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Title: |
Market Update - Tuesday, May 30th, 2006 |
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Author: |
Unknown |
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Date: |
05/30/2006 |
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Market Update - Tuesday, May 30th, 2006
Current Trend Direction: Lower
Risks favor: Neutral
Current Price of FNMA 6.0% Bond: $99.06, -3bp
We have a new Treasury Secretary. This morning, at a White House press conference, President Bush announced that Henry (Hank) M. Paulson Jr, Chairman of Goldman Sachs will be replacing John Snow as Treasury Secretary. Snow, has been controversial and often candidly outspoken at times and the market is uncertain as to how clear and candid Paulson will be on articulating US economic conditions, hence the muted reaction in the bond pits.
Chicago Fed President Michael Moskow made an appearance on CNBC earlier this morning and didn’t have much new to say other than he’d like to see inflation move toward the center of the Fed’s target range. Moskow also stated he doesn’t want to see the financial markets get too comfortable with the present rate of inflation being at the upper end of the Fed’s range. Translation - he wants more Fed hikes. But he is only one voice and has a reputation for being a hawk against inflation. We may get more clues as to how the other Fed members feel when the FOMC meeting minutes are released tomorrow at 2pm ET.
Consumer Confidence was reported at 103.2, which was better than expectations of 100.9. Although the number beat expectations, it declined significantly from last month.
There are also several important reports set for release on Thursday, but the big event of the week will be Friday's Jobs Report. Estimates are for 170,000 new jobs and the Unemployment rate to hold steady at 4.7%. This report may be the deciding factor for the Fed to continue hikes or to take a break on June 29th.
Technically, Mortgage Bonds have been moving in a sideways pattern over the past six sessions, with some lower volatility. If we can use an analogy, this market is gathering and storing energy like a spring that is being wound up too tight. When the market’s stored energy becomes too great it will cut loose in a major move. Friday’s Jobs Report could provide the event for this bond market “spring” to cut loose with greater volatility. Until this much anticipated breakout takes place, bonds will likely continue in their sideways pattern of consolidation and trade between support at $98.75 and resistance at the 25-day MA at $99.15.
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BY THE NUMBER$
1. BLAME IT ON INFLATION FEARS - The S&P 500 was up on 57% of trading days YTD through 5/05/06 while producing a +6.8% total return for the year as of that date. In the 15 trading days since then, the stock index has been up only 40% of trading days and has lost 3.3% on a total return basis (source: BTN Research).
2. MEMORIAL DAY NUMBERS - One year ago, the S&P 500 was down 0.4% YTD at Memorial Day. The S&P 500 rallied from that point to finish calendar year 2005 up +4.9% for the entire year. The S&P 500 is up +3.3% YTD as of today. All 3 numbers are total return performance results (source: BTN Research).
3. AFFECTED BY RECENT PERFORMANCE - In the 6 months leading up to the S&P 500’s all-time high of 1527 on 3/24/00, equity investors deposited a net $33 billion each month into stock mutual funds. In the 6 months leading up to the S&P 500’s bear-market low of 777 on 10/09/02, equity investors pulled out a net $12 billion each month from stock mutual funds. In the last 6 months, equity investors have deposited a net $22 billion each month into stock mutual funds (source: ICI).
4. DECADES - The trailing 10-year average annual total return for the S&P 500 at the end of 39 of the last 50 calendar years (1956-2005) has been at least +8%, including the last 23 years in a row (source: BTN Research).
5. GOING UP - In the approximate 4 months since Ben Bernanke replaced Alan Greenspan as Fed Chairman, the yield on the 10-year Treasury note has risen from 4.52% to 5.05%, an increase of 53 basis points (source: Treasury Department).
6. WRONG - This Thursday (6/01/06) marks the 1-year anniversary of Dallas Fed President Richard Fisher’s quote: “the Fed is in the 8th inning of its tightening cycle and entering the 9th and usually final inning this month.” In spite of Fisher’s comments, the Fed has gone on to raise short-term rates an additional 8 times, most recently on 5/10/06, bringing to 16 the number of consecutive rate hikes (source: MSNBC).
7. FED CHANGE - President Bush has nominated current Fed governor Donald Kohn to replace Roger Ferguson as Fed Vice Chairman, the # 2 position at the Fed behind Chairman Ben Bernanke. Ferguson resigned on 4/28/06. Kohn became a Fed governor on 8/05/02, the same date that Bernanke joined the Board of Governors. Kohn was a 32-year Fed employee before his 2002 appointment to the board (source: Federal Reserve).
8. BIG NUMBER - GDP growth in the 1st quarter 2006 was +5.3% (annualized), a growth rate that is greater than 74% of the quarterly results in the USA since 1960 (source: Commerce Department).
9. SOMEBODY IS PAYING TAXES - Through 7 months of fiscal year (FY) 2006 (i.e., the period from 10/01/05 to 4/30/06), individual income tax receipts are up $54 billion in aggregate (+9.9% increase) over the same 7 months from FY 2005. That’s equal to $1 billion of additional tax revenue every 4 days over the amount that was collected just 1 year earlier (source: Treasury Department).
10. ZERO SET ASIDE - 41% of American households headed by individuals ages 45-54 do not have any retirement savings, including IRAs, 401(k)s or defined benefit pension plans (source: Congressional Research Service).
11. NO EQUITY BUILT UP - 29% of the Americans who borrowed money to make a home purchase in 2005 either bought with no money down or they’re carrying an amount of debt on their home greater than the current value of the house (source: WSJ, First American Corporation).
12. TAX CODE - A homeowner may rent out his/her personal residence for up to 14 days during a year and not report to the IRS any income received in the transaction. The taxpayer is also not allowed to deduct any of the expenses incurred during the renting of the home for the 2 week period (source: Publication 527, IRS).
13. MORE THAN ENOUGH - The USA consumes 1.1 billion tons of coal a year, 92% of that total is used in the generation of electricity by utility companies. With estimated coal reserves of 280 billion tons, the US has enough coal for possibly as long as the next 200 years (source: Department of Energy, Forbes).
14. PREOCCUPIED WITH MORTALITY - Americans spend 2 ½ times or more per person on health care compared to any other country in the world (source: BusinessWeek).
15. STORMS - Hurricane season officially begins on Thursday (6/01/06) and runs for 6 months through 11/30/06. The 2005 season set numerous records, including the most named storms (28), breaking the old record of 21 set in 1933; most number of category 1 or greater hurricanes (15), breaking the previous record of 12 set in 1969; and most category 5 hurricanes (4), breaking the old record of 2 set in 1960 and equaled in 1961 (source: NOAA). |
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