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Tuesday, November 17, 2009

Morning Market Report

There's plenty of data to chew on. First, there was the retail sales report that came out yesterday morning before the market opened. Retail sales were up 1.4% but almost all of that gain was from auto sales. Auto sales cratered in September and made a major recovery in October. Taking out retail auto sales and the number was only .2% growth. No matter, the markets loved the number. Each of the three indices were up between 1.25% and 1.5% yesterday and the Dow was up 136 points and finished over 10400 for the first time this year.

Yet, the markets were up even more intra day until bank analyst Meredith Whitney said, "I haven't been this bearish in over a year". This statement was part of a detailed analysis that, as you might guess, had Whitney bearish on banks and the market overall. The markets took a step back following that statement but still finished way up.

This morning, Producer Price Index numbers came out and they were tame.

Wholesale prices in the U.S. increased in October for just the second time in the past four months, indicating inflation will not be a concern for the Federal Reserve.

The 0.3 percent increase in prices paid to factories, farmers and other producers was smaller than forecast and followed a 0.6 percent drop in September, according to Labor Department data released today in Washington. Excluding food and fuel, so-called core prices unexpectedly dropped 0.6 percent, capping the smallest 12-month gain in five years.

Finally, this morning it was just announced the mortgage delinquincies hit yet another record high.

The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion.

This is neither surprising or new. While some economic numbers have improved, the jobs outlook along with mortgage defaults have continued to show no sign of recovery.

The best news of the day yesterday came in U.S. Treasury bonds. Despite strength in equities, which normally means weakness in bonds, bonds had a huge rally. The 10 year U.S. Treasury bond finished at 3.33%, the lowest in nearly eight weeks. Mortgage rates for the 30 year mortgage fell again and now are solidly below 5%. It's giving back just a bit this morning and it's currently trading at 3.36%.

Several commodities should be in focus. Oil and gold will be leading the pack. That's because the most underreported story of the financial year is the near free fall of the dollar. As that's weakened, both oil and gold have strengthened. That's in part because both are priced in dollars and a weak dollar leads to strength in both. (everything else being equal of course) Crude oil is trading at $78.55 a barrel currently. That's down slightly from yesterday's close. Meanwhile, gold is trading at $1132 an ounce. (also, H/T to my reader Lonzo who corrected me yesterday. I mistakenly said it trades in pounds. It trades in ounces) That's down slightly from yesterday's close but still very near all time lows.

This morning in currencies, the dollar is down .6% against the Euro, down .15% against the British Pound, and up .25% against the Yen. Still, the intermediate trend for the dollar is something near a free fall. In fact, the trend is so troubling that the Fed weighed in yesterday.

Federal Reserve Chairman Ben Bernanke on Monday said the Fed intends to keep the current status quo in place - a low rate environment and a Fed that's not too
terribly concerned about the U.S. dollar's decline.However, in an unusual turn,
Bernanke did comment on the U.S. dollar Monday, noting that the Fed is monitoring the value of the dollar closely.

Those that follow such things know that Steve Forbes has made it a personal cause celebre to point out that the constant loose money policy has weakened the dollar and that maintaining a steady currency should be job one for the federal reserve.

I've also recently talked about the carry and trade bubble predicted by economist Nouriel Roubini. Both have at its nexis a weak dollar. It's also time to start noticing that the stock market has risen just as dramatically as the dollar has weakened. That's a sign of inflationary pressure and not strength based on any fundamental strength in our markets. Such complimentary movements are a sign of upcoming economic disaster. Between sustained loose money policies and endless borrow and spending policies, we've left our currency virtually worthless. That's a recipe for a bubble and all sorts of other disasters.

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