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Tuesday, July 21, 2009

Morning Market Report

Markets were up across the board for a six straight day. The Dow is now up for the year. Furthermore, Caterpiller is leading the way of another strong day of earnings. There will also be a plethora of companies announcing after the bell. In the middle of it all, Fed Chairman Ben Bernanke will be testifying. So, the day will not be short on excitement.

Meanwhile, bonds got better yesterday which indicates that money wasn't merely transferred but moving into the market from the sidelines. Though, today, most U.S. Treasury bonds are giving back most of what they gained yesterday. The 10 year U.S. Treasury bond is currently trading at a rate of 3.65%, which is what it opened at yesterday. The yield spread between the two year and ten year is 2.65%. That's dangerously close to the all time record of 2.75%, which occurred in June. This continues to signal serious inflation ahead. (incidentally here is how Bernanke says he will deal with that)

Oil continues it's troubling climb. It's now trading just below $65 per barrel at $64.96/barrel. The markets in the Far East were mixed. The Hand Seng was even. The Japanese NIKKEI was up 2.73% while the Straits Time Index in Singapore was down .07%. Europe was a different story with every single index up. The FTSE in London was up 1.14%, the DAX was up1.79%, and the Spanish index was up .54%.

Most major currencies are having a fairly mild day. The Dollar and British Pound are nearly unchanged, the Dollar is up .15% against the Yen, and the Dollar is down .04% against the Canadian Dollar.

Meanwhile, CIT made it official. They were able to secure about $3 billion in financing giving the company a temporary lifeline. Most analysts DO NOT believe that this is a permanent fix. Instead, this gives CIT room to breathe for a few months to figure out how to restructure the company.

Bernanke's oped talked about the numerous ways in which he can tighten the money supply when its necessary. He lists no less than five different tools. The layman will likely not understand any of them. I certainly gained even more appreciation for the enormous power the Fed has. What Bernanke didn't address is the contractionary effect of any and all of these policies. No one can doubt that Bernanke can and will, if he feels it necessary, do many things to curb inflation when he feels the time is right. What I would ask is how he could insure that all of these measures wouldn't put us right back into a recession. The problem I see was not addressed by Bernanke. Inflation will begin to sprout as the economy recovers. That doesn't mean it will have already recovered. So, if Bernanke begins to contract the money supply aggressively, wouldn't he throw the economy back into recession? Bernanke said nothing about this.

The markets continue to seem to have the winds behind them. Earnings continue to be strong. All eyes will be on Bernanke's testimony.

Disclosure:

Everything in this space should be taken as information only. All opinions are my own only and should NOT be taken as an endorsement or investment strategy. I am not a licensed investment advisor and nothing here should be taken as investment advice.

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