Home > Uncategorized > Brief Update: 2010/02/25: Bonds are Back!! …Implying that Further Sustained Equities Strength is Bull Fantasy

Brief Update: 2010/02/25: Bonds are Back!! …Implying that Further Sustained Equities Strength is Bull Fantasy

▪ Significant erosion of the economic background sees the bond markets and short money forwards trading on real world implications, while the equities have been a happy to remain passingly buoyant in the wake of upbeat ideas from various financial luminaries. Not the least of those is Federal Reserve Chairman Bernanke. While he was careful to point out some weak spots in the prepared remarks at the top of his Congressional testimony, the full context of his House Q&A session yesterday (and we can only presume more of the same today at the Senate) was all about how much things have improved.  

▪ Most interesting in that regard was Mr. Bernanke’s clear indication that any further economic improvement would rely upon “…continued growth in private-sector final demand (our italics) for goods and services. ” Sound familiar? Back on Wednesday, February 10th we cited Governor King’s early reference in his brief statement accompanying the Bank Of England Quarterly Inflation Report that “…much uncertainty remains about the likelihood of a sustained rise in real final demand in the world economy as a whole.” It looks like the next coordinated central bank action is a bit of hedging. Of course, not with any market positions, yet rather rhetorical hedges against the fact that they must show some discipline in removing accommodative policies at present while still allowing that underlying economies are not necessarily in any sort of good shape to sustain further growth. Even some of what he attempts to characterize as improved seems a bit of wishful thinking: especially his observation that “…initial claims for unemployment insurance have continued to trend lower…” in spite of the stubborn resilience of those claims in the mid-upper 400,000 area…

▪ While we will have more to say on other aspects of fundamental background soon, the technical aspects of the market trends are also very important in the return to the heavy 1970s-style political influence and recent significantly weak international economic data.  The most critical near-term technical trend psychology was the government bond markets’ sharp and forceful (as measured by the significant increase in volume) recovery after much weaker than expected US Consumer Confidence on Tuesday. March T-note back above 117-10/-16 DOWN Break accompanied by a very similar activity in most resilient sister March Bund means… it might have been hard to imagine at the end of last week, the Negation of those topping signals means that the recent highs are likely to be exceeded.  Especially if the equities enter the larger selloff …to the levels they missed at the lows of the break three weeks ago: DJIA 9,700-9,600; March S&P 500 future 1,025-15; and March NASDAQ 100 future roughly in the 1,650 area.

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