Market WrapUp (08-11-03)

Financial Sense Online ^ | 8/11/03 | Mike Hartman

[arete]

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Today's WrapUp by Mike Hartman 08.11.2003  Mon   Tue   Wed   Thu   Fri   Archive

Interest Rates Continue Higher

Now that the enormous Treasury auction of $60 billion is out of the way from last week, we can take a look to see how the dust is beginning to settle. On Friday I commented that this week would probably see money slide back into Treasuries, but it doesn’t appear that the decline in bond prices has found a bottom yet. The 10-year note was 31/32 lower in price for a yield of 4.35% and the 30-year Bond fell 17/32 for a yield of 5.27%. The market is pricing-in the anticipated second-half recovery with higher interest rates. It’s fascinating to see headlines that read, “U.S. Treasuries Decline on Concern Rebound Is Gaining Speed” and a comment from a bond analyst that reads, “Market participants fear more robust data than expected, pressuring bond prices.”

Treasuries may not firm-up as much as I anticipated, since the bonds and notes from last week are still sitting in primary bond dealers’ inventory. It will still take more time for the bond market to absorb the additional supply that the primary dealers have to sell. Also, last week I was not aware that the Treasury will be borrowing MORE money tomorrow. According to CBS MarketWatch, “The U.S. Treasury said it will offer $15 billion worth of 4-week bills on Tuesday to refund (refinance) $8 billion in bills maturing August 14^th and raise (print) $7 billion in new cash.” See how easy it is if you’re running a bit short on funds…a mere $15 billion to bridge the gap for a few more weeks. I don’t know how long it will take for the market to absorb all of the supply, but we will know when bond prices begin to firm.

Economic Recovery On The Way

All of the good economic news is supposedly pushing bond prices lower (I think it’s all the supply) so the higher interest rates are justified by all the improvements in the economy. Tomorrow the Federal Reserve is expected to leave interest rates unchanged, but market participants will be listening closely for near term guidance. If the statement from the Fed is overly bullish on future growth it could send Treasuries even lower which would raise long-term interest rates. If Mr. Greenspan was trying to keep interest rates low, he shot himself in the foot on July 15^th when he gave his testimony to Congress. I doubt very much that he will let that happen again. If anything, I have a gut feeling that the Fed statement tomorrow will be somewhat cautionary and possibly start talking about deflation again.

They keep talking about an economic recovery, but it’s not showing up in the bottom line earnings numbers. Earnings certainly didn’t break any records for the second quarter, so all the economic good stuff had better show up in third quarter earning reports or stocks go hard-down this fall. Today the Dow Industrials remained close to breakeven for most of the day with a final spurt in the last half-hour to close with a gain of 26 points at 9,217, the broader S&P 500 added three points to close at 980, and the NASDAQ got the best bounce today after the 4% sell-off last week by adding 17 points to close at 1,661. With all the good economic news slated for later this week, we could see a final blow-off before stocks head south.

Lots of Numbers Wednesday, Thursday and Friday

On Wednesday the retail sales numbers will come out and it is expected to show July sales coming in 1% higher than June. Then on Thursday it is expected that the initial jobless claims will remain below 400,000 for a fourth consecutive week, indicating an improvement in the job market. Then we will get the CPI and PPI numbers, and let me guess…there is no inflation! OK then! And finally, we will get a Fed report on industrial production and capacity utilization that will no doubt continue bragging about the incredible productivity numbers we are enjoying. If I had more time I would enjoy addressing each one of these issues. Oops, almost forgot the consumer who also reports at the end of the week with the latest release of the University of Michigan’s consumer sentiment index. I have to believe that sentiment will come in lower due to rising interest rates. Tomorrow the market direction will probably be dictated by the Fed statement, then economic data should take center stage later in the week.

Gold, U.S. Dollar, Treasury Auction

Prior to the Treasury auctions last week I said that I thought the markets were being conditioned to receive Treasury paper. Could it simply have been a coincidence that the dollar strengthened and gold took a dive just prior to the auctions? It was obvious to me when I saw the big take-down on the spot price of gold on the Friday just prior to the auctions that things were being set-up. Now that the debt is sold, the opposite is happening. Here are the charts to make it easy to see.

You can see from the charts that the dollar began to strengthen and gold began to decline five days before the Treasury auctions, remained in a tight range through the debt sales, and now they are both doing what they should have been doing. The dollar is headed lower again and gold is moving higher. Just in two trading days since the big bond offerings were completed the price of gold has risen by almost $10 per ounce. Monetary stress is a very good thing if you are a precious metals investor.

In parting today, please go back to the top of the WrapUp and take a look at the chart of the HUI Index. That is one gorgeous chart! In November 2000 the HUI Index hit a low of 36 and today closed at 180.16! In less than three years the Unhedged Gold Bugs Index has increased by a whopping 500%. I’ll bet you won’t hear that number reported on CNBC! It’s game on for the Golden Bull and the Silver Streak!

© 2003 Mike Hartman
August 11, 2003

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[arete]

I was not aware that the Treasury will be borrowing MORE money tomorrow. According to CBS MarketWatch, “The U.S. Treasury said it will offer $15 billion worth of 4-week bills on Tuesday to refund (refinance) $8 billion in bills maturing August 14th and raise (print) $7 billion in new cash.” See how easy it is if you’re running a bit short on funds…a mere $15 billion to bridge the gap for a few more weeks.

The central planners keep piling more and more IOU's on top of the old IOU's. Incredible.

Richard W.

[arete]

Market WrapUp is Delivered!

First Hour of the Roger Arnold Show

Second Hour of the Roger Arnold Show

Richard W.

[hayfried]

Wasn't there another member - rory? - that used to post these? What happened to him?

[arete]

rohry is alive and well (last I heard from him) and I suspect lurking here and there.

Richard W.

[rohry]

"Wasn't there another member - rory? - that used to post these? What happened to him?"


Semi-retired...waiting until the markets reach a rational level...

[Steven W.]

It continues to be absolutely hilarious to read all the continuing gibberish & speculation from the Financial Sense(less)' on the past months' moves in the bond markets from those who were so entirely clueless they nearly missed all its implications, finally catching on and trying their best to spin it, well after yields moved up significantly and, now, even still, dropping in little lies & distortions ala "They keep talking about an economic recovery, but it’s not showing up in the bottom line earnings numbers." when they know their projections of 2nd quarter earnings misses totally fell through and their outright ignorance (either dismissive or intentional) of all the broad based leading economic indicators. Considering how badly they were fooled with regards to the bond market it's going to continue being really funny to monitor their persistent confusion ROFLMAO

[arete]

Semi-retired...waiting until the markets reach a rational level...

Hey, good to hear from you. How's life on Johns Island?

Richard W.

[Captain Shady]

Its A Jungle Out There
Randy Newman,

It's a jungle out there
Disorder and confusion everywhere
No one seems to care
Well I do
Hey, who's in charge here?
It's a jungle out there
Poison in the very air we breathe
Do you know what's in the water that you drink?
Well I do, and it's amazing
People think I'm crazy, 'cause I worry all the time
If you paid attention, you'd be worried too
You better pay attention
Or this world we love so much might just kill you
I could be wrong now, but I don't think so
It's a jungle out there

[palmer]

waiting until the markets reach a rational level...

The sure sign will be when Steven W. stops posting. Personally I'd also look for a VIX above 30.

[arete]

Thanks Capt. That's good.

Richard W.

[arete]

The sure sign will be when Steven W. stops posting.

Interesting that they let rohry out of the old-aged home and steven w. out of the asylum on the same day. Hummm.

Richard W.

[palmer]

This isn't really on topic but I found out an interesting factoid the other day. Alan Greenspan choppers in from a neighboring county (Rappahannock) to D.C. every day. My drive is farther (75 miles) but then I'm not part of the ruling class.

[arete]

but then I'm not part of the ruling class.

I watched "The Gangs of New York" yesterday. Had an interesting line in it -- something like, "Half of the poor people can always be paid to kill the other half".

Richard W.

[Orangedog]

I remember a quote from a movie made in the 80's or early 90's that went something like "We might not get what we want...we might not get what we need...just so long as we don't get what we deserve." The movie wasn't all that great, so I guess thats why I can't remember the title.

One that I do recall was from Wall Street: "A fool and his money were lucky to get together in the first place."

[imawit]

Not Incredible but restructured (the 'code word').

I was expecting to see some gravitation towards a nominal rate too. I, like Mike didn't take into account the fact that the bonds only went from the FED to the brokers. When these bonds finally do start getting sold on the 'street' the yields will reach some norm.

[jwh_Denver]

In less than three years the Unhedged Gold Bugs Index has increased by a whopping 500%.

Nice to be on the right side of those IOU's.

[grania]

I have a question. I want to transfer my trading account (finally !) to a different online trader. What is the cheapest way to do it? I have a good portion of my money in cash now, but if I transfer it, the old account will incur expenses for not being large enough to avoid the big ones. If I sell everything and rebuy it, that's expensive. Isn't it expensive to get the certificates?

Should I just take some money from savings, start trading in the new account, and not close the old account until it's all cash, only taking out the part over the minimum for now?

I'M SO CONFUSED !!

[arete]

I believe that the new broker/dealer transfers your account from the old broker/dealer whole and as is. The old dealer will charge you a transfer fee of $50 to $100. So if you have 200 shrs of XYZ you don't have to sell it -- it is just transferred. Check with the new broker you have selected for more details. Proprietary investments such as a brokers own inhouse brand of mutual funds generally will not transfer.

Richard W.

[rohry]

"Hey, good to hear from you. How's life on Johns Island?"

Good, sold the cottage in NH and moved our stuff to Johns Island last week. Still trying to get organized.

I've been invited to a "Men's Club" tomorrow night. It's been described as a local club where "Northerners" don't normally get invited. These guys are all LOCALS...

[arete]

I've been invited to a "Men's Club" tomorrow night. It's been described as a local club where "Northerners" don't normally get invited. These guys are all LOCALS...

That ought to be interesting. Don't let them take you into the swamps or marshes no matter what they tell you about how much fun you are going to have. :-)

Richard W.