Wednesday, August 24, 2011

Bernanke rally keeps on chugging

At this point fundamentals are clearly out the window and all of the focus is on what words we'll hear from Chairman Bernanke on Friday.

Consider:

* European banks had to borrow more than expected from the European Central Bank.

* The Greek bailout part 2 is showing cracks. 2yr Greek debt is now yielding 44%!!

* Mortgage applications dipped and the purchase index dipped to its lowest level since 1996.

* Miles driven in the US fell 1.4% in June (before the July/August dip and the gov't debacle).

* Philly Fed coincident indicators are turning south.

---- via Calculated Risk.

What is the market looking for? While the focus of the reaction will be the stock market, it's important to watch moves in commodities and the bond market. The current thinking is that the Fed is going to focus on trying to make the following moves:

Lowing 30 year interest rate, raising the 10 yr interest rates which might finally pop the bubble in bonds. This would force people to seek alternative investments....namely stocks.

One point: the interest rate on the 10 year note dictates average mortgage rates. If the Fed is targeting a move to increase these interest rates it will lead to higher mortgage rates and threaten to weaken the shaky real estate market even further.

Tonight gold is under severe pressure again overseas and the news about Steve Jobs is definitely going to hit Apple (but that has to be priced in to some degree). It's worth noting that over 180 hedge funds and numerous pension plans are heavily invested in Apple.

Cheers!

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