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Wednesday, December 8, 2010

It's Four O'clock Somewhere

A day in which the Dow ended up 0.12%, the NASDAQ up 0.41%, and the S&P 500 up 0.37%. A day in which NYSE trading volume hit 1.095 billion shares (down 0.528 billion from yesterday). A day in which equity traders seem to have looked at the news and said "Heck with it. It's 4 o'clock somewhere." All of the excitement came out of the bond markets today where, driven by concerns about the US' long term deficit[1], even the POMO buy-back of TIPS wasn't enough to keep Treasury prices up. Heck, it wasn't even enough to keep TIPS prices up (5-year TIPS yield up 0.108, 10-year up 0.156, 20-year up 0.116, and 30-year up 0.094).
For what it's worth, this is being seen as a correction. Not as a sovereign debt crisis. "For example, the cost of insuring US government debt in the credit default swap market was little changed at around 40 basis points..." That's a good sign.
Oh, and the banks love the rising yields. That means that they can plug their excess assets into low-cost Treasuries, get a better return on the money, and then use those secure assets as their reserve for lending. Coincidentally (?), the financial sector was up 0.27% - beaten only by technology.
Given how bland the markets were today, is there anything going on out there that could impact the markets in the next few days. Sure there is.
The BBC is reporting that Anonymous' war on MasterCard has crippled at least one payment firm's ability to process transactions that use MasterCard SecureCode. If accurate, this could indicate future problems for any credit card company - at least until they figure out how to circumvent the problem.
Gordon Brown, the former British Prime Minister, is predicting a major crisis in the euro in early 2011. Given that "early 2011" is about 3 weeks away, that could further shake up the already-traumatized European financial markets[3].
Russian jets disrupted Operation Keen Sword, the US-Japanese war games celebrating the 50th anniversary of the alliance between the United States and Japan. Keen Sword is taking place in the Sea of Japan, near territory whose ownership has been disputed by Russia and Japan since the end of World War Two. It's not exactly North Korea Crazy levels of international tension, but it is a reminder that you don't have to have Pyongyang involved to have border tensions.
[1] At least the equity and bond markets are beginning to react in opposition to each other again. That's something.
[2] $6.149 billion in TIPS were submitted to the Treasury for purchase, and the Treasury only took $1.63 billion of them. That should give you some indication of how much people want long term Treasuries right now.
[3] Assuming they actually care what Gordon Brown thinks.

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