Economic news is coming from every angle. Kinda like Custer and his last stand. Developments started across the pond as S & P downgraded Greek debt, sending fixed income markets on a buying spree via flight to safety. That in turn sparked the dollar which rallied to 3 month highs, kicking the Euro’s tail and sending stocks on a tail spin. We see the dollar trade as a “short squeeze” as the world really hasn’t changed that much. When traders lean on a market as they have with the dollar, you get everyone on one side (short, betting the dollar will fall). Inevitably, the trade gets long in the tooth and something happens to reverse the trend (Greece). Short sellers must cover or get run over, causing what we call a “short squeeze”. Believe me, the unwinding of those trades are painful.
Next thing that happened on the way to the forum was Weekly Unemployment Claims jumping to 480K. Continuing Claims rose as well, up slightly to 5.19 million. Leading Economic Indicators were also on tap, up .9% versus market consensus of plus .7%. The good news in the report emphasizes an improving labor market and housing, with particular attention seen in builder attitudes. Bad news is this report is old news, rear view mirror type stuff which traders barely blink at. The Philly Fed rose 3.7 points this morning, better than the expected unchanged reading we were looking for. Ben Bernanke was also in the news, passing a Senate Banking Committee vote by 16-7. We have had a nice day, holding gains that started overseas and then made their way stateside. Oversold conditions helps boost treasuries and MBS along with fear in the Euro zone. We talked about this before but let’s cover it again. Sharp moves in either direction can occur at any time in low volume markets. That’s why it’s best to be extremely careful when locking in your interest rate. Expect this kind of behavior to last until the new year.