Thursday, January 7, 2010

Claims, Bonds, And Greece

This morning we received the weekly jobless claims.  The following chart shows where we are historically with total current jobless claims:

The media has spun this in a positive light all day repeating: "we have no where to go but down."  Unless we go up.

The monthly jobs report comes out tomorrow.  It will be filled with "seasonal" adjustments and most likely will "better than expected" taking the stock market higher.

We also received word today that the government will be selling $159 billion in treasury debt next week.  Remember, in 2007 our entire yearly deficit (a record at the time) was $470 billion.

Its finally time to start your engines for the $4 trillion in debt that will be sold this year.

In line with this announcement was a warning from regulators that was sent to major financial institutions to protect themselves from rapidly rising interest rates.  When excess supply comes with lower demand prices fall.  In bond term this means that rates are rising.

Bill Gross of PIMCO, President of the world's largest bond fund, released his monthly newsletter which can be read here.  It basically announced his all out departure from treasury bonds and essentially bonds in general.  He is moving his fund heavily overweighted into cash.

Ambrose Evans-Pritchard wrote a fantastic article today on the coming default on Greece debt.  It appears the Euro zone wants no part of a bail out.  We'll see.  A Greek default would bring a domino effect to other Euro countries and cause extreme fireworks in the currency markets.

Another big event to watch unfold as we move through the year.

Wednesday, January 6, 2010

The Truth Emerges

In March of 2009 Ben Bernanke shocked the world when he announced he would be purchasing $1.25 trillion in mortgages through the remainder of the year.

In September he announced he would be pushing back the program through March of 2010, but he repeatedly promised that the program would end at that point as part of the Fed's "exit strategy."

As I have discussed repeatedly, the government and the Federal Reserve in combination have now become the mortgage market.  They now purchase, guarantee, or insure 96% of all new mortgages being created.  Without this artificial support the housing market would collapse and it was only a matter of time before Bernanke announced additional purchases.

This afternoon, when the Fed minutes were released, Bernanke showed his hand.  The following was taken from the minutes directly:

"It might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage market functioning were to deteriorate."

There it is.  Mortgage Purchase Program: Part II

Look for a similar announcement coming soon for treasury bond purchases. 

Gold rocketed upward on the news, a small taste of what is to come.