Happy St. Patrick's Day!

March 16, 2012

Economic releases continue to pour in, with most major measures showing improvement. CPI rose by 2.9%, in line with expectations, while core CPI rose by 2.2%, also in line with expectations. Both measures are above the Fed’s inflation target, although it’s doubtful the Fed will take steps to stem inflation until it is much higher. Industrial production was flat vs. an expected increase of 0.4%. Capacity utilization came in just under expectations at 78.7%, and the University of Michigan consumer confidence index missed expectations, posting 74.3 vs. expectations of 76.0. Yesterday initial jobless claims were in line at 351K; PPI rose by 3.3%, and the core PPI rose by 2.9%.

The S&P 500 continues to rally, topping 1400 for the first time since the spring of 2008. Bonds yields have been rising, and when combined with inflationary pressures this would typically be a warning sign for equities. Although the phrase is a scary one, this time might be a bit different. The difference today is that typically when yields rise and inflationary pressures surface, the Fed steps in to raise rates and quell inflation. Based upon their record over the Bernanke era, and recent commentary from the Fed, it would require a core CPI measure dramatically higher than we see today to get the Fed to raise rates. The Fed on the sidelines is one less significant worry for the equity markets, which is reflected in the collapse of the VIX (see chart below).

Facebook (FB) hasn’t even come public yet, and there has already been an SEC investigation into the trading of the shares. The SEC accused three firms of securities-law violation relating to trading of the privately held company’s shares. SharePost agreed to pay $100K in penalties, while two private funds were also charged with failing to disclose fees in connection with the offering.

Chinese Premier Wen Jiabao feels the yuan is properly valued in today’s markets and isn’t likely to rise soon. “In the Hong Kong market, the non-deliverable forwards contracts have started to fluctuate in both directions. This tells us that the exchange rate of the renimbi has possibly reached equilibrium.”

The Obama administration is contemplating economic sanctions on India because India has not significantly reduced its purchases of Iranian oil. The block could bar any Indian bank from accessing the US banking system. Indian leadership has cited the need for affordable fuel as their reason for continuing the purchases.

Britain is engaging in discussions with the US about a coordinated release of oil from the strategic oil reserve. Both countries are hoping to stem rising oil prices during an election year.

China’s holdings of US treasuries rose in January, the first increase since mid-2011, and now total $1.2 trillion.

Google (GOOG) is under investigation for bypassing the privacy settings on devices using Apple’s Safari browser. This comes less than a year after the company settled with the government and pledged not to misrepresent its privacy practices to consumers.

March Madness kicked off yesterday, with two upsets on the first day. Colorado, seeded #11, upset #6 UNLV, while #12 VCU pulled off another upset by beating #5 Wichita State. Long Beach State’s run ended the first day, falling to New Mexico 75-68.

Happy St. Patrick’s Day. Drive safely. Erin go braugh.

Ned