2010 Full of Uncertainty But Economic Knowledge Can Help

US Markets

The move to give Fannie, Freddie and GMAC unlimited funds and outrageous salaries and bonuses as rewards for incompetence is disgusting, but to be expected from our government. This was the brainchild of our esteemed leader Mr. Obama.

The Hulbert sentiment tracking system shows bond sentiment has collapsed from 23.35 to minus 33%.

Stock pessimism among newsletter writers fell to its lowest level since April 1987, six-months before the equity crash known as Black Monday on October 19, 1987. Those bearish fell to 15.6%, which is a very strong contrarian indicator.

The seven-year note auction had a bid to cover of 2.52 to 1 versus an average price of 2.76 to 1. Indirect, foreign central bank participation was 44.7% versus 62.5%.

The White House is borrowing unprecedented amounts for spending programs. Debt has incre ased to a record $7.17 trillion in November from $5.80 trillion at the end of 2008.

For the past decade general equities were the worst investment. Gold and silver mining equities were the best performers. The Dow will finish the decade flat, but the dollar has lost 30% of its value rendering stock and bond investments as big losers. The dollar lost 75% of its value versus gold.

As of September 30, 2009, Goldman Sachs posted $42 billion in derivatives and had $115 million in assets. JPMorgan had $79 billion versus $1.7 billion in assets. Both are accidents ready to happen.

The federal government said Wednesday it will take majority control of the troubled auto lender GMAC, providing another $3.8 billion in aid to the company, which has been unable to raise from private investors the money it needs to staunch its losses. GMAC, which already has taken $12.5 billion in direct federal aid along with other form s of government support, is the largest lender to General Motors and Chrysler dealerships and to their auto-buying customers.

Supply Management

Order backlogs in the U.S. economy rose in December for the first time in over a year, according to a closely-watched survey of economic activity published Wednesday.

The Institute for Supply Management-Chicago said Wednesday that its headline business barometer climbed to 60.0 from 56.1 in November, topping the 55.1 market consensus and nearing a four-year high.

The survey, formerly known as the Chicago purchasing managers index, is viewed as a leading indicator, though even lagging components such as employment ticked higher in December.

The barometer is compiled by the Institute for Supply Management-Chicago. Readings above 50 indicate economic expansion.

After falling to a low of 31.4 in March, the barometer has climbed in all months except September, though the latest results highlight continued caution among purchasing managers. Order backlogs expanded for the first time in 16 months, rising to 53.0 in December from 46.5 in November.

December Chicago PMI rises to 60 from 56.1.

Foreign Exchange Reserves

Data released by the International Monetary Fund on Wednesday showed global official foreign exchange reserves rose to $7.52 trillion at the end of the third quarter from $7.18 trillion at the end of the second quarter.

Allocated reserves stood at $4.43 trillion, up from $4.27 trillion in the previous quarter. The amount of allocated reserves held in U.S. dollars stood at $2.73 trillion, an increase from $2.68 trillion in the second quarter but below the $2.81 trillion recorded in the third quar ter of 2008.

The data showed U.S. dollar reserves account for 61.65% of allocated reserve holdings, a decline from 62.82% in the previous quarter.

Euro holdings edged up to 27.75% from 27.42%, while sterling holdings rose to 4.34% from 4.30% and yen holdings climbed to 3.23% from 3.12%.

Employment Outlook

Initial jobless claims fell by 22,000 to 432,000 in the week ended Dec. 26, the lowest level since July 2008, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance fell in the prior week to 4.98 million, and those receiving extended benefits jumped.

Economists forecast claims would rise to 460,000 from a previously reported 452,000, according to the median of 29 projections in a Bloomberg News survey. Estimates ranged from 430,000 to 490,000.

The four-week moving average of initial claims, a less volatile measure, dropped to 460,250 last week from 465,750 the prior one. Claims are down from a 26-year high of 674,000 in the week ended March 27.

Continuing claims decreased by 57,000 in the week ended Dec. 19, reaching the lowest level since February. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs.

Today's report showed the number of people who've use up their traditional benefits and are now collecting extended payments climbed by about 199,000 to 4.82 million in the week ended Dec. 12. Twenty-nine of the states and territories where workers are eligible to receive government extension have begun to report that data, a Labor Department spokesman said. Two states have started reporting data on the latest emergency extension, he said.

Twenty-seven states and territories report ed a decrease in claims, while 26 reported an increase. These data are reported with a one-week lag.

The government is scheduled to release its December payrolls report on Jan. 8. In November, the economy lost the fewest jobs since the recession began two years ago and the unemployment rate receded to 10 percent from a 26-year high of 10.2 percent the prior month.

The Institute for Supply Management-New York reported its Current Business Conditions index fell to 59.7 in December, from 62.9 in November. But a reading above 50 indicates a faster pace of activity, and this was the fifth consecutive month that the index was in expansion territory, the report said. The Six-Month Outlook index jumped to 80.2 from 74.4 in November. It was the first time since 2006 that the index broke above 80.

IMF

The dollar’s share of global currency reserves fell in t he third quarter to the lowest level in a decade while the euro’s share rose to a record, according to the International Monetary Fund.

The U.S. currency’s portion dropped to 61.6 percent in the period ended Sept. 30, from 62.8 percent in the prior quarter and 64.5 percent a year earlier. The euro’s share rose to a record 27.7 percent from 27.4 percent while the yen gained and the pound was unchanged.

US stocks added to losses in late morning trade Thursday, after the Chicago Institute for Supply Management revised lower its December business activity index to take into account seasonal factors, only a day after issuing its initial assessment. The December index was revised to 58.7 from Wednesday's reported 60.0. Readings from September to November were also revised lower. [This is a perfect example of government market manipulation. It is in your face and arrogant, that is what these people think of you. Bob]

Sales taxes declined 9% to $70 billion in the third quarter compared with the year-ago period, the Census Bureau said. Income taxes plunged 12% to about $58 billion. Together, sales and income taxes make up roughly half of state and local tax revenue.

The third quarter was the fourth consecutive quarter in which tax collections were below year-ago levels. Through the first three quarters of 2009 state and local tax revenues totaled $875 billion, nearly 8% below the $951 billion collected in the first three quarters of 2008. In the same period, federal receipts were down nearly 19%.

Read the legislation

To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.

Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives…It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more- bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.

-- Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.

China

China imposed duties on Thursday on im ports of certain specialty steel products from the US and Russia, in the latest sign of trade tensions between Beijing and its main trading partners.

The Chinese commerce ministry said the duties were a response to the dumping of products in the Chinese market by companies from the two countries. Beijing also alleged the US companies were receiving what were in effect subsidies as the result of “Buy American” legislation. [Trade war begins.]

The US will impose tough new duties on Chinese steel piping imports, raising tensions with its biggest trading partner and emerging geopolitical rival.

With Chinese piping imports worth $2.8bn in 2008, the case is the biggest against China brought before the International Trade Commission, a US trade body.

Friction between the US and China has been building this year after disputes over tariffs on tyres, cars and ch ickens. China denounced a move by the US earlier this year to tax imports of Chinese car and light truck tyres as a “serious act of trade protectionism”.

Treasuries

Treasury Debt Sales Top $2.1 Trillion for Year Next year, the Treasury is expected to sell about $2.45 trillion in notes and bonds, setting another record. But yields may need to rise to entice buyers, particularly as the economic recovery gathers pace.

Republican attorneys general in 13 states say congressional leaders must remove Nebraska's political deal from the federal health care overhaul bill or face legal action, according to a letter provided to The Associated Press...

"We believe this provision is constitutionally flawed," South Carolina Attorney General Henry McMaster and the 12 other attorneys general wrote in the letter to be sent Wednesday night to House Spe aker Nancy Pelosi and Senate Majority Leader Harry Reid.

War

A federal judge on Thursday threw out charges against five Blackwater Worldwide security guards accused of killing 14 people in a 2007 shooting in downtown Baghdad.

In a 90-page opinion, U.S. District Judge Ricardo M. Urbina ruled that the government violated the guards' rights by using their immunized statements to help the investigation. The ruling comes after a lengthy set of hearings that examined whether federal prosecutors and agents improperly used such statements that the guards gave to State Department investigators following the shooting on Sept. 16, 2007.

"The explanations offered by prosecutors and investigators in an attempt to justify their actions and persuade the court that they did not use the defendants' compelled testimony were all too often contradictory, unbelievable and lacking in credibility," Urbina wrote.

Unemployment

A record 20 million-plus people collected unemployment benefits at some point in 2009, a year that ended with the jobless rate at 10 percent.

As the pace of layoffs slows, the number of new applicants visiting unemployment offices has been on the decline in recent months. But limited hiring means the ranks of the long-term unemployed continues to grow, with more than 5.8 million people out of work for more than six months.

Wall Street Fallout

Goldman Sachs Group Inc. helped YRC Worldwide Inc. complete a debt swap to avert bankruptcy after the Teamsters union said the bank was trying to profit from a failure of the largest U.S. trucker by sales.

A group consisting of Goldman Sachs, Deutsche Bank AG, Aristeia Capital LLC, Silverback Asset Management and a Smith Management LLC unit, “got us over the goal line by going into the market, buying bonds and tendering them,” YRC Chief Executive Officer Bill Zollars said yesterday.

YRC extended the deadline for the bond exchange six times in December as it sought to overcome resistance from bondholders owning derivatives that would pay out if the company defaulted. YRC, which has posted $1.7 billion in losses in the past five quarters, needed to complete the exchange by Dec. 31 to avoid a bank payment that would have left the trucker in an “unsustainable” position, the Overland Park, Kansas-based company said in a regulatory filing two weeks ago.

International Brotherhood of Teamsters President James Hoffa said in letters last month to regulators and lawmakers that Goldman Sachs and Deutsche Bank were among banks that “have a history of making markets in these types of derivative financial products.”

Goldman Sachs spokesman Michael DuVally said Dec. 17 that the bank was “actively exploring ways to help” YRC.

Bondholders with 70 percent of YRC’s $150 million of 8.5 percent notes due in April offered to tender, meeting the required threshold, the c ompany said yesterday in a statement. That’s an increase over the 59 percent that participated by Dec. 29. Holders of 88 percent of all of the company’s outstanding bonds, with a face value of $470 million, participated in the exchange, the company said.

Health care, the municipal bond segment with the highest proportion of downgrades in the first three quarters of 2009, yielded the year’s best return.  The Standard & Poor’s index of hospital, life care, nursing home and related bonds led total returns at 28%.

Back to Glass-Steagall Act

A one-page proposal gaining traction in Congress could turn back the clock on Wall Street 10 years, forcing the breakup of banks, including Citigroup Inc.  Lawmakers in both parties, seeking to prevent future financial crises while soothing public anger over bailo uts and bonuses, are turning to an approach that’s both simple and transformative: re-imposing sections of the 1933 Glass-Steagall Act that separated commercial and investment banking.  Those walls came down with passage of the Gramm-Leach- Bliley Act of 1999. A proposal to reconstruct them, made by U.S. Senators John McCain and Maria Cantwell on Dec. 16, would prevent deposit-taking banks from underwriting securities, engaging in proprietary trading, selling insurance or owning retail brokerages.

Supply And Demand

A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25% slump in freight rates next year.  The ships will unload 26% of the crude and oil products they are storing in six months, adding to vessel supply and pushing rates for supertankers down to an average of $30,000 a day next year, compared with $40,212 now, according to the median estimate in a Bloomberg News surv ey. ‘The tanker market has been defying gravity,’ said Martin Stopford, a director at Clarkson Plc, the world’s largest shipbroker. More than half of the ships are in European waters, with the rest spread out across Asia, the U.S. and West Africa. Lined up end to end, they would stretch for about 26 miles.

The Outlook for the future

Most Americans have a dim view of the first decade of the 21st century, a survey suggests.  Those who have a negative view of the decade outnumber those with a positive view almost 2-to-1, the Pew Research Center survey found.  The results stand in sharp contrast to the public’s assessments of other decades. The 1960s, 1970s, 1980s and 1990s all polled more positive than negative feelings, Pew found.  In the latest survey, respondents associated the decade with words like downhill, decline, chaotic, disaster and depressing.

Fed Manouverings

Federal Reserve officials are considering a proposal to schedule limited sales of bonds from the central bank’s $2.2 trillion balance sheet as part of a range of tools for withdrawing record monetary stimulus.  The Federal Open Market Committee discussed asset sales at its November meeting, with some members in favor and others warning that it would cause ‘sharp increases’ in longer-term interest rates, according to minutes. A middle route now being studied would allow small amounts of bonds to be unloaded at announced times.

Fannie Mae and Freddie Mac

The US government’s expanded capital backstops and portfolio limits for Fannie Mae and Freddie Mac increase “the prospect of large-scale” purchases by the companies of delinquent mortgages out of the securities they guarantee, according to Credit Suisse Group analysts.  The Treasur y Department announced Dec. 24 that the two mortgage-finance companies, which were seized by the US almost 16 months ago, could tap an unlimited amount of capital for three years, up from as much as $200 billion each. It reworked caps on Fannie Mae and Freddie Mac’s mortgage-asset portfolios to require the holdings to fall to $810 billion each by Dec. 31, 2010, rather than about $690 billion.  ‘This announcement increases the prospect of large-scale voluntary buyouts by removing the portfolio cap hurdle and helping funding by potentially increasing debt-investor confidence,” Mahesh Swaminathan and Qumber Hassan, the Credit Suisse debt analysts in New York, wrote.

State and local tax collections fell for the fourth straight quarter. Collections in the three months ended Sept. 30 fell 6.7% from the period last year to $266.5 billion.

Wall Street, banking and government have set a very dangerous precedent. They have created t he financial and moral atmosphere that has and will continue to foster debt default. In this past year it is estimated that strategic default by those whose homes are under water will total over one million homes. The conclusion for borrowers is we can walk away from just about any debt. Obviously people are not concerned about their credit ratings, and that is probably due to settlements being allowed by many lenders. Borrowers have learned that borrowing is a two-way street and that lending institutions are 80% responsible for lending, at least as far as the blame game goes. It should be noticed as well that corporations are defaulting in large numbers as well.

Debt

What we are seeing is a whole new attitude toward debt and because of this loans for both business and individuals are going to be very hard to come by in the future. Do not forget America’s success was founded on debt and that debt t o some degree won’t be there in the future.

We have been informed by our contracts in Washington that debt failure, the bankrupt or near bankrupt conditions at lenders and the lack of loans available for the past couple of years suit the administration just fine. Mr. Obama believes that the more small and medium-sized companies that go under the better it is for his economic program. That means large corporations and government will supply the jobs and subsequent control of the people. Debt doesn’t matter when the goal is a one-world society, nor does unemployment. These Illuminists are going to rip this country piece by piece. In addition, as we said six years ago, when we said Fannie and Freddie were bankrupt, the government wants to end up owning 40% of US housing in order to completely control 40% of Americans’ lives. Once in full possession they further dictate how Americans will live.

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Forward With Caution After Exposing The Fed

The rally in the dollar and the problems for other currencies prove what we have been saying and that is all currencies will continue to fall vs. gold. The impetus for the dollar rally originates as usual with the government and is added to by the disarray in the economies worldwide, particularly in Europe. One of the things central banks have never learned is that financial engineering only works for a short duration, after that the problem worsens. Even the world’s strongest currencies, the Swiss, Canadian, Aussie and Norwegian, are only holding their own versus gold. The reason why is almost all central banks have done the same thing and that is create money and credit recklessly at the behest of the US government. The US and British financial systems are insolvent. The euro is under severe pressure, because of problems in Greece, Spain, Ireland, Portugal and Italy, and every other central bank is jockeying for position via competitive devaluation. The public may not notice it but the situation is really chaotic. As you can see, the US is never allowed a level playing field, but that is part of what comes with being the international reserve currency. Banks in Britain, Europe and the US continue to take losses, sometimes-severe losses. There is no intermediation going on with the dollar. Its rally is founded on manipulation. We suspect in the future we will have an interesting phenomenon and that is a fall in the dollar, pound and the euro, as gold moves higher as the only viable alternative. The world is going to be shocked when the euro collapses. It won’t happen overnight. It will take a year or two, but it has a good chance of happening. The US dollar cannot and will not for some time to come be a safe haven for wealth. That is because the dollar and the US economy have been deliberately destroyed.

The flight into gold that we have seen has not been sparked by anticipation of i nflation, but by a flight caused by a lack of confidence and trust in central banks. If other major governments have monetary problems they cannot be buyers of US Treasuries. They will have to be sellers of dollars. That will drive the dollar lower, further reduce the demand for US funding, force the Fed to further monetize and create more inflation. That in turn drive the dollar lower, but more importantly it will give gold a life of its own. We have found that this is something the public ad professionals refuse to accept. There is going to be a devaluation of the dollar no matter what people think, or want to think in their world of denial and fantasy. Other letter writers who disagree have recently attacked us. They can disagree and that is fine, but we might remind them that we are the ones who have been correct in our predictions 98% of the time, not them.

We believe the current dollar rally is unsustainable. If you remember we recommended a shor t on the dollar at 89.5 on the USDX. It fell to 74. We have just seen a two-week rally from 74 to 78 on very low volume. We had said the rally when it began at 74 could go to 78 to 80. Several more days of trading over the holidays could take it deep within that zone. This is just another rally conjured up by our government led by Goldman Sachs and JP Morgan Chase, which will be doomed to failure. The rally is aided by unsettled conditions in Dubai, Greece, Spain, etc., and the continued viability of the eurozone. In addition, the same groups of criminals have viciously attacked gold and silver in an attempt to take gold below $1,033 and silver below $17.00. That completes the circle of attack. The SEC and the CFTC simply look the other way aiding and abetting the criminals that run our government and markets from behind the scenes.

It is not surprising that 320 members of the House passed legislation to audit the Fed to find out where trillions of d ollars have gone and what the Fed and the Treasury have done to manipulate markets. Just how much monetization is really going on? Has the Fed been buying more than half the Treasuries issued via stealth activity and how long will this continue? Will the Treasury default and officially devalue? Of course they will, it is only a question of time. What will the Fed do with bonds issued by agencies and toxic waste CDOs, and what did they pay for all this garbage? Have they been paying the banks, Wall Street and insurance companies 80% instead of 20% on the dollar, so that taxpayers can pay the bill and these entities, which are insolvent, can be kept functioning? Why is it we could forecast all these events and very few others could? It is because if they did they would be ostracized and they would lose their jobs. That is how systems like this always work. You cannot lay a normal yardstick to what we have seen and what will be an unprecedented future. When the dollar official ly devalues in a year to a year and a half, the shock will shake America and the world to its very foundations.

An audit and investigation of the Fed is on the way and the American public is not going to like what they find. All the failures and criminal activity of the past 96 years will become reality. This coming year will see the Fed forced to monetize massive amounts of government paper, all of which will lead to massive inflation. Inflation will move up very quickly. The groundwork began last May and over the past two months we saw official inflation rise to 1.2% and then 2.4% as real inflation moved up over 8% again. Will we see something similar to what happened in Argentina, Zimbabwe or in the Weimer Republic We do not know. What we do know is it is not going to be good. All the telltale signs are being ignored and for such duplicity a high price will be paid. That is why we predict official devaluation and default. History is explicit; mone tization cannot go on forever. Over the last two years the Fed has purchased trillions in what is essentially worthless paper from banks, Wall Street and insurance companies.

The rally in the dollar is transitory, because at the moment Europe’s problems seem greater than ours.

You have to ask yourself how does a stock market trade within 500 points for three months, when trading volume has fallen? There have been material withdrawals from mutual funds and 73% of trades are of the black box front running variety. The answer is the trading after hours, which has been dominated by your government’s plunge protection team. They cannot continue that indefinitely. There is lots of bad news coming in 2010.

The November medium home price rose 3.8% to $217,400, the highest level since May reflecting the $8,000 tax credit and growing inflation. Year-on-year prices fell 1.9%. The number of new homes on the market fell 235,000, the lowest since April 1971. There are now 7.9-months’ worth of homes for sale, up from 7.2% in October. What has to be added to that is discouraged sellers who have taken their homes off the market, and lenders that have been withholding inventory for sale - a bottoming market is years away.

Loan demand fell 5% last month. Mortgage applications fell 10.7%, the lowest level in two months. Refi loans fell 10.1% and mortgages fell 11.6%.

This as foreclosures topped one million. As a result home construction has fallen 83% from its peak. We projected 75% in June of 2005. The decline in building is probably bottoming, but with the inventory overhand it could be many years until we could see a recovery.

Durable goods orders rise of 0.2% were very disappointing. The experts expected a rise of 0.5%. Wrong as usual.

For the week ended 12/23 the commercial paper market rose $9 .3 billion to $1.160 trillion, still a ghost of its former self.

Congress, the SEC and FINRA are investigating Goldman Sachs and others in the use of synthetic CDOs, collateralized debt obligations, that we have been hammering for since 2006. Not only were the laws of fair dealing violated, but they were shorting the deals they sold to clients, which they knew had to fall in value, because the ratings they arranged with the raters, S&P, Moody’s and Fitch, were phony from the outset. Yet if you notice there hasn’t been a lawsuit, civil investigation, or criminal charges. The exposure of this activity allowed the banks to profit from the housing collapse, which they deliberately created. Again, another fine and no criminals go to jail. They simply own Washington.

The 10-year T-note yield just rose from 3.20% over the past 18 business days to 3.80%. Look at a chart and it is ominous. The yield is on long-term trend lines t hat go back to June 2007. It looks like that line could be broken to the downside. The chart is very jagged giving it all the earmarks of manipulation. Our guess is that something happened three weeks ago that we don’t yet understand, but whatever it was foreigners are running away from US sovereign debt, just as we forecast they would. This means the fed could be taking down more than 60% of the auctions of US debt, which means more monetization and more inflation. If the Fed does not continue buying, by creating money out of thin air, support will be broken and yields could quickly move up to 5%, which would further destroy the retail housing market. Such a move would send gold to $1,550 to $1,650. Incidentally, over the past 50 years we have observed that as interest rates rise so does gold and silver, up to a certain point. In this case bank discount rates could move from zero to 5% and gold would rise. After that gold becomes the only vehicle that preserves assets.

America and England are facing a credit crisis again, as interest rates rise and the Fed feebly attempts to remove quantitative easing, and beginning by withdrawing funds from its various programs. Rating services tell us that if the Fed does not do so the US and UK credit ratings will be lowered. These funds put into the system by the Fed and the Treasury aggregate about $12.7 trillion. We might add the US and the UK are not the only countries enveloped in this situation. We have seen the US ten-year Treasury note yield move from 3.20% to 3.80%. This is the markets way of telling the Fed and the Treasury, that if you continue to do what you have been doing then you will have to pay more interest to do so. Those 10s could easily move to yield 5% in this coming year, putting the 30-year fixed rate mortgage over 6%. That in finality puts the last nail in the coffin of the residential housing market. At the same time since last May inflation has been buildi ng and now is at an official 2.4% and unofficially 8-1/4%. The Fed and other major nations are now attempting to hold up the dollar, it having rallied just recently from 74 to 78 on the USDX. Aligned against these nations are a group of commercial currency market makers, who are shorting the dollar in response to its phony rally. The pros will win and the governments will lose. That is a $4.3 trillion a day market of which $2.5 trillion trades in dollars. Not even Superman can control that massive amount of money. Due to the Treasury’s profligacy the Fed we suspect has already bought more than $600 billion in Treasuries; $300 billion that they admit too and $300 billion or more they refuse to tell you about. That is why we need an audit of the Fed.

The Fed, the Bank of England, and others will not be able to ease funds out of the system without allowing deflationary forces to take over. The result will be a downgrade, a run on the dollar and official devaluation and default within the next 1-1/2 years. There is no other way out, as other nations are forced to do the same thing, leaving the only safe haven of wealth preservation in gold and silver related assets. Nothing will compare. All world currencies will fall versus gold. In the meantime, the wages of easing and the inability to withdraw these funds, will lead to a period of inflation if not hyperinflation beginning with a real 14% plus in 2010. After that it is anyone’s guess where inflation will be headed.

The present administration is headed in the wrong direction on everything, particularly on spending. Their actions have resulted in short-term bills yielding from zero to .65%, hardly an incentive to own such debt, as the Fed must issue and or roll this debt daily. A bogus temporarily strong dollar supplies a lift and respite for treasury debt for which the only solution is higher rates that are already being anticipated. Some have seen our ideas on this issue as faulty, all we can say is we are the ones with the 98% track record.

An index of home prices in 20 U.S. cities rose in October for a fifth consecutive month, putting the housing market and economy farther down the path to recovery.

The S&P/Case-Shiller home-price index increased 0.4 percent from the prior month on a seasonally adjusted basis, after a 0.2 percent rise in September, the group said today in New York. The gauge was down 7.3 percent from October 2008, the smallest year-over-year decline since October 2007. The median forecast of economists surveyed by Bloomberg News anticipated a 7.2 percent drop.

If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.

Yi elds on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.

Investors are demanding higher returns on government debt, boosting rates this month by the most since January, on concern President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment.”

Yields on the 3.375 percent notes maturing in November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April 200 4, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven.

Personal incomes rose in November at the fastest pace in six months while spending posted a second straight increase, raising hopes that that the recovery from the nation's deep recession might be gaining momentum. [It also should be noted that inflation rose 2.4% on an annualized basis as well, and these are official figures.]

The Commerce Department says personal incomes were up 0.4 percent in November, helped by a $16.1 billion increase in wages and salaries, reflecting the drop in unemployment that occurred last month.

The gain in incomes helped bolster spending, which rose 0.5 percent in November. Both the income and spending gains were slightly less than economists had expected.

Want to keep IRS auditors away? Keep your earnings under $200,000 and they won't bother you 99 percent of the time.

IRS enforcement numbers, released Tuesday, show that returns under that amount have a 1 percent chance of getting audited.

Returns showing income of $200,000 and above have a nearly 3 percent audit chance. The percentage jumps to more than 6 percent for returns showing earnings of $1 million or more.

New-home sales plunged to their lowest in seven months during November, a bigger-than-expected drop that might have been caused by uncertainty over a government tax incentive.

Sales of single-family homes decreased 11.3% to a seasonally adjusted annual rate of 355,000, the Commerce Department said Wednesday.

The level was the lowest since 345,000 in April. The plunge wiped out much of the gain made in t he new-home market since the January bottom.

Economists surveyed by Dow Jones Newswires estimated a 1.2% drop to a 425,000 annual rate for November.

New-home sales, unlike sales of existing homes, are recorded with the signing of a sales contract and not the closing. A big tax credit for first time buyers was due to expire at the end of November and caused concern in the housing sector. It was extended in November by Congress to next spring.

Another reason for the big drop in new-home sales could be strong demand for used homes. Data this week showed existing-home sales are up more than 40% since the end of last year, with many purchases made for foreclosed property carrying a discounted price tag.

Wednesday's report said new-home sales in October rose 1.8% to 400,000, revised from an originally reported 6.2% increase to 430,000.

Year over year, s ales were down 9% since November 2008.

The median price for a new home dropped in November - but not by much. It was down 1.9% to $217,400 from $221,600 in November 2008.

Inventories shrank. There were an estimated 235,000 homes for sale at the end of November. That represented a 7.9 months' supply at the current sales rate. An estimated 240,000 homes were for sale at the end of November, a 7.2 months' inventory.

Commerce's report Wednesday showed November new-home sales fell in three of four regions in the U.S.

US consumers are increasingly confident about the economy, according to the most recent Reuters/University of Michigan Consumer Sentiment Index, which gave a score of 72.5 for the month of December, up from 67.4 in November. 

The preliminary mid-month index had registered a slightly higher score of 73.4, but the end-of-the-month result shows a continuing upward swing in consumer confidence since October.

US MBA Mortgage Applications declined by 10.7% on December 18 week.

U.S. overall consumer confidence improved last week to match its best level of the year, according to an ABC News poll released Tuesday.

The consumer comfort index rose three points to -42 in the week ended Dec. 20.

Still, according to the survey, just 7% of respondents expressed confidence in the economy, the same as last week. But 50% of those polled said their own finances were in good standing, up from 47% the prior week. In assessing the buying climate, 30% of respondents said it was good, up from 29% the week before.

 

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The Rallies Heard Round The World

Bob Pisani is off for the holidays, this was written by CNBC producer Robert Hum.

With the Dow, S&P and Nasdaq already at new highs for the year, U.S. stock futures are slightly up following rallies around the world. European markets are up about 0.8 percent to new 14-month highs, while Asian markets rose nicely to start the holiday-shortened trading week.

Japan’s benchmark Nikkei 225 rose 1.3 percent as the nation’s industrial output grew a more than expected 2.6 percent in November. It was the biggest rise in 6 months and ninth straight month of gains as strong export levels helped. With today’s gain in the Nikkei, the index has risen a strong 14 percent this month, notably outperforming all other world indices, while sitting just shy of a 15-month high.

Additionally, China’s Shanghai Composite gained 1.5 percent as the country’s Premier Wen Jiabao reassured inve stors that the government will not abandon its current stimulus programs despite improving economic conditions.

Elsewhere:

1) Fannie Mae [FNM  Loading...      ()   ] soars 21 percent and Freddie Mac [FRE  Loading...      ()   ] jumps 25 percent pre-open after the government announced it would lift the current caps on aid imposed on the two mortgage companies over the next 3 years, essentially giving the two troubled companies unlimited government funding during that time

2) MasterCard’s SpendingPulse survey reported a 3.6 percent rise in retail spending this holiday season, helped by a strong 15.5 percent increase in online sales.

3) Toyota Motor [TM  Loading...      ()   ] reportedly will boost its global production by 17 percent in 2010 to 7.5 million vehicles from the automaker’s projected levels this year.

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• Shoppers Spent a Little More This Holiday
• The Dow 30 in Real Time
• The CNBC Stock Blog

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Questions?  Comments? 

Indications: Stock futures point to year-end gain for Wall St.

Alert Email Print

By William L. Watts & Nick Godt, MarketWatch

NEW YORK (MarketWatch) -- U.S. stock index futures posted small gains Thursday, pointing to a slightly higher open for Wall Street on the final day of the year and leaving top indexes on track to register their largest yearly percentage jumps since 2003.

Futures briefly added to gains after the government reported a bigger-than-expected drop in U.S. jobless claims, which fell 22,000 to a seasonally adjusted 432,000 in the week ended Dec. 26. Economists surveyed by MarketWatch had expected initial claims to come in at 455,000.

S&P 500 futures gained 1.8 points to 1,123.90, while Nasdaq 100 futures rose 2.25 points to 1,879.0. Futures on the Dow Jones Industrial Average advanced 10 points to 10,500.

Trading volume was expected to remain light. Markets will be closed Friday for the New Year's Day holiday.

Among potential movers, American Tower Corp. /quotes/comstock/13*!amt/quotes/nls/amt (AMT 43.21, 0.00, 0.00%) , an operator of wireless communications sites, is in talks to acquire a controlling stake in India's Essar Telecom Infrastructure Pvt. Ltd., The Wall Street Journal reported, in a deal valued at around 20 billion rupees ($429.1 million).

News Hub: 2010 Market Preview

WSJ's Matt Phillips joins the News Hub with a look at what investors can expect from the market in 2010.

U.S. stocks tallied small gains on Wednesday, boosted by reports showing a pickup in business and manufacturing activity in the Midwest.

The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,428, -120.46, -1.14%) rose 3.10 points to 10,548.51, marking the seventh session of gains out of the last eight and putting the blue-chip barometer at its highest close in nearly 15 months. The Nasdaq Composite index /quotes/comstock/10y!i:comp (COMP 2,269, -22.13, -0.97%) gained 2.88 points to 2,291.28, its highest close since September 2008.

The S&P 500 /quotes/comstock/21z!i1:in\x (SPX 1,115, -11.32, -1.00%) eked out a 0.22-point gain to 1,126.42 on Wednesday.

For the year so far, the Dow industrials have gained 1,772.12 points, or 20.2%. That's the biggest yearly point and percentage gains since 2003.

American Express Co. /quotes/comstock/13*!axp/quotes/nls/axp (AXP 40.50, -0.02, -0.05%) is on track to be the Dow's top performer for the year with a gain of $22.25, or 120%. It's followed by Microsoft /quotes/comstock/15*!msft/quotes/nls/msft (MSFT 30.49, +0.01, +0.03%) with a gain of $11.52, or 59.3%, for the year so far.

Oil giant Exxon Mobil /quotes/comstock/13*!xom/quotes/nls/xom (XOM 68.11, -0.08, -0.12%) appears set to bring up the rear for the Dow industrials, posting a loss for the year so far of $11.06, or 13.9%.

The Nasdaq is up 714.25 points, or 45.3%, this year, its largest percentage gain since 2003 and its second-biggest yearly point gain in history. The S&P 500 is up 223.17 points, or 24.7%, for the biggest point and percentage gains since 2003.

European shares were mostly flat on Thursday. London's FTSE 100 stock index was up 0.3%, while France's CAC-40 index rose fractionally.

The pan-European Dow Jones Stoxx 600 index wasn't calculated Thursday as some markets, including Germany and Italy, were closed and others were set to have shortened trading sessions. However, 2009 was the index's strongest year since 1999 as it posted a 27.6% rise following 2008's sharp drop. See story on Europe Markets.

The U.S. dollar was under pressure against most major rivals as traders appeared to take profits on the greenback's December rebound. The dollar index /quotes/comstock/11j!i:dxy0 (DXY 77.86, -0.05, -0.07%) , a measure of the currency against a trade-weighted basket of major rivals, was off 0.3% at 77.687, leaving it on track for a monthly gain of 3.7% but a yearly fall of 4.4%. Read Currencies.

The euro rose 0.3% to trade at $1.4381. The dollar slipped 0.1% to trade at 92.71 Japanese yen.

Nymex oil futures gave up early gains to trade 5 cents lower at $79.31 a barrel.

William L. Watts is a reporter for MarketWatch in London. Nick Godt is MarketWatch's markets editor, based in New York.