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March 28, 2010: Economic/Market Week in Review

Posted by Larry Doyle on March 28, 2010 10:55 AM |

The hits just keep on coming. The news on Wall Street, Washington, and literally all around the world is an absolute onslaught. This avalanche of news (healthcare reform, Greece and the EU, China and currency manipulation, South Korean naval ship sinks with speculation of possible North Korea involvement, Israeli tensions with Palestine and Washington, Treasury debt supply pressuring interest rates, and on and on) can overwhelm us if we allow it. Global political and economic risks abound. These risks demand that we keep a balanced perspective as we navigate the economic landscape.

Welcome to our Sense on Cents Week in Review where I provide a streamlined recap of the major economic data and news, along with month-to-date market returns.

1. Existing Home Sales: declined .6% to an overall level of just slightly over an annual rate of 5 million units. Compare that to an annual rate of 6.49 million units in November when the market was supported by government tax-credits. The housing market remains SOFT and UGLY, which is why Uncle Sam is trying to support it with its newly launched mortgage principal reduction program. In my opinion, that will only exacerbate a bad situation.

2. Durable Goods Orders: rose .5% with the prior month’s number revised higher from 3.0% to 3.9%. This report continues to provide support for an improving manufacturing sector. We’ll take it. In fact, in a conversation with a Boston asset manager who recently met with an executive from Caterpillar, he shared with me that Caterpillar is seeing a pickup in orders. This is good.

3. New Home Sales: fell 2.2% on the month to an annual rate of 308k. Supply of new homes inched higher to more than 9 months. See above for my thoughts on housing.

4. Jobless Claims: declined more than expected to 442k. A slight positive, but nobody is forecasting a turn in the job market anytime soon. Even the White House Council on Econ0mic Advisors has said unemployment will remain elevated for an “extended period.”

5. 4th Qtr GDP Revision: declined from initial reading of 5.9% to 5.6%. Not  a big deal, but recall that a large percentage of this report was generated by non-recurring inventory buildup while final sales are quite weak.

6. Consumer Sentiment: a slight uptick to 73.6 from last month’s 72.5.

Let’s move along to MARKET DATA. The stats provided are the week’s close (March 26th), February close, and the percentage change:

$/Yen: 92.52 vs 88.93, +4.0%
Euro/Dollar: 1.3409 vs 1.3622, -1.6%
U.S. Dollar Index: 81.62 vs 80.35, +1.6%

Commentary: the overall U.S. Dollar Index has improved given global tensions. From the problems in the EU, to Israel effectively being rebuffed by President Obama, to concerns about continued nuclear buildup in Iran, the world remains a dangerous place. The dollar became the safe haven in the midst of these hotbeds.

Oil: $80.09/barrel vs $79.61, +.6%
Gold: $1107.8/oz. vs $1118.4, -1.0%
Copper: $3.417 vs $3.350, +1.7%
DJ-UBS Commodity Index: 129.70 vs 133.83, -3.1%

Commentary: commodities, in general, have remained somewhat sluggish and are not attracting increased capital flows. The overall DJ-UBS Commodity Index is now down approximately 7% on the year, with oil and gold close to flat on the year. Where is the economic engine to drive these prices higher? Where are those fearful of increased inflation putting their money? Have commodities been pumped up in price more by speculators looking for a trade as opposed to end users utilizing the commodities for true industrial and economic purposes? Additionally, as the dollar has improved this has taken the wind out of the commodities sail. Why not equities?

DJIA: 10,850 vs 10,325 +5.1%
Nasdaq: 2395 vs 2238,+7.0%
S&P 500: 1167 vs 1104, +5.7%
MSCI Emerging Mkt Index: 990 vs 936+5.8%
DJ Global ex U.S.: 202 vs 191.9, +5.2%

Commentary: the equity markets seemingly can do no wrong and remain tied to a speeding bullet. Don’t fight the tape, but don’t get lulled to sleep either. Overall volumes remain very light.

I reiterate my comments from a few weeks back. I am still looking for consistently positive economic news to justify the price action, but the markets seem to accept a lack of disastrous news along with a mixed bag of economic data to take the easy money provided by the Fed and put it to work. Expect more easy money, given the likelihood that President Obama’s nominee to be the number 2 at the Fed will be Janet Yellen, a dyed in the wool dove in terms of monetary policy.

2yr Treasury: 1.05% vs .82%+23 basis points or -.23% (rates up, bond prices down)
10yr Treasury: 3.85% vs 3.62%, +23 basis points or +.23%
COY (High Yield): 6.80 vs 6.88 -1.2%
FMY (Mortgage): 18.18 vs 18.48, -.3%
ITE (Government): 57.37 vs 57.88, 0.9%
NXR (Municipal): 14.27 vs 14.21, +.4%

Commentary: interest rates moved sharply higher pressured by both immediate and prospective supply of waves of global government debt. In the face of this supply, the Fed’s quantitative easing programs officially end this month. Who is going to buy all the paper (bonds)? There was speculation in the market midweek that China actually sold a block of U.S. Treasurys as a warning signal to Treasury Secretary Geithner not to declare China as officially being a currency manipulator.

The roller coaster continues. The January declines — both in the markets and along our economic landscape — were met by a nice upswing in February. The upward trend for equities has continued in March. What are we to make of it? Well, I hope you are strapped in for a long ride filled with ongoing fits and starts, twists and turns, ups and downs on both Wall Street and Washington — but more importantly Main Street. I will do my best to point out both the pitfalls and potential positives along the way. Please help our collective effort by sharing news and developments from your own corners of the world. Together, we can all most effectively navigate the economic landscape.

In regard to my ongoing pursuit of truth, transparency, and integrity on our economic landscape, please join me tonight (8-9pm ET) as No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Rick Davis of Consumer Metrics Institute. We will discuss what is going on with the American consumer who collectively represent 70% of our economy.

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Have a great day and weekend.


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