Meant to post this yesterday….
Fed Chief Ben Bernanke, speaking on Financial Reforms to Address Systemic Risk, finally gave the market a dose of clear communication in both his speech and the Q and A period. I thought his delivery was straight forward, definitive, and at times funny. He repeated the statement that the Fed, Treasury, and other regulators will
take any necessary and appropriate steps to ensure that our banking institutions have the capital and liquidity necessary to function well in even a severe economic downturn.
He advised strengthening the financial infrastructure—
the systems, rules, and conventions that govern trading, payment, clearing, and settlement in the financial market.
Citi CEO, Victor Pandit, also had a hand in today’s stock market rally, citing the fact that Citi is having its first profitable quarter since 2007 and believes his institution has “turned the corner.” You may remember that Well Fargo reiterated positive guidance last week and with Citi following today, may start the healing process for a severly battered sector.
Wholesale Inventories hit the tape this morning, down .7% due in large to a 4.8% reduction in auto inventories. This is a net positive for the economy as a draw down in inventories means better sales which in turn improves GDP, eventually leading to more workers replenishing the inventory. Stocks love all of the above and given the high powered oversold condition, look to be well on their way towards a plus 300 point day (Dow).
Next question, is this a bear market rally or the beginning of the end? Time will tell. Treasuries has taken it on the chin as auction paper and flight to safety selling are to blame. Currently, the 10 year note is off 24/32’s trading at a yield of 2.98%. The 30 year bond is off 1 and 5/8th points to yield 3.70%. Mortgage backs have been a star performer, off only 4/32’s as spreads have tightened to treasuries while the Fed continues to buy MBS, supporting our pricing.
Technically, the weakness today has created sell signals on daily charts as well as a number of other oscillators. 2.98% to 3.0% needs to hold for the bulls to have a chance but realistically, our chart work looks like a roller coaster at Six Flaggs, giving us little to hang our hat on. Call the market neutral with a slight edge toward the bears. Mortgage pricing should however, hang it there a current levels.