May 15, 2010: Market Week In Review

The European Union, the European Central Bank, and the International Monetary Fund (and the Fed as well, although they don't want to truly highlight it) provide $960 billion in backstops for the Euro-zone and what happens? The Euro ends the week lower by 3%!! Ladies and gentlemen, that is nothing more than a major "F&%@ Y*&" on behalf of global investors to the aforementioned central banks and government entities.

Think there is tension in Euroland? As The UK-based Telegraph reports, President Nicolas Sarkozy 'Threatened to Pull France Out of Euro',

President Nicolas Sarkozy slammed his fist on the table and threatened to pull France out of the euro at a meeting of European leaders deciding Greece's aid package last Friday, according to Spain's El Pais newspaper.

The last time there was this kind of tension between these countries, guess who was coming ashore at Normandy?

Then the Marshall Plan. Why does President Obama want to take our nation down the path of a Euro-socialist system? If anything Barack might want to ask the Germans what a period of hyper-inflation does for the national psyche. In any event, do not discount the possibility that we end up providing a backdoor bailout to the EU via the swap lines provided by the Fed to the European Central Bank.

Debt cripples. Massive debts are fatal.

On that note, welcome to the Sense on Cents Week in Review where I provide a streamlined recap of month-to-date market returns. Given recent volatility, I am also providing year to date returns as well. I hope these benchmarks help you 'navigate the economic landscape.'

The stats provided are the week's close (May 14th) vs. April close, month to date returns, December 31st close, and year to date returns:

U.S. DOLLAR
$/Yen: 92.35 vs. 93.81, -1.6%, 93.00 -.7%
Euro/Dollar: 1.2361 vs. 1.3295, -7.0%, 1.4323, -13.7%
U.S. Dollar Index: 86.27 vs. 81.89, +5.3%, 77.86, +10.8%

Commentary: the Euro gapped higher Monday morning after the weekend backstop as highlighted above. After that, the Euro grabbed its tail, bent over , and proceeded to get crushed. The U.S. Dollar Index benefited in a flight to safety, but gold was also a winner as fiat currencies are looking suspect. Our dollar may be winning now but when does the dollar's worth come into question? What then?

COMMODITIES
Oil: $71.85/barrel vs. $86.22, -16.7% !!!!!!!!, 79.62, -9.8%
Gold: $1230.5/oz. vs. $1180.3, +4.2%, 1097.8, +12.1% !!!!!
DJ-UBS (UBS: 14.17 -0.45 -3.08%) Commodity Index: 127.84 vs. 134.70, -5.1%, 139.19, -8.2% !!

Commentary: with the strength in the dollar, commodities in general but oil specifically have given real ground. Gold has been the real beneficiary of recent turmoil within the EU. Will the issues embedded in the EU lead to a double dip recession? Who's to say the real economy has truly had anything more than a mild bottoming process. The DJ-UBS (UBS: 14.17 -0.45 -3.08%) Commodity Index is now down 8.2% on the year!!

EQUITIES
DJIA: 10,620 vs. 11,008 -3.5%, 10,428, +1.8%
Nasdaq: 2347 vs. 2461, -4.6%, 2269, +3.4%
S&P 500: 1136 vs. 1186, -4.2%, 1115, +1.9%
MSCI Emerging Mkt Index: 975 vs. 1020, -4.4%, 989, -1.4%
DJ Global ex U.S.: 188 vs. 202, -7.0%, 201, -6.5%

Commentary: equities ended the week higher with domestic equities returning to positive territory for the year. Economic data reported would seem to indicate our economy is stabilizing but without meaningful improvement in jobs and housing (and it's not getting better anytime soon), the balance of the data is mostly noise. Brace yourself for continued volatility in the markets.

BONDS/INTEREST RATES

2yr Treasury: .79% vs. .96%, -17 basis points or +.17%, 1.14%, -35 bps
10yr Treasury: 3.46% vs. 3.66%, -20 basis points or -.20%, 3.84%, -38bps
COY (High Yield): 6.59 vs. 6.87 -4.1%, 6.89, -4.4%
FMY (Mortgage): 18.36 vs. 18.54, -1.0%, 18.24, +.6%
ITE (Government): 58.29 vs. 57.84, +.8%, 57.07, +2.1%
NXR (Municipal): 14.24 vs. 14.24, -0.0%, 14.64, -2.7%

Commentary: the front end of the Treasury curve benefited as the turmoil in the EU virtually guarantees that the Fed is not tightening anytime soon. The rebound in the equity markets supported a rebound in the credit sectors of the bond market.

SUMMARY/CONCLUSION
The roller coaster continues in terms of the global economy. Problems in the private sector in 2008 were abated with massive public stimulus in 2009 but now the public and sovereign risks are taking center stage. What has benefited? The dollar. Who called this? Jeff Gundlach formerly of TCW and Nouriel Roubini. These Sense on Cents All Stars (Gundlach is a former All Star) had this call last fall and I highlighted it in writing, Jeff Gundlach of TCW Calls for Deflation and Dollar Rally (September 10, 2009) and Nouriel Roubini Agrees with Jeff Gundlach (October 27, 2009).

In regard to my ongoing pursuit of truth, transparency, and integrity on our economic landscape, please join me this Sunday evening (8-9pm ET)  No Quarter Radio's Sense on Cents with Larry Doyle Open Mic. What is on your mind? What do you want to address? Are you steamed and you do not want to take it anymore? Well, you do not have to as all your questions, comments, frustrations and beefs are welcome here as I look to help you 'navigate the economic landscape.'

 

Have a great day and weekend.