Market Commentary

In my view yesterdays trading was confusing.
February 17, 2010

In my view yesterday’s trading was confusing.  Both treasuries and equities rose, not that their correlation is zero.  T-prices rose because of continuing concerns—and perhaps intensifying concerns—about Greece’s situation.  Equities however rallied on better than expected earnings from a large European money center bank and stronger than expected readings on two economic data points.

Regarding the former, Greece is given until March to submit to the EU a plan that will cut its deficit rather than rely upon a bailout from fellow euro-member nations.

Commenting about the latter, the regional Empire Manufacturing Index was stronger than expected, rising to the highest level in four months.  The National Association of Home Builders (NAHB) also posted a higher reading than expected, posting its greatest reading in three months.

How will today’s housing data be interpreted?  Building permits and housing starts are released and both are expected to post a nominal decline from December’s level.  Industrial Production and Capacity Utilization as well as the January’s FOMC Minutes are scheduled to be released.

I reiterate my long held belief economic activity will continue to surprise on the upside, a view that is not supported by Fed Funds futures which are an indicator of market sentiment.  Late yesterday afternoon this benchmark pushed back the first change in monetary policy to November from late spring because of Greece.

In this environment everyone is nervous as all are attempting to reconcile the incredible events of fall 2008/winter 2009.  Every issue is viewed as a potential catalyst for yet another round of financial destruction.

Several months ago I mentioned Hyman Minsky, an European born economist who studied financial crises behavior.  In brevity he stated stability breeds crises and crises breeds stability.  It is partially against this backdrop why I think Greece will not become the issue many fear.

Yes I have pondered whether or not Greece is the proverbial in the coal mine.  I have also wrestled with the possible outcomes if the EU does unravel.  However at this juncture I think governments are recognizing the issues at hand and especially here in the US changes are in process to ensure a potential crisis does not evolve.

Last night the foreign markets were up. London was up 0.89%, Paris up 1.78%  and Frankfurt up 1.23%.  Japan was up 2.72% and Hang Sang up 1.31%.

The Dow should open moderately higher on the belief that US growth is accelerating and earnings will continue to exceed expectations.  Speaking of which 76% of S & P 500 companies that have posted results have topped analyst’s views. The 10-year is off 5/32 to yield 3.68%.