U.S. stocks ended virtually flat on Monday as the broad market erased early-session gains after SunTrust Bank warned of more financial-sector losses ahead. CEO James Wells stated the industry is a “long way from declaring any sort of victory” as lenders face more credit losses and commercial real estate may falter through 2010. The comments were enough to drain momentum that had carried over from Friday’s rally and an increase in international bourses Sunday night.
The Dow average managed a slight uptick as energy shares enjoyed a strong session on crude’s move above $74 per barrel – a 10-month high. Oil is unlikely to retreat so long as the Fed signals it will keep the easy-monetary policy pedal jammed to the floor.
Six stocks fell for every five that rose on the NYSE. Volume remains lackluster as just 1.1 billion shares traded on the Big Board, although this was pretty good activity relative to what we’ve seen lately. Unless something big begins to take place in either direction, volume will remain tepid as is the case for the final week of August as we head for the Labor Day holiday.
Market Activity for August 24, 2009
Treasury Demand
A couple of days back I noticed a Goldman Sachs’ analyst wrote in a note to clients in which he predicted that U.S. based buyers looking to add to savings will produce demand that is sufficient to gobble up the additional trillion dollars in bond issuance coming over the next 24 months.
This will be true; there will always be demand for Treasury securities, but not at these levels – and certainly not in the economic environment the stock market is currently pricing in; it would take a prolonged period of deep economic weakness for people to remain attracted to these yields.
U.S. household holdings of Treasurys (correct plural spelling) hit a record in 1995; that was when the 10-year Treasury traded at an 8% yield. At such a level, even a range of 6.0%-6.5% these days considering the interest-rate environment we’ve lived through over the past seven years (10-yr has averaged a yield of just 4.2% during this period), Treasury securities should enjoy much attraction from U.S. households. But at the current 2.5% yield on the 5-yr and 3.5% on the 10-yr...well, good luck with that one.
Bernanke to be Reappointed
News broke last night that President Obama will reappoint Bernanke to a second four-year term – the decision will be promulgated this morning. The market should like this move as it means continuity and removes uncertainty. In fact, the move is smart in terms of the market as Bernanke has become its sugar daddy.
I do find the timing of the decision a bit strange. White House Chief of Staff Rahm Emanuel alerted the press last night at 9:00 our time. In addition, the President is vacationing on Martha’s Vineyard and the press has been ordered to give him and his family their privacy. The decision to announce his choice of Fed Chairman makes this increasingly difficult. It just seems like they suddenly chose to make the decision now for whatever reason.
And speaking of the Fed…
Leaving Something Out, Conveniently
At the Federal Reserve’s annual symposium in Jackson Hole that concluded this weekend, Chairman Bernanke’s speech touched on the number of things that have taken place during and just prior to the credit crisis. He talked fairly specifically about the intensity of the financial crisis, the policy response, and the elements of a classis panic.
His account of what has occurred, and the decisions made to soften the blow, was quite good and I think he managed his speech with remarkable brevity. He also though touched on, more than once, how the Fed effectively saved the world. If not for the Fed response, according to Bernanke, the global financial system would have collapsed. I must say, there were a couple of weeks there at the height of the crisis in which it appeared it just might.
But one cannot prove a counterfactual so it seems pointless to me to bring it up, but the Chairman was campaigning for his job, and on that basis it seems pretty obvious why he would emphasize that he believes the Fed did a bang up job.
The aspect of this that rubs me the wrong way is if the Chairman is going to remind everyone how the decisions of the FOMC saved the system , one would like to see him also acknowledge that is was past FOMC policy mistakes that played a very large role in creating the situation that made the crisis possible. What I’m talking about here is the length of time in which they kept real (inflation adjusted) interest rates negative, a policy direction that encourages massive increases in debt levels.
Now Bernanke doesn’t have to waste time campaigning for his job (the current term ends in December) and can solely focus on managing the situation we are in – again, part of which is the situation both monetary and fiscal policy have and will put us in. He will have to work nothing less than magic to manage this thing appropriately.
Cash for Houses
The cash for clunkers program came to a close yesterday, but there is talk that Congress will expand another program: the refundable tax credit to all homebuyers – to this point, that refundable tax credit was available to first-time buyers only. I haven’t heard whether extending the duration of the program is part of this effort (currently expires November 30) but one would think they’d go through 2010 if this speculation is accurate.
Have a great day!
Brent Vondera, Senior Analyst
The Dow average managed a slight uptick as energy shares enjoyed a strong session on crude’s move above $74 per barrel – a 10-month high. Oil is unlikely to retreat so long as the Fed signals it will keep the easy-monetary policy pedal jammed to the floor.
Six stocks fell for every five that rose on the NYSE. Volume remains lackluster as just 1.1 billion shares traded on the Big Board, although this was pretty good activity relative to what we’ve seen lately. Unless something big begins to take place in either direction, volume will remain tepid as is the case for the final week of August as we head for the Labor Day holiday.
Market Activity for August 24, 2009
Treasury DemandA couple of days back I noticed a Goldman Sachs’ analyst wrote in a note to clients in which he predicted that U.S. based buyers looking to add to savings will produce demand that is sufficient to gobble up the additional trillion dollars in bond issuance coming over the next 24 months.
This will be true; there will always be demand for Treasury securities, but not at these levels – and certainly not in the economic environment the stock market is currently pricing in; it would take a prolonged period of deep economic weakness for people to remain attracted to these yields.
U.S. household holdings of Treasurys (correct plural spelling) hit a record in 1995; that was when the 10-year Treasury traded at an 8% yield. At such a level, even a range of 6.0%-6.5% these days considering the interest-rate environment we’ve lived through over the past seven years (10-yr has averaged a yield of just 4.2% during this period), Treasury securities should enjoy much attraction from U.S. households. But at the current 2.5% yield on the 5-yr and 3.5% on the 10-yr...well, good luck with that one.
Bernanke to be Reappointed
News broke last night that President Obama will reappoint Bernanke to a second four-year term – the decision will be promulgated this morning. The market should like this move as it means continuity and removes uncertainty. In fact, the move is smart in terms of the market as Bernanke has become its sugar daddy.
I do find the timing of the decision a bit strange. White House Chief of Staff Rahm Emanuel alerted the press last night at 9:00 our time. In addition, the President is vacationing on Martha’s Vineyard and the press has been ordered to give him and his family their privacy. The decision to announce his choice of Fed Chairman makes this increasingly difficult. It just seems like they suddenly chose to make the decision now for whatever reason.
And speaking of the Fed…
Leaving Something Out, Conveniently
At the Federal Reserve’s annual symposium in Jackson Hole that concluded this weekend, Chairman Bernanke’s speech touched on the number of things that have taken place during and just prior to the credit crisis. He talked fairly specifically about the intensity of the financial crisis, the policy response, and the elements of a classis panic.
His account of what has occurred, and the decisions made to soften the blow, was quite good and I think he managed his speech with remarkable brevity. He also though touched on, more than once, how the Fed effectively saved the world. If not for the Fed response, according to Bernanke, the global financial system would have collapsed. I must say, there were a couple of weeks there at the height of the crisis in which it appeared it just might.
But one cannot prove a counterfactual so it seems pointless to me to bring it up, but the Chairman was campaigning for his job, and on that basis it seems pretty obvious why he would emphasize that he believes the Fed did a bang up job.
The aspect of this that rubs me the wrong way is if the Chairman is going to remind everyone how the decisions of the FOMC saved the system , one would like to see him also acknowledge that is was past FOMC policy mistakes that played a very large role in creating the situation that made the crisis possible. What I’m talking about here is the length of time in which they kept real (inflation adjusted) interest rates negative, a policy direction that encourages massive increases in debt levels.
Now Bernanke doesn’t have to waste time campaigning for his job (the current term ends in December) and can solely focus on managing the situation we are in – again, part of which is the situation both monetary and fiscal policy have and will put us in. He will have to work nothing less than magic to manage this thing appropriately.Cash for Houses
The cash for clunkers program came to a close yesterday, but there is talk that Congress will expand another program: the refundable tax credit to all homebuyers – to this point, that refundable tax credit was available to first-time buyers only. I haven’t heard whether extending the duration of the program is part of this effort (currently expires November 30) but one would think they’d go through 2010 if this speculation is accurate.
Have a great day!
Brent Vondera, Senior Analyst
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