September 24, 2010

Market Wrap: for the week ending 24-Sep-2010

• Gold price at yet another record high touching $1,300 on Friday (Reuters)
• US durable goods orders in August 2010 decreased 1.3%, to $191.2 billion (ESA)
• US new home sales unchanged in August, annual sales pace remains second slowest on record (AP)
• Brazil's state oil company Petrobras raised $70bn in the world's largest public share offering (IPO)
• German IFO business climate index climbed to 106.8, its highest level in over three years (
• US leading economic index increased 0.3% in August to 110.2  (Conference Board)
• Bank of Japan intervened in the currency market for the second time in just over a week (AP)
• Total American consumer debt declined for the seventh straight quarter to $11.7 trillion (NY Fed)
• China’s prime minister, Wen Jiabao, ruled out large-scale appreciation of the yuan (Economist)
• The Federal Reserve kept the interest-rates target at zero to 0.25% (AP)
• The Fed hinted at more quantitative easing causing treasuries and gold to rise, dollar fell sharply (Reuters)
• US housing starts were 598,000, up 10.5% from the prior month and up 2.2% from the prior year (ESA)
• US economic panel declares recession ended in June '09, longest downturn since World War II (NBER)

Weekly Market Barometers    
stock-2010-0924   fx-2010-0924

Charts Of The Week
The markets took the view that the Fed will implement QE 2.0 at some stage.  A renewed flight towards safety and in anticipation of a US dollar dilution prompted new highs in Gold, more pressure on the Dollar and ultra-low short-term yields yet again...

2-year US Treasury Yield 5-year US Treasury Yield
$ust2y   $ust5y monthly

Interesting Video 
Please consider this rather interesting interview with Bob Prechter, founder of the Elliott Wave International.  While the current market mood has turned positive recently, he warns of the risks of further bubbles.  Certain technical indicators could see a devastating fall in US markets.  Decide for yourself whether his worst case scenario of the Dow falling to 2000 is pure insanity or whether it deserves some merit...


Bob Prechter’s Head & Shoulder Warning
Below is a clearer version of the chart Bob Prechter alluded to in his interview.  We should find out relatively soon whether the market agrees with him tilting south towards the neckline, or whether all this technical mumbo-jumbo is just talk.  The green line indicating a rough guestimate for the top of the right shoulder going forward represents the hurdle the markets must take to proof Mr. Prechter wrong.

Dow-Head Shoulders2

Pointless But Official 
The National Bureau of Economic Research did it again; with uncanny precision they concluded that the US recession had ended more than a year ago. 

The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II. Previously the longest postwar recessions were those of 1973-75 and 1981-82, both of which lasted 16 months.

Last Four Recessions and their Durations
12/07   -     6/09       18 months
3/01     -     11/01        8 months
7/90     -     3/91          8 months
7/81     -     11/82      16 months

While this is about as useful as telling us what the weather was last week, the inquiring mind is wondering how many highly paid economists have been working around the clock to figure this one out. Sadly, that brain power could have been used to come up with solutions for the creation of new jobs and new industries, ideally to achieve sustainable long-term economic growth. Instead, it is another example of bureaucratic waste. Is this is a precursor of the new financial overhaul bill's effectiveness?

Good luck and good investing!

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