The China economy is important for its consumption of commodities from Australia and Brazil and its purchase of material and services from other global economies. The Kospi is a South Korean stock exchange and coincident barometer of economic change in China. It appears that the Kospi was hit hard in the beginning of August. The timing suggests to Americans that the US Congress debt ceiling discussion impacted the Kospi. The weeks long discussion confirmed that the Congress is more dedicated to partisanship than to the good of the country and that may be part of the story. The beginning of August was also when Greece's debt default, and associated threat to the European banking system, became a serious outcome without intervention. That is a much larger economic threat for most of core Europe, at least at this point in time.

The commodity markets are generally priced in US dollars. Keeping the US dollar index in reference is helpful. The dollar strengthened in September, hurting users of commodities, a condition that appears to be repeating again in November. If the dollar is breaking out of resistance near 80, then commodities will become more expensive and that will be inflationary. A sideways trend would provide some currency stability that has been missing, and not a realistic expectation here. A weaker dollar would be welcome relief for commodity buyers and relieve concerns about inflation, supporting prices of many stocks and metals. The 10 week moving average illustrates the trend is suggesting a breakout through the 80 level. The Fed FOMC is also monitoring this movement. They are not likely to allow a big strengthening move in the dollar index with intervening. The problem is, what if they do allow it? That won't be fun to answer.

Tuesday, November 22, 2011

Debt to GDP by Country

In the context of the rest of the financial world, the dollar is perceived as the least bad. True or not. Being the most widely traded currency, and reserve currency to many, has been the US$ saving grace. Here are some facts...