November 12, 2010

Market Wrap: for the week ending 12-Nov-2010

Weekly Snapshot
• Global Stocks and commodities were taking a nosedive on Chinese inflation data (AP)
• G20 fails to agree on trade and currencies (FT)
• US consumer sentiment index rose to 69.3, the highest level since June (Reuters)
• Euro area GDP up by 0.4%; industrial production down by 0.9% (Eurostat)
• Chinese stocks fell 5.2% on rumours of limiting foreigners' property purchases (AP)
• Google to give all its staff a 10% salary increase and a $1,000 bonus (Economist)
• Irish 10 year yields hit 8.7%; spread with German bonds is now 6.5% (Eurointelligence)
• Commodity exchanges raise margin requirements for silver futures (AP)
• Euro falls Versus most major currencies on European sovereign debt concern (Bloomberg)
• Gold climbed 30% this year, reaching a record of $1424.30 on Tuesday (Bloomberg)
• US trade deficit in September 2010 decreased 5.3% to $44.0 billion (ESA)
• Bond insurer Ambac sues U.S. and says IRS may ruin bankruptcy proceedings (Reuters)
• World Bank Chief calls for the establishment of a gold-backed Bretton Woods II system (AP)

Weekly Market Barometers    
st-2010-1112   FX-2010-1112

Charts Of The Week
The big story this week was about Europe where Ireland's sovereign debt crisis took a turn for the worse.  On Thursday, the Irish/German bond yield spread hit a record high of 665 basis points driving the borrowing cost for Ireland's sovereign debt to extremely difficult levels.  But unbeknownst to most, we might have our own sovereign debt crisis in the making.  Thanks to Barry Ritholz of the Big Picture Blog for figuring this one out.  Please consider: California Muni Bond Fund Shellacking

Is it just a small correction or are we getting a preview of what might hit the entire Bond market?  Bill Gross, the CEO of PIMCO sure knew what his own funds were about to be hit with when he published Run Turkey Run earlier this month.


Recommended Read
Please consider The Dollar: Every Man For Himself by Axel Merk.  In his assessment of the prospects for the US Dollar Mr. Merk hits the nail on the head when he writes:

“We believe a key impediment to the U.S. economy is that policy makers are fighting market forces.”


Recommended Video 
Much has been said about QE2 and its impact on the Dollar.  Interestingly, Alan Greenspan the former fed chairman declared that the US was pursuing a dollar weakening policy.  The timing of his remarks may have been unfortunate, considering the sensitivity of this issue at the G20 meeting in Korea this week.  However, this does not change the fact that he is right in principle.  Quantitative Easing must be viewed as a deliberate policy to inflate asset prices which in turn dilutes the value of the US Dollar.  Of course, the story doesn’t end here.  Enter Tim Geithner, the current US Treasury secretary who loudly proclaimed:

We will never seek to weaken our currency as a tool to gain a competitive advantage or to grow the economy; it’s not an effective strategy for any country, certainly not for the United States.

Whom can we believe then?  You be the judge…

 Click image to view the video

Good luck and good investing!

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