Thursday, May 28, 2009

Debt Relief?

Stocks jump on relief over gov't debt auction
The bond market recovered on Thursday, bringing stocks along with it, a day after panicky selling pushed long-term borrowing rates to their highest level in six months.

The yield on the 10-year Treasury note, a widely used benchmark for mortgages and other kinds of loans, moved decisively lower to 3.62 percent from 3.75 percent the day before as investors were relieved to see ample demand at an auction for Treasury debt.

The note's yield had surged the day before, triggering a selloff in stocks, on concerns that a flood of U.S. government debt coming to market this year would overwhelm demand. In addition to raising borrowing costs for the government, higher yields on long-term Treasurys could threaten a recovery by driving up borrowing costs for consumers. The Federal Reserve has said it would buy large amounts of Treasurys and other kinds of debt in an effort to keep borrowing costs low.

Stock trading could remain jumpy going forward as investors look closely at interest rates as well as economic data for confirmation that the market's aggressive bet this spring on an economic recovery is still sound.

"The market is absolutely being held hostage to the data," said David Joy, chief market strategist at Ameriprise Financial Inc.'s RiverSource Investments.

Joy pointed to the market's immediate reaction after the Treasury auction Thursday of $26 billion in 7-year notes, part of the $101 billion in debt the government offered this week. "There was a real sigh of relief," he said.

What a load of BS. A sigh of relief because the Treasury successfully auctioned off $101 BILLION of debt this week. Read that again! $101 BILLION of debt...IN ONE WEEK! There could not be a better reason to run from the stock market than this news. Why the excitement? How much of this debt was actually bought by "investors" vs how much was bought by the Fed?

This is horrible news people! In just ONE WEEK our government sold $101 BILLION of debt! Whether they actually sold the debt or not is irrelevant. This is horrific! Please bear in mind that in ALL of 2008 the government sold just under $500 BILLION of debt. What's going to happen next auction, and the ones after that? Do people really believe this debt will continue to be bought? Do they really believe that "investors" are buying this junk? What a charade! The rise in interest rates has only just begun...

Martin Weiss at Money and Markets tells it like it is in an email I received from him today:

Yesterday, Washington dumped yet another Mt. Everest of new Treasury bonds onto the market ... crushed bond prices ... and drove the yield on the ten-year bond up a staggering 20 basis points.

Worse, mortgage rates took off like a house afire, surging by FORTY basis points (almost a HALF percentage point). Auto loan and credit card rates are about to do the same.

All over America, millions of beleaguered consumers are going to get slammed with the full weight of their rapidly rising monthly payments — panicking as they suddenly find themselves one, giant step closer to defaulting on their debts.

Make no mistake: Massive government borrowing drives interest rates up, up, UP. So far, just since December alone, the interest rate on 10-year Treasury notes has surged by more than 70% (1.7 times its earlier level)!

And Washington has only begun to borrow the money it needs to fund the deficit plus the trillions in bailouts it has guaranteed so far. It will likely have to sell another $3.25 TRILLION in treasuries this year to refund maturing bonds, fund its bank bailouts, automaker bailouts, stimulus bills and record budget deficits.

Rising interest rates are anathema at a time like this — pure poison for a sick economy. As rates rise, consumer spending craters. As monthly payments on mortgages, auto loans and credit cards rise, spending craters again. Corporate earnings are replaced with corporate losses. Stocks plunge.

U.S. Economy: Durable-Goods Orders Near 13-Year Low
May 28 (Bloomberg) -- Durable-goods orders hovered near a 13-year low and the number of Americans collecting unemployment insurance reached a 17th straight record, offering no sign of an imminent rebound from the worst U.S. recession in half a century.

Orders rose 1.9 percent in April after a 2.1 percent drop in March that was more than twice as large as previously estimated, the Commerce Department said in Washington. Meanwhile, the Labor Department said 6.79 million people are collecting jobless benefits, and another report showed new-home sales were lower than forecast in April.

Today’s figures indicate that while the pace of the economy’s contraction may be easing, there’s no signal yet that it is ready to grow. Rising unemployment will keep consumer spending in check, making companies reluctant to ramp up investment and builders hesitant to start work on properties.

“We have a tough slog ahead of us,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York. “The recovery is going to be very slow in its emergence.”

I guess investors were so caught up in the euphoria of the governemnt's "success" in adding to their mountain of debt they overlooked these other more ominous economic data points. Only a fool is buying general equities here on this even more foolhardy notion of "green shoots" of growth.

Crude hits $65 on steep inventory drop
NEW YORK, May 28 (Reuters) - U.S. crude oil futures surgedabove $65 on Thursday, setting a fresh high for the year, asthey continued to rally after government data showed a steepldrop in oil inventories last week.

Traders also factored in better-than expected economic data and OPEC's decision to hold production to current levels. Gasoline futures traded well below their early, seven-month
high, after data showed a lower than expected drawdown and pressured by position squaring ahead of front-month refined product futures expiration on Friday.

Heating oil futures gained, on data showing a far less than
forecast inventory increase.

"It was definitely bullish for crude oil. No one was expecting a draw like that as the refinery rates soared much higher than expected. That's the shocking number," said Mike Zarembski, senior commodities analiyst at optionsXpress in Chicago. "The gasoline draw wasn't nearly as big as expected, but we had a large increase in demand. That was a mixed message," he added.

In its meeting in Vienna, OPEC kept output targets unchanged, as expected, betting on a strengthening world economy and tentative signs of increased demand to boost oil

OPEC is betting on a strengthening world economy? That is amusing. Yes Oil was up today on falling inventories, but was it? Or was it up on a falling US Dollar? I suspect the latter. For that matter, was the stock market up on "relief" about the Treasury bond auction, or was it up on rising Oil company stocks?

We have been told repeatedly lately that rising commodity prices, particularly Oil and copper, are a signal that traders see an economic recovery in the near future. I think that is a truck load of pure BS. The media is ignoring the fall in the Dollar completely. They refuse to put two and two together and report that rising commodity prices are the result of a falling US Dollar.

The charts of Oil and The US Dollar above tell the whole story. And the story is that since December Oil prices have consolidated when the Dollar is rising, and Oil prices have risen dramatically when the Dollar is falling. All rallies in the Dollar now are phony. The commodity markets understand this. They pause and consolidate when the Dollar "rallies", and rise when the Dollar falls. The US Dollar's future is down. To suggest otherwise is complete ignorance. Today's "relief" over the "success" of the Treasury's bond auction is all the proof you need that the Dollar is headed lower. At $101 BILLION a week, the Dollar is headed much much lower.

The Dollar is not going to head straight down, few markets do. The Dollar is due a relief rally, and we could see one as early as late next week. But it will be brief, and unlikely to exceed 83 on the USD Index. At that point, the Dollar Bulls might consider grabbing their ankles, and kissing their sorry asses goodbye...

I have also included a Silver chart today. Silver is in the midst of a major momentum move. Clearing 14.90 today should send the Silver Bears scurrying for cover. A move through 15.25 could be devastating for the Silver Bears. A brief rally in the Dollar is all that is likely to slow Silver's ascent here. Support at the Fibonacci lines on the chart above will be key areas to look to buy any dips.

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