Market Data: Week Ending October 8, 2010

Market Index	2009 Close	10/8 Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	11,006.48	1.63%	5.55%
S&P 500	1115.1	1,165.15	1.65%	4.30%
Fed Funds Rate	0.25%	0.21%	0.01%	0%
10 yr T-note Yld	3.85%	2.39%	-0.12%	-1.46%
5 yr T-note Yld		1.10%	-0.16%
5 yr infl adj Note		-0.47%	-0.28%
Implied 5 yr Inflation %		1.57%	0.12%
2 yr T-note Yld	1.14%	0.34%	-0.07%	-0.80%
2-10 Yr Slope	2.70%	2.05%	-0.05%	-0.65%
90 day T-bill Yld		0.11%	-0.04%
Gold ($/oz)	$1,096.95	$1,345.30	2.04%	22.64%
WTI Oil ($/brl)	$79.36	$82.66	1.32%	4.16%
VIX "Worry Index"	21.68	20.71	-7.96%	4.47%
Credit Spreads		10/8 Close	Week Change
Inv Grade Credit Idx		4.17%	-0.12%
Low Grade Credit Idx		7.98%	-0.21%
Markit CDX Inv Grd Idx		98	-8.41%
Markit CDX Mid Grd Idx		157	-7.65%

Sitting on a Signal

The Fed last met to discuss the condition of the economy on Sept 21. The U.S. central bankers said they were “prepared to provide additional accommodation if needed to support the economic recovery.” They also left the benchmark lending rate in a range of zero to 0.25 percent while noting that inflation measures were at levels “somewhat below” the central bank’s mandate to achieve stable prices and full employment. The Fed statement boosted speculation that the central bank will buy more Treasuries sometime later this year.

Fed observers/speculators are guessing that the FOMC will be announcing a new program of quantitative easing (QE) when they meet next on November 2-3. Some members of the FOMC are speaking about their need for evidence of trends that would threaten the Fed's mission of price stability (keep a lid on inflation) and full employment. Today they get the release from the BLS of the last employment data before the FOMC meets in early November. There is the suggestion is that a report indicating no, or little, improvement would support a new QE program announcement in November. Here is a brief look at the highlights. Payroll employment in September declined 95,000, following a revised 57,000 dip in August and a 66,000 decrease in July. The September fall was significantly more negative than the median forecast for an 8,000 decrease. But on the positive side, private nonfarm employment continued to rise, advancing 64,000 in September, following a revised increase of 93,000 the prior month. The median market forecast was for an 85,000 boost for private payrolls.

Fundamentally, toxic assets are still on the balance sheets of the TBTF banks in the US, UK and Europe. (See the second graph). The threat of a renewed crisis caused by the collapse of the global credit system is still a possibility. Banks are the lynch pin in our credit based world and they hold all the political cards too. Fundamentally, the continuing concern is that consumer and commercial lending do not recover with enough volume to contribute to a real economic recovery. That leaves the economy to look to the government for stimulus of some shape.

Federal Reserve Open Market Committee (FOMC)

As we get closer to the next meeting of the FOMC, on Nov 2-3, anticipation will be evident everywhere as the wait for their announcement describing the form of quantitative easing (QE) ends. The form it takes is possibly less important than if there will be another round of QE. Since it is widely anticipated already, there will likely be a negative reaction if the FOMC does not make some definitive statement of their intentions for using QE and the measures that convinced them to take that path. In the process of assembling this post, the structure of the Fed and the FOMC emerged and adds to the understanding of this integral organization. The next page is mostly information from the Federal Reserves web site, briefly describing the FOMC makeup and terms. Also, there are links to recent talks given by Fed Governors or Branch Presidents. In addition, there is a message regarding their personal opinion on QE being utilized again, taken from the talk linked by their name. Finally, there is a summary of the members current public position on QE, at the meeting in September when a vote was taken, and in the talks some have given since then.

Market Data: Week Ending October 1, 2010

Market Index	2009 Close	10/1 Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,829.68	-0.28%	3.85%
S&P 500	1115.1	1,146.24	-0.21%	2.72%
Fed Funds Rate	0.25%	0.20%	-0.02%	0%
10 yr T-note Yld	3.85%	2.51%	-0.09%	-1.34%
5 yr T-note Yld		1.26%	-0.09%
5 yr infl adj Note		-0.19%	-0.21%
Implied 5 yr Inflation %		1.45%	0.12%
2 yr T-note Yld	1.14%	0.41%	-0.03%	-0.73%
2-10 Yr Slope	2.70%	2.10%	-0.06%	-0.60%
90 day T-bill Yld		0.15%	0.01%
Gold ($/oz)	$1,096.95	$1,317.80	1.49%	20.13%
WTI Oil ($/brl)	$79.36	$81.58	6.65%	2.80%
VIX "Worry Index"	21.68	22.5	3.64%	3.78%
Credit Spreads		10/1 Close	Week Change
Inv Grade Credit Idx		4.29%	-0.09%
Low Grade Credit Idx		8.19%	-0.13%
Markit CDX Inv Grd Idx		107	-6.14%
Markit CDX Mid Grd Idx		170	-2.86%

Median Home Cost in Terms of Gold as Money

Today's chart presents the median single-family home price divided by the price of one ounce of gold. This results in the home / gold ratio or the cost of the median single-family home in ounces of gold. For example, it currently takes 144 ounces of gold to buy the median single-family home. This is considerably less that the 601 ounces it took back in 2001. When priced in gold, the median single-family home is down 76% from its 2001 peak (to a level last seen in January 1983) and remains well within the confines of its six-year accelerated downtrend.

Scanner here: This chart is making the case for gold more clearly than the case of real prices still falling. But it is also saying that there is no question which one should be owned as an investment. Own a home for housing, decorate it with gold.