DIA +.09, SPY +.14, QQQQ -.46
10-Year Treasury, +5/32 yielding 3.90%
Oil + 56 cents to $60.48/bbl
Dollar -.5% versus Euro, up slightly versus Yen
This was largely a “catch your breath day”, where traders looked for direction but couldn’t find any. The sell-off at the end of last week took out the bears for the short-term, but there is little compelling reason to bid up stocks. Oil is definitely a huge factor keeping the bulls on the sidelines, as is the Fed’s meeting this week. Traders are waiting for the release of the Fed’s statement on Thursday to get an idea for where they see the US economy.
The 10-Year Treasury gained 5/32 to yield 3.90%. While the 10-year is still fairly unattractive at its current yield, oil’s record price concerns investors who are worried about an overall “energy tax” on the economy. As a result, traders are bidding up treasuries and their guaranteed rate of return relative to stocks.
Oil increased 56 cents to close at $60.48/bbl. After flirting with the $60/bbl level last week, oil finally closed about this psychologically important level. The fundamentals of the oil market are still very tight. In addition, traders are concerned about the new Iranian government, which stated they will favor local producers and domestic needs over international concerns.
The dollar fell .5% versus the Euro and was up slightly versus the Yen. The dollar once again retreated from the psychologically important 1.20 level relative to the Euro. The dollar is technically overbought at these levels, indicating further declines are possible. In addition, several German indicators came in better than expected adding to the Euro’s increase. The dollar/yen trade is still on hold, awaiting further firm developments in the Chinese Yuan situation.
Hi Bonddad,
I’m a big fan of these diaries. I don’t have an economic background, but I find myself paying closer and closer attention as time goes on.
So, I have a question (if you don’t have time, don’t worry about it). It seems to me that the trend in the U.S. is towards a debtor society, not on the national scale (well, I guess it is, but that isn’t my point) but on the individual scale. I see more and more people getting into significant levels of debt. Also, it seems to me that savings rates and incentives are going up (I don’t know if this is true…just my limited observations). Are these related, and do you think this trend will continue? It seems that, as more people demand credit, the banks will need to find their assets somewhere, and will offer more for it (and similarly demand more for credit).
Is there any merit to this? It seems plausible to an economic neophyte like myself, but is frightening in its implications for a further class division between the ‘haves’ and the ‘have nots’. Thanks for your time!
Yep: Here is something I wrote called One Nation Under Debt
The US hs become one nation under debt. Simply put, we owe more money than you could imagine. Below I have put together some figures to illustrate how deeply in debt we are. I have no idea what to do about this situation. But, it can’t last forever.
According to the Bureau of the Public Debt, out total debt is 7.764 trillion dollars. This includes debt held by the public and intra-governmental debt.
According to the Federal Reserve, total consumer debt is just under 10 trillion dollars. This includes credit card and mortgage debt. This is the highest level in 25 years.
According to the Federal Reserve, mortgage debt increased from 5 trillion to just under 10 trillion from 2000 – 2004. This is the highest level in 25 years.
According to the Federal Reserve, household debt as a percentage of GDP has increased from 70% to 85% from 2000 – 2004. This is the highest level in 35 years.
According to the Federal Reserve, household debt as a percentage of assets has increased from 15% – 18% from 2000 – 2004. This is the highest level in 40 years. Also remember that after inflation, wage growth was stagnant for the last few years. This means debt payments are taking a larger percentage of personal income.
Food for thought.
Wow. That certainly paints a pretty somber picture.
In particular, this:
is frightening. A doubling of mortgage debt in a period of time that is being referred to as a ‘housing bubble’ seems like a recipe for disaster. All of these people are going to be left out in the cold (quite literally, perhaps) when the bubble ‘bursts’ and they’re suddenly paying much, much more than their property is worth.
I just went to “Recent Comments”, noticed your post, and thought I’d reply. I’m warning you of this in advance, because I actually have no idea as to the nature of the diary in which I’m submitting this comment – and your post was noted as being off-topic already. . .so please don’t be completely puzzled with my comments – if they happen to be amazingly off base. Having warned you of that. . .
I’m tremendously fearful for the well-being of average Joe Citizen, and the trickle down impact that could make the difference between life and death for many. I’m enraged over this administration’s “model behavior” of spend, spend, spend – which they’ve aggressively and inappropriately promoted throughout the nation to all consumers, leading to a situation in which our nation as we know it will come crashing down before our eyes – in the very near future – and in the name of patriotism.
Maybe it won’t happen on a national level, but most certainly it will happen to hundreds of thousands of citizens on a personal level.
When all the debt-ridden consumers suddenly find that interest rates have increased, and credit companies have altered their lending provisions ever-so-subtly, but ever-so-harmfully to the average consumer, (exhibiting near fraudulent behavior in doing so), there will be a crisis indeed.
Citizens will continue losing their jobs – and losing the value of their 401(k) plans through the immensely volatile stock market and executive malfeasance. And if employees play it safe and place all their assets in fixed positions – it’s likely they won’t be able to keep up with the cost of living and inflation. Or they may lose their Defined Benefit Plans (the one pension plan that should have been treated as a sacred cow) as witnessed through the most egregious anti-consumer judicial ruling on behalf of United Airlines. The bubble will burst on the housing market. . .the stock market continues to fluctuate wildly – with foreign markets blocking this administration from participating in meetings related to global markets (such as Pan Pacific areas). And Russia and others started using the Euro in place of the dollar. All adding up to the trickle down effect that once again harms Joe Citizen – while the CEOs walk away with their golden parachutes and tens of millions in stock options, benefits and severance packages.
I’m truly afraid. Because Joe Citizen, who doesn’t have a job, or those who are working three jobs just to support their children and meet the rent, who are in over their heads in debt, who will incur huge losses on the sale of their homes when the bubble bursts, who have lost much of the value – if not all of the value of their pension plans – and have incurred increased costs for their health insurance (if they have it at all) may not be able to survive. Marriages will crumble, domestic abuse will increase, poverty will reach all time highs, and children will suffer in innumerable ways. And the immense increases in gas prices have effected the cost of everything, and impacted some people’s ability to even drive to work (if they have a job, that is). And there they are, placed in a position with no way out. . .having lost any safety nets they may have had in the past. They’ll experience indentured servitude under the new bankruptcy laws, states are gutting all social services, civil rights are going down the drain along with the justice system, and should they express concerns about the actions of the government that placed them in such dire straights, they might disappear, being viewed as enemy combatants.
And with no money to spend, the economy as a whole will suffer tremendously, and the cycle will continue with the loss of jobs, the inability to pay debt and more and more legislation aimed against the little guys. . .
Terrifying indeed. (And this was merely the short, summarized version of my little rant on the subject)
The thinking and the word on the financial streets down this part of the world is:
The Yuan will not be floated. The Chinese will not surrender control of their currency to others by floating before they have necessary institutions in place to “protect” their position. China basically holds all the cards and they know it. Big western business wants an ever increasing bit of the Chinese market and they dont want their governments screwing things up with too many tarrifs etc and trade wars. China understands the strategic power of economic control and are rather surprised at how easily they have gained a fair deal of control over the US economy because of western greed. They do not want to make the same mistake. In the short term the Chinese are more willing to be understanding of European concerns than US – witness the reasonable textile deal the EU got.