Friday, April 10, 2009

Weekly Market Update (4/9/09)‏


The US trade deficit shrank by more than $10 billion in February to $26 billion—its lowest level since 1999. more...

US Treasuries sold off this week on the back of ongoing supply fears and a positive sentiment change in the financial sector. more...

Large-Cap Equities
The stock market continued to rally during this holiday shortened trading week. more...

Corporate Bonds
Investment grade primary issuance was almost non-existent this week as Alcoa, the first of many companies, started to report earnings. more...

Mortgage-Backed Securities
Agency mortgages performed very well on an absolute basis and relative to Treasuries. A strong tone in credit and equity markets coupled with healthy buying overseas, the US Government, and domestic money managers helped support mortgage prices. more...

Municipal Bonds
Investor demand for high grade municipal bonds and pre-refunded securities remains strong. Yields on AAA-rated general obligation bonds were about 4 bps lower across maturities this week. more...

The high yield market started April on firm footing. The continuing equity rally and significant inflows into the high yield market pushed the market higher. more...

Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were oil and gas (-6.2%) and health care (-6.2%). more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +5.9% this week, while the Russian stock index RTS went up by +8.7%. more...

Global Bonds and Currencies
The surge of confidence inspired by the previous week’s G-20 summit faded in the past week and equity markets weakened, while major non-US sovereign bond markets were mixed. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. The positive tone in credit markets continued as equity markets were buoyed by better-than-expected earnings announcements in the US. more...

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Have a great weekend!

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Thursday, April 9, 2009

Banks' "shadow inventory" of housing could destroy the market

Various real estate research firms estimate that banks are sitting on hundreds of thousands of foreclosed homes that they have neither sold nor listed. If these rumors are true, and the banks brought these homes onto market, it would flood an already dismal housing market... causing prices to fall further.

From The San Francisco Chronicle:

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

Market Reflections 4/8/2009

A report that the Treasury will extend TARP funds to insurers gave a boost to Wednesday's session. The S&P 500 rose 1.2% to end at 825.01. A move to protect insurers would be aimed at bolstering confidence in the sector and limiting customer redemptions. Insurers posting gains included Lincoln National (LNC) +35 percent, Principal Financial (PFG) +21 percent and Hartford Financial Services (HIG) +13 percent.

Also helping the market was surprisingly solid earnings from home furnishings retailer Bed Bath & Beyond (BBBY), whose shares rose more than 20 percent. Stocks were initially set to move lower in reaction to weak earnings late yesterday from aluminum giant Alcoa. Brokers are warning that stocks over the next week are likely to swing in wide moves in reaction to single earnings announcements. Earnings don't get underway in force until mid-month with Thomson Reuters pegging S&P 500 earnings at -38 percent.

FOMC minutes held attention late in the session but offered no surprises, showing that policy makers are committed to injecting huge amounts of liquidity into the banking system. Economic data included an upbeat wholesale trade report that shows inventories are coming back in line with sales, a plus for future output and future employment.

Oil data showed another build in crude inventories and also a build in gasoline. But the builds weren't enough to shake oil's lockstep with the stock market. May WTI gained nearly $1 to end just below $50.

Treasuries firmed helped by strong demand for $35 billion of new 3-year notes. The 3-year yield ended 1 basis point lower on the day at 1.29 percent. Gold slipped $5 to $880. The dollar was little changed at $1.3246 against the euro.

Wednesday, April 8, 2009

Gambling and the stock market

By Richard Russell in Dow Theory Letters:

Markets can be compared with gambling at Las Vegas. When you gamble at Vegas, you are bucking the house odds. Which is why if you play long enough at Vegas, you will always lose your money. Vegas is stacked that way. Las Vegas is constructed to separate players from their money. The stock market is a bit classier. When you buy stocks, you are at least buying something. It feels good to say, "I bought 500 shares of Johnson & Johnson."

When you put your money down at Las Vegas, you are not buying anything, but with a slim chance (the odds are against you) of winning more than you put down. Las Vegas is one of the few places where you pay your dollars, and are guaranteed to receive NOTHING of any value.

"Gambling is a tax on people who don't understand money," that's my favorite adage about gambling. Investing in the stock market is a long-term tax on people who want something (profits) without doing any real work for those imaginary profits.

Market Reflections 4/7/2009

Stocks fell a steep 2.4 percent to 815.15 on the S&P 500 on profit taking which more and more are warning may bite into half of the market's month-long rally, a move that would put the S&P in the mid 700s. The dollar rose nearly 1-1/2 cents to $1.3268 as the euro was pressured by weak economic data out of Europe. Money moved into the Treasury market where yields were several basis points lower including 0.54 percent for the 52-week bill. There was heavy demand in the session for $25 billion of new 52-week bills in a good sign for all markets. Crude was ending just over $49 while gold, bouncing from sharp losses, rose more than $10 to nearly $885.

Tuesday, April 7, 2009

More Banking trouble - Mike Mayo

Mike Mayo is a guy that really threw a cat among the pigeons yesterday, causing a BIG scare and sell off of risk assets... Currencies that is... His name is Mike Mayo, and he used to work at Deutsche Bank, and now is a banking analyst at Caylon Securities... And brother can he ever move a market! To make a long story short... Mr. Mayo basically said yesterday in a report that "Bank Loan Losses Will Exceed Depression Levels"... So, all that James Brown, feeling good, that went on last week with the G-20 singing everything is beautiful, all went down the drain after Mr. Mayo spoke... The Wall Street Journal printed the following.... "One reason why he (Mayo) believes the banks will face more pressure is because the legacy loans they hold on their balance sheets have not been marked to market - he estimates the marks at about 98 cents on the dollar, a much higher estimate than what others would come up with. We see more downside with government programs regarding those bank stocks with more traditional banking since this business - aside from when involving an acquisition - is not marked to market," he writes. As a result, he believes the government's help will either result in rosier-than-expected projections that allow the banks to maintain their unwanted assets on their balance sheets, or hammer them with demands for more capital, which will "hurt traditional banking more."

Market Reflections 4/6/2009

Stocks fell on long liquidation ahead of the earnings season which begins at mid-month. The S&P 500 ended 0.8 percent lower at 835.43. Losses were heavy in gold which fell more than $20 to end just above $870. The prospect of IMF gold sales tied to last week's G-20 stimulus agreements sank prices as did rising talk that global stimulus, led by the Obama administration, may successfully pull the global economy out of recession. The dollar firmed nearly 1 cent to end at $1.3400 against the euro. Treasuries were little changed with the 2-year yield ending at 94 basis points. Oil fell nearly $1 to just over $51 for May WTI.