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What’s the Market Telling Us?

Posted by Larry Doyle on December 11, 2009 9:38 AM |

In the face of generally positive economic news the last two days, (Retail Sales this morning rose 1.3% and the improving Trade Deficit), the price action in the market is very interesting. What is it telling us? Let’s navigate.

With the U.S. Dollar Index having firmed over the last week, money does not appear to be coming out of the equity markets. The major equity averages are up anywhere from .5 to 2.5% on the month. What market segments are feeling the bulk of the pain? Government bonds and commodities, primarily oil and gold.

Interest rates on U.S. government bonds have continued to move higher as Treasury supply this week has not been well received. With rates on 10yr U.S. Treasurys higher by .35% over the last ten days, it would appear that market participants continue to believe the Fed will be forced to raise rates or make other moves to lessen the support and stimulus provided to the economy.

If rates are to move higher, our dollar should find support  . . . and it is, as the U.S. Dollar Index remains above the 76.00 level. While dollar strength had been a harbinger of general weakness across almost all risk-based asset classes, the commodity sector is bearing the brunt of the pain currently.

The DJ-UBS Commodity Index has declined by 2.5% on the month led lower primarily by oil (down approximately 10% on the month) and gold (down 4% on the month).

Add it all up and what does it mean? If our domestic economy is in fact stabilizing, then the public at large and investors will compel the Grand Old Man, that is Uncle Sam, to back away from continuing to provide stimulus. As that occurs, the market may begin to normalize to levels at which private investors care to put money to work. At this juncture, investors are saying interest rates are not attractive at current levels. As interest rates rise, that may actually temper an economic rebound, especially in housing.

So be it. It is not realistic for market participants “to have their cake and eat it too.”


  • Larry –

    I don’t understand this morning’s Retail Sales report at all. I get that a decent part of it is gas sales, but even if you exclude those, the numbers were still up 0.8%. How is that possible when the other retail sales report (the one with actual retail companies’ numbers) was not this good, and when local and state sales tax revenues are not good. Karl Denninger says on his blog today that part of this may be that today’s report utilized a new sampling model. Therefore, it’s hard to compare this report to last month’s and last year’s report, because both of those had a different sampling model. Denninger also says that both the latest Gallup Survey and ShopperTrack report say that Black Friday sales were DOWN from last year, not up, which is inconsistent with the Government’s report.….html


  • Mike

    I’m not fooled.

    If “better” employment and consumer confidence numbers is going to make our currency soar, I’d say watch out for another sell off. With TARP extension til 10/10, very possible health care reformation, and no plans in sight for interest rate increases, I think our dollar is still heading south until at least the middle of ’10.

    It’s only during these huge reports lately that the dollar seems to follow optimism. Look out for unemployment to go down to 9.8 next month with all the Census help. Ugh, the people who make these numbers make me sick.

  • kbdabear

    Retail sales are up from October this year, but down from November 08. That does not strike me as a big giant recovery since retail sucked pretty badly last year in November.

  • TeakWoodKite

    Shell secures vital toehold in ‘the new Iraq’ where oil is ready to flow
    At 115 billion barrels of proven reserves, Iraq has the third largest oil reserves after Saudi Arabia and Iran.

    Although the companies will be paid only a slim service fee of $1.39 per barrel for boosting output from the field, the contract represents a vital toehold in the country for Shell, which could pave the way for greater prizes later on, Jason Kenney, oil analyst with ING in Edinburgh, said.

    “This is a low level service fee so Shell are not in this to make money,” Mr Kenney said.

    “But the question is: do you give a little now to get a lot later on? You have got to be in it to win it.”


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