Consumer Sentiment worst since 1980

by Anthony Cherniawski, The Practical Investor, LLC | March 27, 2009

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It’s time to be cautious in stocks.

 -- U.S. and European stocks retreated, trimming a third-straight weekly advance for both markets, after lower oil and metal prices dragged down commodity producers and the U.K. economy contracted more than previously estimated.    

“There are still plenty of headwinds out there to concern equity investors,” said Michael Koskuba, a New York-based fund manager at Victory Capital Management Inc., which oversees $50 billion. “Given the sharp rally we’ve seen, it makes sense for the market to sell off a bit.”

The Fed may have put a floor under treasury bonds.
 -- Treasuries, little changed today, headed for their steepest weekly loss since February before a government report economists say will show consumer spending increased for a second month.  
The government is auctioning record amounts of debt to revive economic growth, service deficits, and cushion the failures in the financial system.  But the Federal Reserve has put a temporary floor under bonds by promising to buy back $300 billion in Treasuries from the market to help support the economy and spur lending.   

 Gold has made a retracement, ready to decline.
(Bloomberg) -- Gold may extend a decline after failing to breach so-called resistance at $977.41 an ounce, Standard Chartered Bank said, citing trading patterns and forecasting that the metal may drop to less than $900.
Trading patterns suggest an even larger decline in gold may be straight ahead.  How far and how quickly the decline may unfold is up to the experts, but the pattern urges caution for gold investors.

Japanese rally over for now?

(Bloomberg) -- Japanese stocks fell, snapping the Topix’s longest winning streak in four years, led by shipping lines after Nippon Yusen K.K. reported a plunge in profit.  The Nikkei is set for a 14 percent advance in March, the steepest monthly leap since July 1995. The gauge has gained 22 percent from a 26-year low on March 10, meeting the definition of a bull market. Nikkei members trade at 271 times their estimated net income for this fiscal year, compared with 14 times for U.S. equities and 10 times for European shares, according to data compiled by Bloomberg News.

Chinese market “under control.”
-- China’s stocks rose, sending the benchmark Shanghai Composite Index to a second weekly advance, after the central bank said the economic slump in the world’s third-largest economy is “basically” under control.                The Shanghai Composite is set for its best first quarter in nine years as stocks rallied on optimism the government’s 4 trillion yuan ($585 billion) stimulus package, five interest rate cuts and record new lending will help achieve an economic growth target of 8 percent.

…and you think its bad over here?
 -- The dollar and yen rose as traders fled the euro and pound on evidence Europe’s recession is deepening.
“You’ll still see people coming to the dollar for support,” said Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, the world’s second-largest currency trader. “The data’s been pretty bad over the last couple of weeks, and it doesn’t help the perception that the ECB’s going to refrain from doing anything.”
 
Fixed mortgage rates lowest on record.  Get it while you can.
 (Bloomberg) -- The U.S. 30-year fixed mortgage rate fell to 4.85 percent, the lowest on record, on a government plan to increase purchases of mortgage-backed bonds and buy as much as $300 billion of Treasuries. The average rate is the lowest in the Freddie Mac weekly survey dating to 1971, the McLean, Virginia-based mortgage buyer said today in a statement. The rate fell from 4.98 percent a week earlier, Freddie Mac said.
A turn ahead in gasoline prices.

Energy Information Administration weekly report suggests that, “The national average price for regular gasoline rose 5.2 cents to 196.2 cents per gallon this week, with increases through most of the regions. Although the weekly increase was the largest since February 2 of this year, the price was 129.7 cents lower than this week last year.
Even better, it appears that the price of gasoline may be topping.

A price increase that couldn’t stick.
The Energy Information Agency’s Natural Gas Weekly Update reports, “Prices increased at all trading locations during the week, despite warmer temperatures in most areas of the country. The average price increase across all trading areas was 40 cents per MMBtu, with Carthage posting only an 8-cent increase, and the Algonquin Citygate in the Northeast posting a 55-cent increase. On a percentage basis, the highest price increases occurred in the Midcontinent region, where increases averaged 16.5 percent. However, Midcontinent prices on average were only slightly more than $3 per MMBtu.”

A Little History Lesson.

Ten years ago, the Glass-Steagall Act was repealed, breaking down the barriers between banks and other financial institutions.  The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly. Today, the naysayers were proven correct, but the American taxpayer is being robbed to keep the flawed system in place.

 

Copyright © 2009 Anthony Cherniawski
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Anthony Cherniawski | President and CIO, The Practical Investor, LLC. 
State Registered Investment Advisor | Mason, MI USA | Email | Website

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