March 04, 2011

Market Wrap For The Week Ending 04-Mar-2011

Weekly Snapshot
• Silver prices climbed to their highest since early 1980 above $35 an ounce (Reuters)
• U.S. oil futures prices topped $104, highest level since September 2008 (AP)
• U.S. nonfarm payroll employment increased by 192,000 in February (BLS)
• U.S. unemployment rate for February dropped to 8.9% from 9.0% in January (BLS)
• The European Central Bank said on Thursday it could soon raise interest rates (Reuters)
• Saudi Arabia’s main share-price index fell to a 23-month low (Economist)
• China plans to lower its growth targets to 7%, from previous target of 7.5% (WSJ)
• Global food prices rose 2.2% in February from the previous month, according to a U.N. report (WSJ)
• Germany's unemployment rate dropped to 7.3% in February from 7.4% in January (
• Fed survey: Economy expands in all 12 regions, but businesses report need to raise prices (AP)
• Euro area (EA17) seasonally-adjusted unemployment rate was 9.9% in January 2011 (Eurostat)
• Euro area annual inflation estimated at 2.4% in February 2011 (Eurostat)
• Bernanke: rising oil prices will cause only a brief and modest rise in consumer inflation (WSJ)

Market Barometers

st-2011-0304   fx-2011-0304

Chart Of The Week
The U.S. Treasury published revised figures of the foreign holders of U.S. Treasuries.  Asian banks, in particular China, own more U.S. Treasuries than previously thought.  We previously compared the Fed’s recent Bond purchases as part of the QEII program.  As of this latest data, the Fed is not the largest holder after all.  China now owns $1.160 trillion worth of U.S. Debt.  The U.S. Debt burden is of course a major concern.  Aside from pondering the insanity of buying back your own I.O.U. and thinking that it would solve a more fundamental fiscal problem, it also leads to the question “what happens when QEII ends this summer and when the Fed will no longer purchase these Bonds.”  Is China willing to make up the difference?  At current rates?

Holders of Treasuries

Recommended Read  
Staying with our theme of the U.S. debt burden, please consider Pimco’s investment outlook for March, Two-Bits, Four-Bits, Six-Bits, a Dollar by Bill Gross.  As the largest manager of Bond funds, Pimco has serious concerns about the viability of continued debt financing by the U.S. government, given the ultra-low rates.  As Bill Gross notes:

    • A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability.
    • Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences.
    • Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.

And The US Dollar?  
The greenback is not holding up too well. Despite massive debt concerns in some European countries, the Euro managed to gain 5% against the US$ since the beginning of the year. In view of the massive U.S. debt burden and the silly debates over just a few billion dollars of deficit reductions, the calls for the demise of the Dollar have been gaining more traction as well. Articles like Sale of the Century and Why Dollar's Reign Is Near An End are a sign of the investor mood these days.  The U.S. Dollar index is at a crucial technical point as well and we should soon find out if the technical support will hold (see chart below). Don’t write off the U.S. Dollar just yet.  But something clearly needs to be done to turn things around and keep the Dollar from loosing more value. 


Good luck and good investing!

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