Market Commentary

Stocks advanced again after an increase
November 17, 2009

Stocks advanced again after an increase in October’s retail sales and the pledge from Asian government leaders to maintain economic stimulus spending.   FRB Chair Bernanke also stated it is still too early to remove monetary stimuli in prepared remarks to an august body of economists.

The simple fact of the matter is when the world financial leaders reiterate their intent to maintain the status quo equities will advance.  Obviously the question at hand will this over abundance of liquidity caution create inflationary pressures?

In the immediacy inflation is not expected to be an issue.  However I believe the longer the central bank maintains current policy the greater the odds the Bank will fall behind the proverbial curve.

I ask however is the FRB attempting to create some inflationary pressures?  Deflation is horrific, especially in an asset backed economy, as it is the destruction of asset values.  As all know real estate values have declined.   Is the Fed attempting to raise inflation hence real estate values to increase the solvency of the banking system?

Several months ago the Chicago Fed wrote an opinion piece suggesting this idea…targeting inflation on the upside to raise hard asset values.

What will happen today?  Three major statistics are released; the PPI, the NAHB Housing Index and Capacity Utilization/Industrial Production.  All three data points could further validate my long held view the economy is recovering at a pace greater than the consensus view.

Last night the foreign markets were down. London was down 0.61%, Paris down 0.50% and Frankfurt down 0.36%.  Japan was down 0.63% and Hang Sang down 0.13%.

The Dow should open nominally lower fearing equities have gone too far too fast, perhaps overvalued based upon current economic conditions.  The 10-year is off 6/32 to yield 3.36%.