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business newsMissed Messages From Fed Officials Pause Market Rally
By
Richard Suttmeier
Apr 08, 2010 9:00 am
Bernanke said he didn't see significant evidence of a "sustained recovery" in the housing market.
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With regard to the labor market Bernanke and I agree that even with slowing layoffs hiring is very weak. Where I disagree is the need to keep the funds rate at near zero for an extended period. I repeat that it was never prudent to push the funds rate below 3%, which the Fed has done twice since 2001.
Investors reflect concerns with strong demand for the 3-Year note on Tuesday and the 10-Year note on Wednesday. Today the US Treasury auctions $13 billion in new 30-Year bonds. Semiannual and weekly supports are 4.823 and 4.828, which held earlier in the week.
After a strong 3-Year note on Tuesday there was an even stronger 10-Year note auction on Wednesday. The 10-Year tested 4.01% on Monday and was sitting richer than my weekly pivot at auction time on Wednesday. The new issue of $21 billion came at 3.90% with a huge 3.72 bid to cover. The Indirect Bid was 43%, above my 30% to 40% neutral zone for that metric. For the 10-Year my annual pivot is 3.675. Strong bidding for US Treasuries is a sign that investors want the safety of US Treasuries at these higher yield levels.
Federal Reserve Official Hoenig agrees with me with regard to inflation. He wants to raise the federal funds rate to 1%, but I say take it to 3% and admit the mistake of having 1% and lower rates.
The risk is for re-inflated bubbles in Comex gold and Nymex crude oil, which have moved higher primarily on leveraged speculation in the futures markets. This is similar to 2008, when gasoline tested $4.25 per gallon as drivers kept cars barked at home. The $2.50 level appears as today’s supply-versus-demand threshold.Dallas Fed President Richard Fisher needs to learn how to read commodity price charts and the Prices Paid components of the ISM. Wasn’t Fisher the Fed genius who said the credit crisis was in the ninth inning two years ago? Now he says, "Because of the enormous slack in the system, and as you know I tend to be very vigilant about inflation, we're just not seeing price pressures right now." He continues, "If anything, the tail risks are on the deflationary side." Look at the charts for gold and crude oil:
Comex Gold -- Quarterly and annual supports are $1052.8 and $938.7 with annual and semiannual pivots at $1115.2 and $1139.7, and daily, weekly, semiannual, and monthly resistances at $1159.0, $1162.6, $1186.5, and $1202.5.
Nymex Crude Oil -- Annual and quarterly supports are $77.05 and $58.41 with my monthly pivot at $84.54, and daily and weekly resistances at $88.13 and $89.90. Annual and semiannual resistances are $97.29 and $97.50.
Greenspan says don’t blame me for the Housing Bubble. He says that trying to make it easy for poorer Americans to get mortgages didn't push the country into crisis, but it was Wall Street’s exuberance to package loans into mortgage securities that were nearly impossible to explain that helped cause the crisis. Greenspan said, “The house price bubble, the most prominent global bubble in generations, was caused by lower interest rates but...it was long-term mortgage rates that galvanized prices, not the overnight rates of central banks, as has become the seeming conventional wisdom." As you know I almost always disagree with Greenspan, and it was that 1% funds rate between June 2003 and June 2004, that was the primary cause of “The Great Credit Crunch.”
Consumer borrowing declines $11.5 billion in February when a rise was expected. On Monday, my theme was that the Credit Squeeze is intensifying on Main Street. With new higher credit card rates, comes the desire by consumers not to use them.
Consumer borrowing has now declined in 12 of the past 13 months with the one up month in January on 2009 holiday spending. The February decline in credit card debt was 13.6%. Total borrowing is now $2.45 trillion, down 4% year over year. Investors will likely continue to use that so called “money on the sidelines” to pay down debt. This is a sign of economic weakness as consumer spending accounts for 70% of total economic activity.The Dow is now overbought on its daily, weekly, and monthly charts. The “Wall of Resistances” stretches from 10,976 for today, 11,202 for this week, 11,228 for April, 11,235 for 2010, and 11,442 until the end of June. A weekly close below my annual pivot at 10,379 indicates risk to quarterly support at 7,490. Dow 8,500 before 11,500 remains my call.
No positions in stocks mentioned.
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