February 11, 2011

Equity markets are opening weak today while the bond market and the dollar get a bid. Global concerns regarding inflation and political unrest in Egypt, Tunisia, Bolivia, etc, are helping to migrate assets towards the more traditional safe haven US investments. The University of Michigan Consumer Confidence Index was in-line this morning at 75.1, up from 74.2 last month.

The economics in the oil sector may start changing as supplies rise while demand moderates. Oil storage is now at record levels in the US, and a new pipeline opened from Canada last week is now sending 150K barrels per day into Oklahoma . Oil has backed off over the past week as concerns over demand emerge with APAC and some EMEA economies focusing on slowing their rampant inflation.

Washingtonites are discussing major changes to the domestic mortgage market, questioning the role of government in the market. Today 9 out of 10 loans are backed by Freddie and Fannie, and the proposals contemplate multiple options in the short term to reduce the impact of the GSE’s. Reduction of the maximum loan the GSE’s will back, requiring a 10% down payment, and higher fees are among the short term proposals being discussed. The longer term proposals include eliminating the firms altogether by having the government exiting the market completely; having the FHA be the only government entity in the mortgage business for low-income borrowers; and leaving the market to private insurers with a government backstop for market disasters (is that really leaving?).

China has been slowly relaxing their currency controls in preparation for the day when the Yuan becomes a global currency. The country has been allowing US companies to finance projects in China by issuing yuan-denominated bonds in Hong Kong. Trade between some countries is now being settled in Yuan.

Weak earnings were reported by Cisco Systems, Blue Nile, Akamai, with stronger earnings from Bunge, Stamps.com, and Wynn Resorts.

Speaking of mortgages, the average rate on a 30-year fixed has moved above 5% for the first time since April. The rate hasn’t been consistently above 5% since early 2008.



One of the longest running romances is back on track as Ken and Barbie will be reunited by Mattel on Valentine’s Day. The couple had been together for 43 years before breaking up in 2004, reportedly over a disagreement related to their roles in the Toy Story series.

Have a great weekend

Ned