Home > Uncategorized > General Update: 2010/02/18: FOMC & STAGFLATION (back with a vengeance) Only Spook Bonds a Very Slight Bit?

General Update: 2010/02/18: FOMC & STAGFLATION (back with a vengeance) Only Spook Bonds a Very Slight Bit?

▪  How can this be? While we hate to both revisit a major recurring theme for the umpteenth time and make it sound a bit more straightforward than it is, this is actually pretty easy: the US economy is still extremely troubled in spite of some positive headline indications.  While we will have much more to say on that after today’s extended technical trend discussion, suffice for now to note the following: US housing remains a mess that is deteriorating more rapidly once again, US employment is troubled in its own right (notice today’s jump back up to 473,000 US Weekly Initial Jobless Claims after a specious one-week post-holiday adjustment down to 442,000) in addition to being a driver of the housing and consumer weakness, and inflation is unexpectedly strong with a weak US economy (note today’s US PPI numbers.)

▪  What is most striking about the technical trend activity in the equities is the failure of the major US indices at or around key levels tested previous. That led us to question whether any further upside reaction after the recent drop is indeed in the cards, and heightens the critical nature of the markets’ extended response to tomorrow’s reports. The extensively discussed general topping activity of the equity markets remains more or less the same as previous indications, allowing for some further near-term improvement. Near-term resistances such as DJIA failed support in the 10,300-10,230 range still holds the key to whether it can indeed revisit the 10,500-10,600 area. Similarly, March S&P 500 future just missed previously important 1,102-08…

▪ The bottom line is that while governments and central banks would like to become more prudent in their approach to supporting markets and achieving fiscal discipline, there is a very significant and wholly incontrovertible basic contradiction in markets right now. To the degree equities push higher and that puts pressure on the long-term debt markets, it will also lead to the sort of further stress in US housing that cannot end well. That’s due to housing’s primary psychological and financial influence on US consumers who remain the real hope for a return to robust global growth required to gradually unwind major trade and fiscal imbalances…

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