Sense on Cents

The bill comes due.

This week’s bill is in Greece. The bills right behind it are in other EU nations. The larger bills are in the UK and the US. How will they be paid?

A combination of fiscal austerity measures, debt restructuring, monetization through currency devaluations, and potentially defaults. The civil unrest playing out in Greece is likely a precursor to similar unrest in other nations. Unless and until real fiscal discipline is implemented and executed, this civil unrest will spread.

Fiscal discipline may stunt short term government stimulated economic growth, but that is the only remedy for a path to long term economic prosperity. Washington has shown no appetite nor inclination to write this prescription. Our future is and will continue to be very challenging until they write the prescription. As I wrote the other day, “Athens Today, London Tomorrow? Washington Next Week?”

Welcome to the Sense on Cents Week in Review where I provide a streamlined recap of month-to-date market returns. Given the size of the moves this week, I am also providing year to date returns as well. I hope these benchmarks help you ‘navigate the economic landscape.’

The stats provided are the week’s close (May 7th) vs. April close, month to date returns, December 31st close, and year to date returns:

U.S. DOLLAR
$/Yen: 91.60 vs. 93.81, -2.4%, 93.00 -1.5%
Euro/Dollar: 1.2760 vs. 1.3295, -4.0%, 1.4323, -10.9%
U.S. Dollar Index: 84.35 vs. 81.89, +3.0%, 77.86, +8.3%

Commentary: the Euro plummeted this week given the MASSIVE fiscal deficits across many parts of the Euro-zone. The U.S. Dollar Index benefited in a flight to safety, while the Japanese Yen benefited even more. Hard to envision a scenario that benefits the Euro barring an overwhelming show of support by Germany. To date, Germany is very reluctant to provide the bailout. Do you blame them?

COMMODITIES
Oil: $75.41/barrel vs. $86.22, –12.5%, 79.62, -5.3%
Gold: $1208.3/oz. vs. $1180.3, +2.4%, 1097.8, +10.1%
DJ-UBS Commodity Index: 128.66 vs. 134.70, -4.5%, 139.19, -7.5%

Commentary: commodities, in general, gave up the ghost as the problems in the EU are creating concerns of a double dip recession. I am of a mind that the global economy has not truly rebounded but has merely been ‘goosed’ by government stimuli. The underlying global economy remains constrained by debt burdens, and this reality is now playing out. The shiny yellow stuff has benefited, while all other commodities are in retreat. The DJ-UBS Commodity Index is now down approximately 7.5% on the year!!

EQUITIES
DJIA: 10,380 vs. 11,008 -5.7%, 10,428, -.5%
Nasdaq: 2265 vs. 2461, -8.0%, 2269, -.2%
S&P 500: 1111 vs. 1186, -6.3%, 1115, -.4%
MSCI Emerging Mkt Index: 927 vs. 1020, -9.1%, 989, -6.3%
DJ Global ex U.S.: 183 vs. 202, -9.4%, 201, -9.0%

Commentary: Rug Pull…!!! Emerging market and international equities led all the equity markets lower on the week. Our equity markets are now back to unchanged for the year. While our economy is fighting to regain its footing, the structural issues surrounding massive debt burdens maintain a stranglehold on future growth. The structural issues encompassing our equity markets themselves (dominated by electronic trading) also need to be heavily weighed in monitoring risks.

BONDS/INTEREST RATES

2yr Treasury: .82% vs. .96%, -14 basis points or +.14%, 1.14%, -32 bps
10yr Treasury: 3.42% vs. 3.66%, -24 basis points or -.24%, 3.84%, -42bps
COY (High Yield): 6.34 vs. 6.87 -7.7%, 6.89, -8.0%
FMY (Mortgage): 18.11 vs. 18.54, -2.3%, 18.24, -.7%
ITE (Government): 58.17 vs. 57.84, +.6%, 57.07, +1.9%
NXR (Municipal): 14.09 vs. 14.24, -1.1%, 14.64, -3.8%

Commentary: the flight to safety benefited Treasurys while the most credit sensitive sectors of the bond market suffered especially high yield.

SUMMARY/CONCLUSION
The roller coaster continues in terms of the economic data, but the bubbly within the markets has now brought a hangover as people have moved ‘closer to home’ in terms of risk.

In regard to my ongoing pursuit of truth, transparency, and integrity on our economic landscape, please join me this Sunday evening (8-9pm ET) for what will be a fascinating discussion as No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Bill Berliner. Bill has extensive experience on Wall Street and now plies his trade at Berliner Consulting and Research. We will discuss developments in housing, the mortgage market, structured transactions, financial regulatory reform, and so much more.

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Have a great day and weekend.

LD

This entry was posted on Saturday, May 8th, 2010 at 9:33 AM and is filed under Economy, General, markets. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.