Mar 7, 2011

March 7, 2011

Stock and bond markets are both getting a bid this morning in spite of rising oil prices and a declining dollar. A warning about global bonds was issued by JP Morgan this morning, saying that we could experience a 1994-style bond rout if emerging market central banks are still raising rates when the Fed is forced to do so later this year.

The US CFTC said that net short dollar positions now total $34.9 billion, the highest since June 2008. Euro net long positions are the highest since January 2008.

I hate to keep harping on oil, but holy cow! I paid $4.09 per gallon on Thursday, and I drove by the same station this morning and the price had jumped to $4.29. That compares to the national average of $3.51 per gallon. I may start biking again. The President is reportedly considering releasing some of the Strategic Petroleum Reserve to stem gasoline prices, although I honestly don’t know what impact that will have given there are record inventory levels of oil in Cushing, OK, which is a major trading hub for crude oil and now houses over 500K barrels.

Bloomberg’s government team produced a report saying that $4.9 trillion in cuts and tax increases would be required to get our deficit down to 60% of GDP. The only programs where there is enough room to cut that much from the budget are the entitlement programs and defense. The most recent budget proposal doesn’t address any of the entitlement programs, so we may have to wait until the next budget cycle to potentially address our deficit problems.

China’s Premier Wen Jiabao said that bringing China’s food and property prices under control are the nation’s most important priorities. The country also vowed to narrow trade imbalances with the US and EU.

After last week’s drop in unemployment discussions have turned to ending QE2 early and ending the ZIRP (Zero interest rate policy). Dallas Federal Reserve President Richard Fisher has joined the chorus of those exploring or supporting an end to QE2. While a positive sign for the economy, this would undoubtedly create some pressure in the equity market.

APAC markets were mixed last night, with the Shanghai up 1.8%, the Nikkei down 1.8%, and both the Australian S&P/ASX and the Sensex down 1.4%.

Have a great Monday


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