Good Evening: I apologize for not being able to write about the capital markets during these past two months, but my keyboard has been needed elsewhere. Since my schedule looks to remain hectic a while longer, I will likely resume covering the markets by issuing commentaries with less frequency than in past years. Whether it’s once, twice, or thrice weekly, these scribblings should resume with some regularity — starting early next week with a “2009 in review; 2010 in preview”. If I had to offer a sneak peek at what investors should expect next year, a decent theme might be: 2008 & 2009 were about bailouts and “saving” the financial system, but 2010 & 2011 will be about paying the bill for it all.
As for 2009’s final day, it ended with a bit of a thud. Stocks and bonds broadly fell, while the dollar and commodities inched higher. Coming on the last day, and on light volume, these moves may not mean very much. Then again, the VIX did awake by popping the most since Dubai’s woes hit the tape. While it’s a bit of a reach to lay blame for the decline in equities and Treasurys on any one item, the middle two stories below reminded investors that one of the prices of economic recovery will be higher interest rates.
Many indicators have firmed in recent months, but when this morning’s jobless claims figures came in at their lowest levels since LEH was a viable ticker symbol, market participants started to wonder if this recovery will indeed be jobless. And just as they started dreaming about the Dow and S&P 500 also returning to “pre-Lehman levels”, some renewed discussion by the Fed of possible exit strategies snapped investors back to reality.
Though the Fed has been muttering aloud in recent weeks about different ways to gently reverse all the Quantitative Easing it’s offered during 2009, this latest idea — selling some bonds back out of their bulging portfolio — was as odd as it was poorly received. Treasurys have been choking on the ever-rising supply in Q4 ($118 billion were issued this week alone), so hearing that the Fed might want to add some of its billions to next year’s anticipated slate of more than 2 Trillion in Treasury issuance was not welcome news. Fewer layoffs and an uptick in economic growth would be a great way to kick off the next decade, but finding buyers for all the debt we must issue will likely require higher rates than those on offer this morning.
Attached you will find the last “Market Focus” of 2009 by Credit Suisse. I take issue with at least one of CS’s “10 Tweets” (gold is NOT yet a bubble, and the reasons why will be the subject of an upcoming commentary), but the piece is still a worthy read. Let me close by saying that I’ve truly appreciated the kind words and constructive feedback I’ve received in 2009. I want to wish you and your families a happy and prosperous 2010!
Jack McHugh
Stocks Retreat to Finish Best Year Since 2003; Oil Advances; Treasuries Slide
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOBUvgCAoykM&pos=1
U.S. Jobless Claims Drop to Lowest Level Since 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=av55j5iWTm3I&pos=3
Fed Officials Discuss Limited Bond Sales to Help Exit Stimulus
http://www.bloomberg.com/apps/news?pid=20601087&sid=afbzkHLyVvX4&pos=2
Credit Suisse Market Focus: Ten Tweets for 2010 (see attached PDF)
CS Market Focus Ten Tweet for 2010
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