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Wednesday, September 16, 2009

Morning Market Report

Following Bernanke's remarks yesterday that in his opinion the recession is over, the market indices all moved up about a half percent yesterday. Technically, we need two straight quarters of economic growth as measured by GDP. Yet, Bernanke is using the new economic math as I described yesterday. Back when I first learned economics, recessions and other economic measures had objective measures. In this case, a recession ends when there are two straight quarters of growth. Yet, now, economists like Bernanke come up with their own dubious measures that have no objectivity.

There's breaking economic data. Consumer Price Index was up .4% and the core was up .1% in August. The core number excludes gas and food which are two very wild swinging prices. The number hasn't affected equities. They were up about .5% before the number and that's about where they are now. Bond, on the other hand, have been affected. The ten year bond is now just slightly above 3.4%. It's currently at 3.42% and down three basis points from close yesterday. Mortgage applications were down slightly last week but that comes as mortgage rates inched up slightly. They have since come down, and so, in my opinion, the number is neither surprising or relevant. Applications continue to be at near highs over the summer as mortgage rates continue at near lows.

Meanwhile, oil pushed above $70 a barrel for the first time in about a week and continues up. It's currently at $71.06. Domestic markets are poised for a big day if they follow the trends around the world. There was near unanimous positive movements for indices all around the world. In the Far East, it was near unanimous. In Europe, it was unanimous. The Hang Seng in China was up 2.57%, the NIKKEI in Japan was up .52%, and the Straits Time Index in Singapore was up 1.37%. Only the broad Chinese index was down 1.12%. In Europe, the FTSE in London was up 1.66%, the DAX in Germany was up 1.29%, and the Spanish index was up 1.67%. Keep in mind that markets in South America and Canada are currently trading so the whole entire world isn't yet up for the day, but of all markets that are closed or very near closing, all but one are up today.

It's a relatively quiet day in currencies. The dollar is nearly unchanged against the Euro, currently down .01%, against the British Pound it's down .21%, and against the Japanese Yen it's down .42%.

The president and the administration continue to push their financial regulatory overhaul. The president made a major speech about it from Wall Street on Monday. He mentioned his overhaul in speeches yesterday and other administration officials have alluded to it as well. In my opinion, his regulatory overhaul would be a total disaster. At the same time, President Obama is spending most of his political capital on health care reform. There's going to be little appetite for a plethora of new regulatory bodies in the financial services industry after a long health care debate.

The biggest problem with his regulatory reform package is the exorbitant new powers he will give the Federal Reserve. It's hard to imagine the fed controlling the money supply all while being able to control each and every financial institution in the country through its regulatory power. It raises all sorts of issues regarding power, conflict of interest, and what this will do to the financial industry. I do believe that in whatever oxygen there will be left after health care that President Obama will use the remaining to push regulatory reform.

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