A Tale of Two Cities

It was the best of times, it was the worst of times. Yes it’s the 1st line of the Dickens classic “A Tale of Two Cities,” but it also describes the tale of two economies that we seem to be having in the US. On one hand, we have the world of Apple, emerging markets, a pick up in manufacturing, an 18 month high in the S&P 500 and a bounce in consumer spending and on the other, a still tough job hiring picture and a US consumer that doesn’t feel so good. In the face of the seemingly positive economic outlook, ABC confidence fell 3 pts to -50, matching the lowest level since Oct ’09 and is just 4 pts from the record low dating back to 1985. It has fallen 7 pts in just the past two weeks. While the survey said the economy is not getting worse, only 26% said it’s getting better. This follows last week’s UoM confidence figure which fell to the lowest since Nov ’09.

Greece continues to implode before our eyes. The Greek 10 yr bond yield is rising another 40 bps to 8.25%, the highest since Oct ’98, the 2 yr yield is up 35 bps to 7.65% and 5 yr cds is up 25 bps to 485 bps and is fast approaching the Ukraine. Portugal continues to get dragged into the mud as their 10 yr yield is up 17 bps to 4.79%, the highest since March ’09 and 5 yr cds is up 20 bps to 220 bps. This action comes even as the EU/IMF begin their discussions. The market is telling us that a debt restructuring could be on the table rather than just a straight loan used to refinance upcoming maturities. Following the rate hike from India and hint at one in Canada, the Bank of South Korea Gov said the country must be ready for inflation led by higher energy prices. They have left rates unch for a while. The MBA said purchases rose 10.1% just two weeks before the tax credit expires and refi’s bounced by 15.8% from its lowest level since early Jan.

II: Bulls 53.3 vs 51.1 Bears 17.4 v 18.9, bulls just shy of highest since Dec ’07 and bears lowest since Jan 20th

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