Thursday, March 19, 2009

Jobless claims, More Fed plans...

The markets seem to like the fact that "only" 646k Americans filed for initial jobless claims last week. This is the 7th straight week where jobless claims exceeded 600k and the important thing to note is not week to week variations, but the trend. The trend remains negative.

On a related topic, the trend in the market remains positive despite the bad news (consider Federal Express last night). For example, consider yesterday's news from the Federal Reserve.

"To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months."

This is a fairly complex situation but understand that the Fed buying Fannie/Freddie debt and Treasuries is designed to lower interest rates. This will work in the short-term and if you have a mortgage your opportunity to refinance is definitely approaching. If you lived within your means and saved over the past few decades well enjoy your 0.1% interest rate you commie -- Don't you know it's UnAmerican to live within your means?

Like I've repeated many times DEBT is what got us in the mess we are in. DEBT (or as Chmn Bernanke and Sec Geithner like to call it CREDIT) is not going to fix our problems. The demand for debt is falling not because interest rates are too high, but because people fear for their future employment prospects.

Enjoy the rally while it lasts, but I think people around the world are starting to get an uneasy feeling that we have no plan to really fix our system.

However, this rally feels very much like the early rally in 2003 when we had a different perp walk every day (Ken Lay/Madoff, Worldcom/AIG). The faux-public outrage can be a real driver in the markets.

Cheers!

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