Market retreats

Market Color:  SI wishes investors and analysts would get there signals straight.  One day we are in a recovery and the next day we are not.  Today we are not.  After the significant rally in stocks and commodities this year, investors seem to be looking for clues about where the economy is headed and how best to position their portfolios for next year.  Investors are uncertain of how long the environment of low interest rates and a weak dollar that helped fuel the market’s rally will last.  So as this anxiety continues about when the low rate punch bowl is taken from the table investors seem to be starting to dump their stock funds and buying dollars and treasuries. At least that is the report for the day. Markets seem to follow general cycles, sometimes they are long and sometimes they are short.  And then we have people to tell us why they are long or short.

 

Later Today,  The President will give a speech outlining how he plans to create more jobs. High unemployment has been one of the economy’s biggest obstacles to growth as most have pointed to the so called jobless recovery.  A report from the Labor Department on Friday showing far fewer job losses in November than expected initially gave the market a boost. But stocks have struggled to move higher since then as investors question whether the improvements in the labor market are actually sustainable, and if they are, whether the Fed might raise rates sooner than expected. What to do, what to do.  So high will gold go?  Apparently for the moment the peak has been hit and as the dollar strengthens, gold and commodities retreat in price.  Most have commented about the lower dollar and the carry trade to buy commodities. If this is the beginning of that cycle, then gold prices will take a powder for a time as those people shorting the dollar unwind their positions. Fed Chairman Bernanke in his commentary said “significant headwinds” are still affecting our economy.  No kidding. Perhaps that is what the investors are perceiving.  We have 71 billion auctions which will probably do well given the interest again with treasuries, and no real economic data until Thursday with the jobless claims. Friday is retail sales and the Michigan Consumer sentiment number.   Right now, the futures market is pricing in a 93% chance that the Fed keeps rates somewhere between 0% and .25% through March 16th, 2010.  Currently, the Ten Year yield is at 3.38%.  And the spike in rates for mortgages has relaxed and pricing is currently better by .25 to .375%.

 

Market News: So what exactly did Bernanke say yesterday about the direction of rates? A benchmark interest rate is likely to remain near zero for the foreseeable future, Federal Reserve Chairman Ben Bernanke said Dec. 7 in remarks to the Economic Club of Washington. The economist reiterated plans to keep the federal funds rate low for “an extended period” because there are still some questions about the economic outlook and whether the recovery can sustain itself without additional emergency programs. Central bank officials will discuss monetary policy when they meet Dec. 15-16. Elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here,” Bernanke said. “The Federal Reserve is committed to keeping inflation low and will be able to do so.” The Fed chairman credited the U.S. central bank with pulling the economy “back from the brink,” and suggested that growth is unlikely to be strong enough to lower unemployment at a rapid pace. The speech was his first since his appearance at a Senate Banking Committee hearing last week on his nomination to a second term. “We still have some way to go before we can be assured that the recovery will be self-sustaining,” the Fed Chairman said. “My best guess at this point is that we will continue to see modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”

Apparently we are not through with ideas or emergency programs to throw more money at the mortgage aide issue. The House is ready to consider more than 100 proposed amendments to a sweeping financial regulatory reform package, including one that would use $3 billion from TARP to help unemployed homeowners with their mortgage payments and spend another $1 billion to enable state and local governments to buy foreclosed properties and use them for more productive purposes. Democratic lawmakers also plan to revive a provision giving bankruptcy judges power to modify mortgages, but the “cramdown” proposal still faces stiff opposition from the industry. SI wonders how they will decide who gets their mortgage payment made.

 

So since this is your money Congress is throwing around on your behalf, you might want to visit this website and see how you rank as a taxpayer.   It seems that over 40% of Americans do not pay any federal tax as published by the Tax Policy Center.  SI is talking about federal income taxes, not other taxes like Social Security, Medicare, state income taxes, sales taxes, or car registration taxes, some of which are extracted through payroll deductions. The owe-no-money crowd tends to get hit by at least some of those. By historic standards, today’s situation is an aberration. Between 1950 and 1990, the number of owe-no-money federal tax returns averaged 21 percent, dipping to 18 percent in 1986, according to Tax Foundation data.   In the 1990s, the owe-no-money percentage hovered around 25 percent of taxpayers. If you would like to see where you rank as a taxpayer as compared to others, the attached link you might find interesting or it may make you sick.
http://www.kiplinger.com/tools/income_rank/