How fortuitous that Fed Chair Bernanke had been scheduled to deliver a key speech yesterday at the Economics Club of Washington. After the Nov employment report on Friday the rate markets were hit hard, his comment that the Fed would leave short term rates low for that “extended” period the Fed has been saying for two months stabilized the bond market. The 10 yr note and mortgages are now back to their levels at the close last Thursday before the employment data on Friday morning. That the Fed isn’t jumping with panic over the strong employment in Nov isn’t in and of itself helping drive the dollar higher; should in some sense be the other way for the dollar. The key rationale for the dollar weakness is the relatively low interest rates in the US, and the weakness in the economy compared to many other G-20 countries. Nevertheless the recent improvement of the dollar is slamming the equity markets this morning and continuing to beat back the run-up in commodities denominated in dollars.
The DJIA opened -82 at 9:30, the 10 yr note +17/32 at 3.37% and mortgage prices at 9:30 +18/32 on 30s and +9/32 on 15s.
Treasuries and mortgages started strong this morning on the strengthening dollar; markets are facing the question of whether the carry trade using the cheap dollar to buy assets has ended. Crude oil is falling, gold is falling and the stock market is looking suspect as the euro currency trade appears to have bottomed and the dollar may be on a long path higher. Not a sure thing however; the recent dollar improvement is still being doubted by investors as possibly just a bump in the road as the buck will continue to fall against other key currencies. The very serious gamble for those still clinging to the opinion the dollar will fall further is if they are wrong there will be temperatures boiling given the magnitude of that outlook that is the main driver for higher stock indexes and the massive run-up in commodity prices. The currency carry trade has been the leading driver for the markets for the past six months.
The National Federation of Independent Business index fell in Nov. The Index of Small Business Optimism lost .8 points, falling to 88.3 (1986=100), 7.3 points higher than the survey’s second lowest reading reached in March (the lowest reading was 80.1 in 1980:2). In the 1980-82 recession period, the Index was below 90 in only one quarter and quickly surged to a record high level early in 1983. In this recession, the Index has been below 90 for 6 quarters, indicative of the severity of this downturn. Four of the ten Index components posted gains, 2 were unchanged, 4 declined (Table above). But the “hard” components, job creation, inventory and capital spending and job openings were negative as a group, not good news for GDP growth. The biggest problem continued to be a shortage of customers – 33 percent said “weak sales” was their top business problem and a net 31 percent reported sales falling quarter over quarter. Only 5 percent complained about financing (compared to as high as 37 percent in the early 1980s). Apparently, owners can’t find good reason to be optimistic about the future of the economy or their personal future. Small business accounts for the majority of jobs; that the index fell again should not go unnoticed by equity investors especially in light of the recent improvement in the dollar—some negatives that stocks have to overcome to continue to move higher.
Market Minute information for December 8, 2009 provided by:
 Patsy Bailey Mortgage Banker |
 4801 Lang Ave NE Suite 100 Albuquerque, NM 87109 4001 Office Court Ste 603 Sante Fe, NM 87507 Cell: 505.715.3231 Office: 505.473.4045 ext.109 E-mail: patsybailey13@gmail.com |
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