Market Commentary

Equities advanced yesterday on the strongest existing home sales in three years. Sales were up
December 23, 2009

Equities advanced yesterday on the strongest existing home sales in three years.  Sales were up 7.4%, the third consecutive month of sales increases at this rate or greater. Most importantly the inventory to sales ratio declined to 6.5 months, the lowest level since December 2006.  Year over year prices declined by 4.3% versus last month’s year over year decline of 7.1%. 

I must write this data was skewed by the potential expiration of the home buyer tax credit, it is very encouraging. 

Regarding the final revision of third quarter growth, the economy expanded by a 2.2% versus the previously reported 2.8% rate.  The decline was the result of greater drawdown in inventories than what was originally estimated.  Even though this data is regarded as stale, it suggests the rebound potentially could be greater than expected given that companies must increase production to replenish spent stores.

Today New Home Sales, Personal Spending and Income, and the University of Michigan Confidence survey is released.  Will this data cause the yield curve to steepen further? Yesterday the sloped increased to another record, 285 basis points.

There are few absolutes in the markets.  One absolute is that an inverted yield curve has a 100% correlation to a slowing economy.  Conversely a steep yield curve has a 100% correlation to an expanding economy.

The yield curve was inverted for the longest period of time on record which in my view was a contributory factor of the greatest recession in 70 years.  Banks had to stretch for yield to make a positive spread.

Today as noted above the yield curve is almost vertical.  Will this produce one of the strongest recoveries in history? What an incredibly outlandish statement.  However outlandish appears to be the consistent variable of the last 30 months.

What will happen today?

Last night the foreign markets were up. London was up 1.02%, Paris up 0.76% and Frankfurt up 0.54%.  Japan was closed for a holiday Hang Sang was up 1.12%.

The Dow should open moderately higher on economic optimism. The 10-year is up 6/32 to yield 3.73%.

I hope all will have a Merry Christmas and a Happy Holiday.   Please take the time this holiday season to treat others as you wish to be treated.  If all made this simple task a priority just think how great this world will be.