Archive for the ‘Economy and Financial Markets’ Category


June 22, 2009





Market Statistics


                 52 week


DowJones (259.53 points)




  6,547.05 13,058.20                                             
Nasdaq (31.33 points)




  1,268.64 2,549.94
S&P 500 (24.98 points)




  676.53 1,426.63
Crude Oil ($2.49/barrel)




  $33.87 $145.29
Gold ($4.50/oz)




  $704.90 $1,001.80
10 Year Tsy +0.009% to


  2.04% 4.32%
















Little has changed from our previous blogs where we have restated again and again; that the relief rally being over, any further stock market rises cannot be justified by the economic fundamentals in the economy. Besides the continuing discussion in the financial press about what direction is the economy heading-deflation or inflation, there is a debate also continuing, about how effectively have the actions of the Administration dealt with the underlying problems in the financial system? This past week the Administration announced plans for greater regulation of the financial sector. It put greater power in the hands of the Federal Reserve to determine which companies would require more scrutiny if it determines they represented  systemic risk to the economy .The Fed could require greater capital, liquidity and leverage constraints. We hope the outcome  does not mirror such Government sponsored entities as Freddie Mac and Fannie Mae.

We still have billions of dollars of toxic assets on Banks balance sheets, we are skeptical that the stress tests given to banks were conservative enough and we are amazed that one of the causes of the financial collapse, the Rating Agencies, appear to have emerged from the proposed reforms largely intact in terms of how they operate.

The decline in markets this past week reflected investors realization about continued risks in the economy and that any hopes for a quick recovery have largely disappeared. Further large upcoming   Treasury auctions have kept yields high.


Analysts (who we admit haven’t got much right over the past year or so),have been largely talking about a correction in the markets ,based on the lack of any positive information about economic fundamentals likely to push it higher. We have talked in the past about the need for positive trends in the economic fundamentals, not just one month here and there and we are some way from seeing these trends justify higher sustainable levels. The bearish nature of the markets this past week reflected weakness in two key averages which are not always highlighted, the Transportation Average (down 4.21%) and the KBW Bank Index (down 3.37%).The Transportation (comprising  20 railroad, trucking, ocean and airline corporations) is regarded as a leading economic indicator, while the KBW Index reflects 24 Money Center and Regional banks(Standard& Poors this past week downgraded 18 banks and revised it’s outlook on four others citing increased regulation and likely lower profitability in volatile markets).

The Dow and S&P are back to their May 8 closing levels while the NASDAQ  is up about 5%, reflecting the greater confidence investors appear to have in the technology sector to lead any economic recovery. We see no near term reason for the markets to move higher.



Despite continued unrest in Iran and Nigeria, oil ended the weak lower, due to a stronger Dollar and as geo political concerns were outweighed by a continued global recession, weaker energy demand. and a perceived glut in the energy markets. There is a belief that steep  prices of late do not reflect fundamentals, but rather speculation, although the latter is hard to prove. 



The Treasury is auctioning a further $104 billion in notes this week and it will be interesting to see whether yields by the end of the week, continue to rise on future inflation and rising interest rate fears or fall based on  deflation concerns. Last weeks economic news supports a continued weak economic picture and no  fundamental basis for any rate increases.