If you read Tuesday's newsletter we indicated that we are entering a "critical period" for the Market. A lot happened this week and most of it sent the Market down. Next week will be key to providing either further proof that we are in a sustained, allbeit topsy turvy, recovery, or whether more selling is on the way.
The government this week had the nations banks get in line for their Stress Test exam. While this exam did not involve what the government usually asks inductees to do for a physical (for some banks it must have felt just as embarrassing, and one might add, just as painful).
The results indicate that at least ten large banks will need close to $75 billion in new capital to help them survive if the recession worsens. Among them, Bank of America leads the pack in terms of need, requiring an estimated $33 billion out of the allocation. Some of the other big names include Wells Fargo, GMAC, and of course, Citigroup, a company that has been bailed out more times than troubled teenager.
Those of you who have sat with me over the past year know very well my opinion on Oil prices. I am very bullish. This week Oil finally broke through the $55-a-barrel ceiling. Yet, supply and demand fundamentals show there is plenty of oil to go around. The biggest factor causing this rise is a consensus view that the recession is easing. Thursday's employment reports have new weekly jobless claims declining to a level not seen in three (3)months. This is coupled with other reports showing retailers did well in April. Clearly, investors are betting on more auto usage when the economy recovers later this year. Again, a sign that the market and the economy are in recovery mode.
Retail sales reports for April showed that the consumer is spending. Escrow companies are processing an increased load of re-finances. Affordable restaurants are reporting increased sales year over year. Signs that the consumer is back at it.
Thursday was a big day as well because the Treasury auction of new Bonds was held with more of the same results. The yield on 10 year Treasury note made a new high for this year. That is not good news. Yield rises in order to attract buyers. One might ask, could there come a day when there are less and less buyers for T Bills? Namely, China! I will have more to say on this in next Tuesday's newsletter
Meanwhile, the world's other Central Banks are racing to achieve 0% interest rates to stimulate their own economies. The likely result will most likely be that at some point in the near future, interest rates in the U.S.A. will be rising to stem inflation after the recovery, while the rest of the world and Europe will still be in stimulus mode with low interest rates. How that plays out for the Market is something we will watch out for.
