What I’m Wathing this Week – 13 August 2012

So…what do you call it when it’s a global stimulus?

For those of you that appreciatively noticed, I was on holiday last week, celebrating a reunion of sorts in Las Vegas with a college fraternity brother.  Completely harmless, he’s a physician now, and we aren’t that young anymore.  Wrong.  Names and locations won’t be given to protect the guilty.  Things were done; elegant, disastrously hilarious things were done. Call it our contribution to the ongoing measures of individual economic stimulus (all bar tabs were paid-we have the receipts to prove it!!)

Back in reality, global markets of late are in obvious expectation of accommodative monetary policies.  The recent rally is on the belief that central banks in China, Europe and the U.S. will print as much money as it takes to stimulate the economy and that would support risk assets.  China is signaling further easing and the Bank of England is favoring easing to interest rate cuts.  Germany is experiencing weakness which may create a few more ripples of discontent against Ms. Merkel and reopen the questioning of accommodation. These situations favor risk assets, thus our ‘rally’.   Here in the US…our legislators are off playing in the sand boxes like little children.  Accomplishing much of nothing once again, guess I shouldn’t be surprised.  Our problem is uncertainty.  When blind partisanship combined with poor leadership produce zero positive effects; we the people certainly should be paying attention.  The GOP Convention is now only two weeks away, with the Democrats’ a week later.  I’m so looking forward to the debates.  The verbal munitions will be chosen carefully with shrapnel and carnage brought to maximum effect. I can’t wait.

U.S. equity indexes posted gains last week and gasoline prices in California went surging higher due to a refinery fire. The stock market closed slightly higher on optimism the Fed will boost stimulus measures to stimulate growth.  Trade data showed higher exports and a lower trade deficit and initial jobless claims declined again, down 6000 from last week’s number.  Crude oil and gasoline prices on Friday closed mixed as China’s slowdown in export growth along with the action by the IEA to cut its 2012 and 2013 global demand forecasts supported energy demand concerns. Global markets were down with the European indices in the red and Asian indices ending mixed; further indicating a continued global weakness.

The 5 year Treasury note closed at 70 basis points, the 10 year at 1.65%, and the 30 year under 2.74%.  The dollar rallied on Friday on weak Chinese export data but those gains were vaporized after San Francisco Fed President Williams said it was time to move ahead with QE3.   The specter of inflation is rippling through the bond markets right now as the cyclical sectors of fall begin to churn into movement.  Second quarter was good for bond holders; third quarter has started to rattle their psyche.

I remain optimistic.  A brutal reminder that I’m not as indestructible as perhaps I once thought I was, has given me a new-found clarity.  Caution prevails and significant risk taking should be sidelined right now or assigned to lowly pledges.  I do expect a return to volatility perhaps as soon as Tuesday, more negative European and Chinese news and of course the shenanigans of our own political discourse.  No threat of the dreaded Vegas Technicolor yawn included.  I remain soberly optimistic.

PS.  I’ve received a few requests for access to my weekly stock, ETF and mutual fund list.  Feel free to email me directly (dcherry@nelsonsecurities.com) with ‘subscribe’ in the subject line and I’ll include you in the weekly distribution.