Rising Yields Detain Wall Street's Advances

Thursday, June 21, 2007

The ghost of rising yields has captured Wall Street. Since last week's inflation data the stock market has not been able to sustain its rally and the bond market took signs of waning interest in T-bonds by foreign central banks as a reason to digest higher yields.
Bespoke has this chart comparing the spread in the yield curve with the S&P 500.

GRAPH: A steepening of the yield curve has generally boded bad for the S&P 500 index. Chart courtesy of Bespoke.

While it has to be seen at what speed the subprime woes will also affect the broader mortgage market, Joe Average has turned pessimistic. According to a Gallup poll reported by editorandpublisher.com
"7 out of 10 Americans believe the economy is getting worse - the most negative reading in nearly six years.
Only one in three Americans rate the economy today as either excellent or good, while the percentage saying the economy is getting better fell from 28% to 23% in one month.
Gallup adds: "For the first time this year, a majority of Americans are negative about the employment market, saying it is a bad time to find a quality job."
The 70% negative rating is up 10 points since April. Also, just in the past month, there has been a significant five-point drop, from 28% to 23%, in the percentage saying conditions are getting better.
"When asked about the most pressing financial problems their family faces today, Americans mention healthcare costs, lack of money or low wages, and oil and gas prices," Gallup reports. "Healthcare costs are mentioned by 16% of Americans while 13% say low wages and 11% say oil and gas prices. These percentages are virtually unchanged from last month."

Expecting markets to hold their ranges until next week's FOMC meeting another problem is creeping up the gutter: Yield spreads between T-bonds and other issuers with a lesser rating have further reduced, proving that the market still likes to disregard risk. A painful correction is building up, I'd say.
Other than that I liked a story in the IHT that says cutting subsidies for cotton farmers in the US would positively impact African cotton farmers. Don't expect that to happen anytime soon, though.
Looking for more turns in the US agricultural industry? Here we go.
Two farmers in North Dakota have filed a federal lawsuit to be allowed to grow hemp, komotv.com reports. According to the report the farmers were granted a state license to grow hemp with a low THC content but are not allowed to do so unter federal laws which stipulate that growing hemp is forbidden because all hemp contains minimal traces of THC. Let us always remeber that there would be no United States of A if there had been no hemp from which to produce ropes and sails for vessels crossing the Atlantic.


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