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Tuesday, November 24, 2009

Morning Market Report

On the strength of continuing home sales, the markets all showed serious strength yesterday. All indices were up in excess of 1% with the dow closing over 10,450 and also a 13 month high. It also once again came at the expense of a weakening dollar again.

There's breaking economic news this morning. The third quarter GDP was revised slightly downward.

The economy grew at a 2.8 percent pace last quarter, as the recovery got off to a slower start than first thought.

The Commerce Department's reading on gross domestic product released Tuesday wasn't as energetic as the 3.5 percent growth rate for the July-September period
estimated just a month ago.

The main factors behind the downgrade: consumers didn't spend as much, commercial construction was weaker and the nation's trade deficit was more of a drag on growth. Businesses also trimmed more of their stockpiles, another restraining factor.

It's not only a time honored tradition to have estimates be different than projections, but it's also a time honored tradition to make revisions to the initial survey. So far, equities haven't changed that much. All indices were roughly even before and they're still about even.

Meanwhile, bonds are showing strength again. The ten year U.S. Treasury bond is now back to 3.34% after reaching 3.39%. It's traded in a fairly narrow range over the last two weeks, between 3.32-.340% and a slightly larger range 3.30-3.52 over the last four to six weeks. The yield spread between the two and ten year is now 2.59%. That's slightly lower and on the low end of its range. The new bond security to watch is the three month treasury bill. That's still trading at a negative rate, currently at -.01% yield. That's a bad sign for the near term for equities, and famously, in 1938, such a relationship caused a 30% decrease in equities the next year. Crude oil is down slightly to $77.29 a barrel. Meanwhile, gold continues to set records and is currently trading at $1168.80 an ounce.

Stocks in Europe were mixed. The FTSE is up .21%, the DAX in Germany is down .01% and the Spanish index is down .06%. Meanwhile, it was relatively dour in the Far East. The Hang Seng in China was down 1.51%, the NIKKEI in Japan was down 1.01%, and the Chinese index was down 3.44%.

The dollar is mixed this morning. It's up by .12% against the Euro, down by .13% against the British Pound, and down .6% against the Japanese Yen.

Finally, the chief of the Bank of England has made a "startling" revelation.

Bank of England Governor Mervyn King said he’s concerned that some banks receiving taxpayer-funded bailouts are too eager to return to investment banking.

“I have in one or two instances been concerned that banks, particularly those in receipt of government support, felt that it was more attractive to go down the road of re-establishing an investment-banking operation as opposed to what I thought their intention originally was, which was to go back to some good old- fashioned commercial banking,” he told lawmakers today.

Banks are seizing on the biggest financial crisis since the Great Depression to buy assets and lure staff from rivals to create global investment firms. Royal Bank of Scotland Group Plc, which has been rescued by the world’s most expensive bank bailout, is “moving away from the hubris that characterized the last decade” as it seeks to serve its customers and allow the U.K. to sell its controlling stake at a profit, Chief Executive Officer Stephen Hester said yesterday.

That analysis could be made about domestic banks. Looking at Goldman, Chase, etc. they all received TARP money at some point and they're all making money in trading, investment bank, etc.

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