"Markets Remain Quiet for Treasury Auctions"
As I go from screen to screen looking for movement in stocks, bonds, commodities and currencies, I see very little change in percentage terms. The markets are quiet as volatility remains low. The trading action today reminded me of a Wrap-Up that I wrote on October 8 titled, “Freeze Frame – Nothing Moved Today.” I can use the same sentences today that I used a month ago to describe my observations of market activity during the days of U.S. Treasury auctions. On 10/8 I wrote, “Overall for the day the markets remained calm throughout the trading session. The broad stock market averages floundered in negative territory most of the day, but in the end the losses were marginal. In percentage terms, stocks, bonds, and the dollar changed very little. This seems to be the standard any time the U.S. government is forced to auction more Treasury debt.” The absolute identical thing happened today (HUGE Treasury debt sales today), and I expect the balance of this week to be very close to what happened today due to additional debt issuance from the Feds on Wednesday and Thursday.
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Since the stock market closed a few minutes ago, I can say that the biggest difference that I see from today versus what happened on 10/8, is the way stocks closed today’s session. During the last hour of trading today we saw stocks fall to their lowest levels of the day with a tiny bounce in the last few minutes. Stocks clearly ended the day weaker today than when I last watched during Treasury auctions. With the $57 billion in new government debt for this week, it seems that the Feds are working harder to support the bond and foreign exchange markets, while bleeding off some of the recent stock gains to influence money to move into Treasuries. If market participants saw money flooding into stocks this week, the momentum crowd (most of the bulls) would pile into equities leaving less money to support the heavy issuance of debt.
Currency Wars & Trade WarsThe following Bloomberg headline really caught my attention this morning, “U.S. to Tolerate Japan’s Yen Sales, Citigroup Says.” The article doesn’t go on to say much more except that Citigroup said some traders were speculating that the Bush Administration “tolerated” yen sales to help Mr. Koizumi get re-elected. By the sound of the article, it looks like Japan has to ask our government for permission to intervene in the Forex market.
When the U.S. decides to go out and sell more debt (create more debt and sell it for cash) who is it that has to “tolerate” our governments actions? The world has been protesting against U.S. policies for some time now. In fact, that is the main reason the euro was created in the first place. The rest of the world does not want the U.S. to be boss-dog of everything. The Europeans have just about had it with us. They are doing all they can to work “around” the U.S. as they watch our policy makers shoot themselves in the feet, especially with regard to Iraq. The situation is getting much worse in Iraq and Saudi Arabia and it is sure to drive the U.S. deeper into debt.
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The situation in Iraq and Saudi Arabia is clearly deteriorating. We will need to go even deeper into debt than originally planned to unravel the problems in the Middle-East. We could use some help from the rest of the international community, but they won’t help us because we stepped on everyone’s toes to go to war against Sadaam. We started lobbing bombs before we had broad-based international support. Now we have Russia and Venezuela among others that are thinking about selling oil for euros. It will be interesting to see the U.S. response to Russia if they move closer to the European Union.
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