Few expect the U.S. Federal Reserve's FOMC to announce any change to the current monetary policy. The Fed Funds rate target is expected to stay at 0.25%, despite effective rates closer to 0.1%, while language will promise that purchase programs of private debt and Fannie (FNM) /Freddie (FRE) mortgage products are soon to wind down. Conditions of the "dual mandate" of low inflation and job growth, set by Bernanke earlier this year for the Fed, look to be nearing levels that would spur preemptive withdrawal of quantitative easing. The Producer Price Index (PPI) in November showed a 1.2% jump from the same month in 2008 and the household survey of employment showed improvement in the jobless rate from 10.2% to 10.0% in November.

We have maintained the position that over time sustained dollar weakness, due to low short term borrowing costs, will raise the prices of all goods and services changing hands in the U.S. We also suspect that the printing of money will dilute the value of the dollar and that that inflation will bring a second wage of hardship to consumers struggling to make payments.

The 10 Year Treasury Note is the benchmark debt product of the Treasury and as the benchmark it's meant to represent the strength of the U.S. Treasury's balance sheet. If this holds true, the current fiscal strength of the U.S. Treasury is hampered at best. Yes, debt markets are generally much less exciting than equity markets, as bond yields tend to stay fixed within the 10% range, while we all hear stories of individuals reaping fortunes off of stocks. But the debt markets are crucial to business and should be watched more closely by investors amidst such volatile credit scenarios in the private and public sectors.

Just this week we have seen increasingly bearish signals for U.S. Treasury debt as a whole, especially long term obligations, as the 10 and 30 year note auctions have extended a short term pullback from record demand levels in the past months. Wednesday we saw the bid-to-cover ratio of the 10 Year Note auction fall sharply from the October high of 3.01 to 2.62, citing a decrease in demand for U.S. debt. On Thursday there were further red flags raised as the effective "high yield" during the 30-Year Treasury auction jumped to 4.52% despite the same coupon rate as the lower yielding November auction.

Last week you could have thrown a dart at the floor of the CME and almost assuredly poked the eye out of a commodity bull. This week there's no telling who you'd maim. Blood and gore aside, the sideways pattern of the past three weeks is over, as far as crude oil is concerned. The WTI contracts for January delivery dove from $80+ to touch the $70/barrel mark on Wednesday before popping back into $71 territory; concluding the six day sell-off was nothing to shrug at.

First, we're going to look at the WTI continuous spot chart and identify some selling momentum that we haven't seen since the bottom in crude in December.

On October 23, 2009 we endorsed a position in the Peruvian gold mining firm Buenaventura Mines (BVN) in the article titled Profiting From Volatile Crude Oil Prices and Safe Guarding Your Dollars.

We like the company for a long term investment strategy of 5 or more years at these prices, given their promising new La Zanja and Tantahuatay mines, but technicals and the potential for some dollar relief suggests that now is a good time to take some profits. La Zanja is set to come on line in early 2010 and is projected to put out 100,000 ounces of gold per year, while Tantahuatay will come on line in 2011 and should also tack on an additional 100,000 ounces of production. BVN does not hedge their gold prices, so any changes in the price of gold directly effect the bottom line of the firm, and are located in Peru, where labor is cheap and the currency is highly tied to the price of precious metals, making the firm an attractive company to own in a high U.S. inflationary environment.

We can all remember the panic that gripped financial markets in the dissimilar fall to winter season of 2008, where hoards of cash were brought to the sidelines and even the "Oracle of Omaha" went on record claiming "cash is king". This time around cash is anything but "king", at least if it's the United States Treasury brand. The continuous Gold contract just hit 1200, the S&P 500 is near 52 week highs, there's evidence to believe in an Asian led global recovery, and the Fed is staying firm with an easy money policy for the foreseeable future. Given the aforementioned recipe, it's no wonder cash is trash and everything else is King.

But this kind of consensus thinking implores that we do a lot more homework and try to wrap our heads around the global conundrum of trends.

While the phenomenon hasn't received much attention, the Nikkei 225 headline Japanese stock index has diverted course from all other major economic player stock exchanges. The Nikkei turned negative on August 14, 2009 and hasn't been able to resume the congruent pattern that all other major stock market indexes seem to be following. One can notice the sharp downward shift of the red line, representing the Nikkei 225 index, amidst all other global stock markets rising to new highs.

Inevitably, even the grizzlies have been watching economic indicators gauging the housing market "recovery", as talk of a 2009 rebound in the United States has now been confirmed by 3.5% growth in the third quarter. Existing home sales bottoming, construction spending pulsing and extreme incentives for new buyers have sweetened the potential for a repeat of the 2004 housing recovery we all loved so well. Yet there remains the issue of magnitude, regarding a potential housing recovery, which may contrast that 2004's great deal, and could kill the lasting effects of a bottomed housing market on the broader economy. We will attempt to review and assess the American economy in terms of the Housing Market from a historical and quantitative standpoint.

Price To Earnings

News out of London via the Financial Times has amplified the recent calls for institutional break-ups of incredible size and scope.

Not just one but all financial institutions, once protected under the "too big to fail" sheltering efforts by governments and central banks, must now find viable core business plans to move forward. The mortgage heavy British lending giant Northern Rock, British Financier Lloyd's (LYG), and the Royal Bank of Scotland (RBS) face large divestment pressures from Tories bent on revenge and a ghostly Prime Minister Gordon Brown as England is facing debt levels near 100% of annual GDP. While the UK Government benefactor has planned a lessor degree of additional liquidity infusions into the nationalized banks and the U.S. FOMC is paring it's purchases of Fannie Mae (FNM) and Freddie Mac (FRE) assets by $25 billion dollars, the efforts are at best a day late and a dollar short.

One of most common and least sexy trades throughout the global hemispheres of market movers is the U.S. Treasury bonds trade. Those brave enough to dive long into equities or commodities on the shoulders of the current are both delusional and progressively dwindling in numbers.

This has rebuilt a twinge of respectability among current traders, as a "topping out" formation is building among equities in recent weeks. Searching for a fruitful tree still standing to shake, the smartest guys in the room have already begun talking about the money to be made by shorting the U.S. government's debt. In an environment wrought with risk, limited reward and potentially devastating geopolitical factors, why not short the only asset that is still ridiculously overvalued?

Analysts across field are calling for the U.S. economy to "bottom out" in the second half of 2009, calling for GDP growth in Q4 but hesitant to take a stand regarding the near term economic forecast. Meredith Whitney drew her own proverbial line in the sand, calling for shares of Goldman Sachs (GS) to reach $186/share. Goldman has profited from the volatility of the market throughout the recession and will most likely blow out the street's estimates yet again, but does this tell us anything about the banking sector as a whole?

Unfortunately, Goldman doesn't foreshadow strength in commercial banks, yet the XLF Financial ETF gained 6.4% on Monday compared to a lessor 5.3% for GS. The bar is high for commercial banks to beat earnings given a steep yield curve that offers banks a comfortable Fed Funds to 30 year fixed spread, offering a 5% yield for banks, yet purchase and refinance mortgage levels have been lackluster of late. The contentious unknowns facing banks are credit card and commercial mortgage defaults.

Quiet frustration looms just beyond the facade of bulls who called for a market extension near the S&P 500 high of 945, while those heralding to invest in stocks upon a 10% pullback are beginning to feel the heat.

Meanwhile, the substantial chatter concerning a "toppy" head and shoulders pattern of late in equities has combined with economic fundamentals which remain volatile and pessimistic. The path of least resistance in equities has thus proved to be lower, yet hype will be substantiated only through earnings season.

Summing up the pieces that have lead us to the strange "here and now" in global financial markets may produce a different result for each market practitioner, yet there are truths agreed upon by most worth mentioning. The purpose of this article is to identify some truths and un-truths, which will provide a fresh slice on Treasury bonds, the US dollar and crude oil assets.

The basic assumption suggests that a steepening yield curve and higher long term Treasury Note yields ensure that inflation must be occurring in the marketplace. We have seen evidence through commodity prices rising and 10 yr Treasury yields increasing significantly as the U.S. dollar index becomes weaker. Could we have forgotten to consider the domestic and foreign demand for American goods? The "hope" trade has catapulted the recovery into the hearts and minds of all who watch and participate in financial markets, yet the economic data theme has shifted from "green shoots" to "dead and brown" on falling demand for American goods domestically and abroad.

The following three charts depict the cycles of the U.S. dollar index, 10 Year Treasury yield and the WTI crude oil spot price. The current theme of treasury yields and crude oil moving higher opposite the U.S. dollar is synonymous with an economic recovery and is contrary to the relationship seen earlier this year in November. At that time fear engulfed the market and Treasury yields fell with crude prices because Treasuries represented security while crude oil became cheap in anticipation of a deep recession. The dollar was strong during the bottoming periods due to high demand for U.S. Treasuries in a time where there was "nowhere to hide."

Many believe the global economic recovery and suggest that China's stimulus has saved their country from collapse, causing such great domestic demand for goods that they are aggressively buying commodities. The story sounds awfully familiar to rhetoric heard during the oil bubble in July of 2008. The truth of the matter, described by consultant to the Chinese government Charles Nenner, is that China has been buying commodities as speculative investments given historically low prices. Higher energy prices due to speculation don't translate into inflated consumer prices and can't manipulate the underlying currency's value. It is important to also realize that consumer prices fluctuate based on the U.S. dollar and foreign currency exchanges as well as the demand for goods. The current account data has shown that consumer demand continues to fall for domestic and foreign goods, but that the foreign demand for American goods is falling less fast and strengthening the dollar.

Extremely low volume and tepid buying have defined the equity trading environment throughout June and suggest that equity markets are losing momentum to top out in a slow but persistent defeat. The pain felt by consumers throughout the recession has been drastic when compared to previous lifestyles, yet the wealth of our country is so great that true pain has been forgotten. Consumer demand has dropped substantially, yet true fiscal responsibility and humility have still not been attained. Once the true destruction of inefficient firms occurs and prices stabilize, the trend seen recently in the dollar, crude oil and treasuries will make sense.

In the near term, expect for the S&P 500 to trend downward followed by crude oil while de-linking the commodities from movements in Treasury yields. Only when demand returns to the market will there be a sustained move higher in commodities. The move in the stock market suggested that the economy has turned the page and resumed growth, yet economic indicators suggest the opposite. Treasury yields will continue to rise over the long term, adding fear to the equity market, yet commodities and the dollar will de-link from the treasury yields and resume a November-esque relationship until CPI and PPI indicators confirm that inflation has arrived. Wednesday's intra-day bounce off of 905 resistance on the S&P 500 will create more momentum for a deeper dive below these levels on Thursday or Friday.

Disclosure: Long SKF, Long DXD, Short USO, Short SCC

U.S. equity averages roared higher Monday on better than expected results from economic indicators including Income, ISM Manufacturing, and Construction Spending reports. Income rose, manufactured new orders popped above 50 for the first time since November, and construction spending surprised higher by 0.8% compared to the expected -0.8%. The average investor heeded positive headlines and bought everything synonymous with a boisterous recovery, from consumer discretionary to industrial transport shares.

Tuesday morning market moves were difficult to swallow for objective traders who witnessed poor indications from the Goldman ISCG store sales and housing starts data. The Goldman report indicated sales during the May 16 ended week were down 1.2% from the prior week and -0.3% off comparable sales last year. Similarly dire were April's annualized rate of housing starts, which fell to 458k from 510k the week before and far below the consensus of 540k. This decline represents a 12.8% decline for the month on top of an 8.5% drop in March; good news for the bloated inventory but bad news for all things construction. The "silver lining" was the less erratic single family home starts number, which popped by 2.8% in April, yet destruction in multi-family structures and permits heed caution for investors.

An informed gambler would have bet against U.S. equities on the heels of these reports and the strong gain in stocks on Monday, but markets fought higher all day before ending slightly lower Tuesday afternoon. The confidence in banks and the derived financial system buoyed all stocks as more secondary share offers went through and Bank of America (BAC) sold shares at the decent price of $10.

No one seemed to question the vicious buying of Bank of America (BAC) and Citigroup (C) on a Wednesday when stress test leaks suggested the two banks will need an additional $35 billion and $50 billion of common equity. Does the transparency of major U.S. banks' financial needs warrant the KBW Banking Index's (KBE) gain of 10%+ on Wednesday?

While the Swine Flu "epidemic" has created substantial buzz among global equity markets, the lasting effects of the virus on the consumer are limited. The virus is serious and deserves appropriate responses by the WHO and individual nations but has only killed individuals in nations where timely detection and health care response is limited. Cases of the virus are popping up globally which is naturally fearful for consumers who feel helpless and threatened, regardless of their geographic whereabouts, but the disease is treateable. Experts have identified that the current strain is weaker than expected and has a relatively short lifespan as it is transmitted between hosts.

The overbought market is founded on false promises from the government and blind hope. Investors have ignored the looming trouble ahead in the economy for far too long. Poor economic reports and the fear of stress test results will absolutely muddle any gains seen today as market movers exit long positions ahead of the uncertain weekend.

Volatile markets ignite "animal spirits" among all participants, provoking individuals to act on emotion rather than rationality. Scroll back to Monday, April 20 (one week ago) and remember the steady relentless sell off, pulling the Dow Jones Industrial Average down roughly 300 points. The weekend trading break has been too much for markets to digest in recent weeks, where this past Saturday and Sunday saw headlines related to the global outbreak of the virus known as "Swine Flu".

While treading carefully to avoid any politically correct toes, there are interesting parallels to be drawn between the fear of Swine Flu and that of a crumbling financial system. Last weekend language from the president, regulators, and industry CEO's threatened the banking system. Headlines were speculative of future problems such as credit card defaults, government conversion of preferred to common equity, and rates of mortgage default. Similarly, the Swine Flu scare diluted market optimism as the trading week began.

Dow components Caterpillar (CAT) and DuPont (DD) are draining the will of investors to remain vested shareholders, as CAT posted its first loss since 1992 and Dupont lowered its 2009 guidance. U.S. stocks weren't the only distressed securities Tuesday morning as crude oil future prices for May and June delivery felt immense downward pressure below $45/ barrel in early trading. Reports continue to roll tape, reporting crude inventories' sustained rise to record levels, amidst the sharp sentiment change with respect to U.S. equities and the derived prospect of a global economic turnaround.

While fundamental issues and speculation are affecting NYMEX and WTI crude spots, the real squeeze Tuesday morning was the result of the short term glut between monthly prices, known as "contango". Contango is broadly defined as the upward sloping curve of future contract prices over time. As contracts approach the trading termination date, the price of the contract becomes volatile. In bull markets, the steepness of the futures curve can pull the contract nearing termination higher, while bear markets allow price decay in near term contracts to drag down longer term future values.

Deciphering strength among bank stocks ahead of Citigroup (C) Q1 earnings on Friday can be complicated. The sector has increased 45% over the past five weeks inspiring some to call for financials to pull back. Positive earnings news from WFC, GS and JPM have maintained positive sentiment amidst rhetoric from CEOs suggesting further pain ahead on hope that consumers are stronger than expected.

As we finally mailed our checks to Uncle Sam and shed the stress of tax season, Wednesday brought a considerable slew of data to U.S. traders' desks. The Consumer Price Index (CPI) reported slight deflationary price pressure while the level of production in the U.S. dropped further than analysts’ estimates during the month of March. An 11% drop in mortgage applications during the first week of April paired with a positive outlook from the Housing Market Index sent mixed signals. The housing report prompted some to write-off poor mortgage applications due to Easter plans yet the expected positive uptick in sales holds little weight, coming from industry leaders who didn't forecast the current housing depression.

The U.S. equity market bounced around its opening levels prior to the release of the Federal Reserve's Beige Book report at 2 pm, which inspired the S&P 500 to rise 1.25% by the closing bell. The Beige book measures economic activity in all parts of the economy two weeks ahead of the Federal Reserve FOMC (Federal Open Market Committee) meeting. The street applauded the report as "less bad news", citing retail sales worsening at a lesser pace, lower prices and increased traffic of buyers for homes.