Market Commentary

As evidenced by the huge volume in treasuries
May 25, 2010

As evidenced by the huge volume in treasuries many believe the sovereign debt crisis is unresolved and unabated.  No one trusts European politicians to do what they say especially with the populace striking and rioting in the streets, an act I find extremely brazen that is greatly impacting European debt and equity values.  Few believe the fiscal policy projections even allowing that such is a dynamic process.  In all cases in Europe the markets are bigger than the individual countries, putting yet another stake in the diversification argument.

Another dynamic has just entered the mix…North Korea.  Is this a non event, merely the on again off again saber rattling or is there something more significant?  At this juncture it appears it only the former.  I must write however history is littered with examples when global leadership is weakened—as is the case in Europe and perhaps the US—rogue countries attempt brazen acts of aggression. 

As noted many times, the major difference between today and fall 2008/winter 2009 is the recovering American economy.  According to a survey by the National Association for Business Economics, the American economy is expected to expand by 3.2% this year and next.  In February this same group projected a 3.1% growth rate.  

I find these results interesting.  Some believe the risks in Europe are reaching calamitous proportions, the dollar is at a four year high versus the Euro and treasury yields at 2010 lows.  I am not suggesting this group is omnipotent; however this group has been extremely negative since accepting the notion the subprime crisis would be contained.

If the economy does grow at this pace, this would be the strongest consecutive periods of expansion since 2003 and 2004.  Wow!

Yesterday stocks were again volatile.  In my view the economic data was largely dismissed and all focused upon the happenings in Europe.  What will happen today?  There is more housing data, a regional manufacturing index, inflation and confidence surveys released.  All can influence trading.

Last night the foreign markets were down.  London was down 2.66%, Paris down 3.47% and Frankfurt down 2.76%.  Japan was down 3.06% and Hang Sang down 3.47%.

The Dow should open sharply lower on mounting concern that Europe debt crisis will endanger the global recovery.  The Korean situation is also increasing nervousness.  There are reports that North Korea ordered its troops last week to prepare for combat.   The 10-year is up 21/32 to yield 3.12%.