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Anthony Hood

Equity Investment Capital

Office: 949-891-0067

Email: tony@equityinvestmentcapital.com

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Tuesday, September 07, 2010

Not much in the way of market-driving economic news to stimulate markets this week. On Wednesday July consumer credit, weekly claims on Thursday and are about it for data. On Wednesday the Fed will release its Beige Book, the Fed's detailed economic data from each of the 12 Fed districts; normally not much new stuff but there is a little more in the way of the details. This week has Treasury back to the well, borrowing $67B more to fund the ever growing US federal deficit now expected to top $1.4T this year at the end of Sept which ends the 2010 fiscal year. $33B of 3 yr notes today, $21B of key 10 yr notes on Wednesday and $13B of 30 yr bonds on Thursday; the auctions should go well given the recent increase in rates. Pres Obama will spend the week bolstering his ideas for economic recovery and chiding the Senate to pass the small business bill that is stuck in the chamber and a new $50B infrastructure proposal for roads and airports . Last week the equity markets had a nice week; the overhanging question as markets closed last week was whether the action was just short-covering, or was it the capitulation of those that see the stock market ready for a real hit. The interpretation of Obama's more stimulus will likely tell the tail. We continue our negative view for the equity markets through the remainder of this year. Interest rate markets took a decidedly negative technical path last week with the selling, but it still rests with investors'' take on the economic outlook.

European equity markets took a hit today and is leading to the US stock market opening lower. In Germany factory orders took an unexpected decline, increasing talk that the EU economic recovery may be faltering. Orders, adjusted for seasonal swings and inflation, declined 2.2% from June, when they surged a revised 3.6%, the Economy Ministry in Berlin said today. That’s the biggest drop since February 2009. Economists forecast a 0.5% gain. Also hampering EU markets, another round of concern that banks in the area will have to raise an additional $135B to fend off defaults. We haven't heard much about the debt problems in Europe recently, but at least today it is being blamed for EU equity markets weaker.

At 9:30 the DJIA opened -46, the 10 yr note +17/32 at 2.64% -7 BP; mortgage prices +9/32 (.28 bp).

At 1:00 this afternoon Treasury will auction $33B of 3 yr notes.

This Week's Economic Calendar:

Wednesday;

7:00 am weekly MBA mortgage applications

1:00 pm $21B 10 yr note auction

2:00 pm Fed's Beige Book released

3:00 pm July consumer credit (-$5.25B)

Thursday;

8:30 am weekly jobless claims (-2K to 470K; con't claims 4.445 mil frm 4.456 mil)

July US Trade Balance (-$47.2B)

1:00 pm $13B 30 yr bond auction

Friday;

10:00 am July wholesale inventories (+0.4%)

The stock market rallied last week on various economic data; July personal spending up 0.4% was much better than expected, the increase in the ISM manufacturing index and a little better than thought August employment data. This morning back to some selling. There is absolutely no real conviction about the economic outlook, at least in terms of putting money on the line. For all the talk and ink about the economy in the end it is just that-----talk. Money managers at mutual funds are sitting tight, yet to commit much to the bullish outlook; traders move rapidly to trade on each movement. We still do not believe in a double dip and the overall market consensus appears to take that view. Economic growth is likely to struggle along with little improvement. Pres Obama will make this a week about the economy but again investors won't be motivated toward an expanding economic outlook.

The rate markets backed up last week on Treasury rates but mortgage rates remained generally unchanged. Interest rates won't increase much in this uncertain environment, we don't expect rates to fall much either. Choppy in treasuries with mortgage rates remaining in a tight range.

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