S&P 500: -0.07 (-0.01%)
Today’s slight loss snapped an impressive streak of gains for the S&P 500 – the index had finished higher on every single trading day this month.
The U.S. dollar traded all over the place despite early gains that came on news that Fitch credit analysts said Britain is the most likely of the major economies to lose its AAA credit rating.
Several Fed officials delivered speeches today, which reiterated their view that the economy will recovery slowly and the unemployment rate will continue to rise in the near-term. There was also mention that financial reforms are needed to avoid a repeat of last year’s credit crisis.
In other news, the Fed’s latest survey of loan officers showed that credit conditions had tightened again, although less than in its previous survey. The results also revealed that banks are ramping up purchase of securities, notably Treasuries, instead of making loans. This is no surprise and has been happening for quite a while now. Banks borrow at practically nothing and earn a risk-free return on Treasuries. This trade is a lay-up for the banks and far easier than dealing with credit cards or business loans.
The Fed can create as much money supply as they want, but that doesn’t guarantee it will create credit. Without willing lenders and able borrowing, the cheap money will continue to flow into assets from equities to commodities to corporate debt.
Most market participants acknowledge recent gains have been fueled by cheap money, but there still is quite a bit of disagreement regarding the sustainability of the rally in coming months if the real economy remains sluggish.
--
Peter J. Lazaroff, Investment Analyst
No comments:
Post a Comment