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Economic and Market Commentary July 14, 2009

Posted by Larry Doyle on July 14, 2009 11:47 AM |

What’s driving the markets today?

We have had a cross current of market moving news and developments this morning. Let’s navigate while bringing our own independent set of tools to cut through any excessive salesmanship or pandering on the part of market experts. Using Bloomberg as a conduit, they report Treasuries Fall as Rally in Global Stocks Damp Demand:

Treasuries fell for a second day as sales at U.S. retailers rose more than expected in June, adding to signs the steepest recession in 50 years may be easing and crimping demand for the relative safety of government debt.

The 0.6 percent increase in retail sales was larger than forecast and the biggest gain since January, Commerce Department figures showed today in Washington. Purchases excluding automobiles and gasoline dropped for a fourth consecutive month.

Bloomberg is better than this reporting. The reporters should more specifically highlight that across virtually every sector aside from gasoline and autos, retail sales declined. A rise in gasoline sales is simply a function of higher gasoline costs. That bit of news is not exactly a positive. Automobile sales are a long way from robust and are measured against prior month’s sales which had plunged.

I am not trying to be overly pessimistic, but merely looking for a full and honest analysis of the data. Moving right along, I strongly believe that Treasury rates increased (and thus Treasury prices declined) because of concerns about rising producer prices. As Bloomberg reports:

Prices paid to U.S. producers rose 1.8 percent in June, twice as much as anticipated, led by surging gasoline costs. The increase followed a 0.2 percent gain in May, the Labor Department said in Washington. Excluding food and fuel, so- called core prices rose 0.5 percent.

I also believe Treasury rates increased today on news that our annual federal deficit just crossed the $1 TRILLION level and is likely headed toward $2.0 TRILLION. No surprise why Secretary Geithner is in the Middle East for what amounts to a Wall Street roadshow in hopes that some of our largest creditors continue to finance our country.

On the earnings front, Bloomberg offers:

“The main driver in the market will be earnings performance,” said Thomas L. Di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “By all indications it will be quite good today which puts pressure on bonds.”

With all due respect to Mr. Di Galoma, America cares MUCH more about earnings in the heartland than merely the casino-style earnings generated by the inhabitants of 85 Broad Street in lower Manahttan, that being the home of Goldman Sachs. Earnings from Johnson and Johnson, CSX, Dell, Philips, Heartland, and Posco are decidedly mixed, and honestly generally weak.

Against those numbers, the fact that the equity market is merely unchanged on the day is a good performance.

In regard to upcoming earnings reports from our financial firms, please refer to my report this morning “How Will Banks ‘Manage’ Earnings?”

Bloomberg offers:

The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.47 trillion of writedowns and credit losses at banks and sent the global economy into its first recession since World War II.

Put that $1.47 trillion figure in the context that the IMF projects TOTAL writedowns and credit losses at banks will be $4 trillion with $2.8 trillion of those here in the United States. To date, our banks have not taken half those writedowns and losses.

What do I see looking through all of this data and material? An increasing likelihood of a very sluggish economy with a whiff of inflation, otherwise known as stagflation!!

Remain defensive.


  • Doc99
  • mk

    The OpEd in today’s wsj by Mort Zuckerman is particularly disconcerting…. great blog by the way.

  • AMEN Larry that earnings by regular companies that sell everyday products to regular people are much more important than Goldman Sachs’ earnings.

  • LD,
    The retail sales numbers are dismal and Bloomberg radio stated that the market rallied because of an increase in retail sales. When you look at the auto sales data things get even worse because last month’s increase was do to the fire sale at the dealerships forced to close. This is a great example of the law of diminishing returns and pushing future sales into the present. GM announced today that sales are disappointing and it is only the 14th. The bottom line is that if things were getting better Obama wouldn’t be floating paying mortgages for the unemployed and making anyones else who defaults an automatic renter backed by the government.

  • kevin

    Treasuries may have moved down on the growing chance that the Obama health plan will pass. Its another heap of debt coming down the pipeline if passed, and its success uncertain. I’m not making a political comment, just seems like the treasuries accelerated down when it seemed the bill was gaining steam

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