Market Overview: Treasury Yields, Housing, State of the Recession

 |  Includes: DIA, DUG, GLD, TLT
by: Richard Suttmeier
US Treasuries are stable as supply test continues. Gold sets a new all time high at $1254.5, but resistances loom, while the euro stays above this week’s support at 1.1863. Crude oil remains range-bound between $67.15 and $75.72 per barrel. For stocks it’s the Power of the Pivots for the Dow, S&P 500 and NASDAQ, but the second leg of the multi-year bear market began with the April 26th highs.
US Treasury Yields –Yesterday’s 3-Year note auction was a success as the US Treasury sold $36 billion at 1.22% with the issue trading below that yield this morning. The bid to cover was strong at 3.23 times and the Indirect Bid was 47%, above my 30% to 40% neutral zone. Today the US Treasury auctions $21 billion reopening of last month’s 10-Year note with today’s support at 3.305 and weekly resistance at 3.010. Right after today’s auction we will read the Fed’s Beige Book for the June 22-23 FOMC meeting. Tomorrow the US Treasury auctions $13 billion 30-Year bonds.
On Tuesday I discussed that the Housing Market and Financials are leading the downward move of the second leg of the multi-year bear market. The Bear began with the October 2007 high, then we had the bear market correction from March 2009 into April 2010, and now the second leg of the multi-year bear market is upon us.
With regard to housing the tax credits are gone, but a problem looms as all contracts signed must close by the end of June. The foreclosure issues are on the front burner with four million unsold homes clouding the housing market. Community Banks are failing because of overexposures to C&D and CRE loans-- negotiated mostly between 2004 and 2006. As these loans enter default, banks fail. This further disrupts the economic recovery. More than 50% of all community banks have real estate loan pipelines that are 80% or more funded, which means that these banks can’t lend.
The status of the recession is time-stamped by the National Bureau of Economic Research (NBER). The NBER said that the recession began in December 2007 when the unemployment rate was 4.6%. To me it would be ludicrous for the NBER to declare an end with Unemployment between 9.5% and 10.0%. Jobs are just not being created on Main Street because of the housing and banking issues.
  • 46% of unemployed Americans have been out of work for six months or more - Highest since the Great Depression.
  • 33.7 million Americans received food stamps in Q4 2009. At the end of Q1 2010 the number rose to 40.1 million.
  • An Unemployment Problem - Job ads are popping up that say - if you are unemployed do not apply.

Disclosure: No Positions