Market is Improving, But....

Did they or did they not?  N. Korea said it exploded a hydrogen bomb shaking global markets, but increasing numbers of experts today do not believe it as a hydrogen bomb but maybe another test of an atomic bomb. Regardless of what the truth might be stock markets around the world took more hits. Global equity markets were already in trouble before the N. Korea news this morning. Economic performance is slowing, China leading the way, emerging markets weakening, Europe with mixed reads. The US is not able to stand alone as many believe - as the world slows the US will also, it is not rocket science.

Markets and media - one track minds. Today it is all about N. Korea but the mid-east is a serious global problem about to boil over. Iran and Shiites vs. Saudi Arabia and Sunnis. Sides are shaping up across the region. Iran about to begin selling its oil on the open market, the Saudis leading the way to push prices lower to lessen foreign capital needs in Iran. The lower oil prices fall the more harm to Iran. Syria still controlled by Assad, now aided by Russia.  Today crude fell $2.00 the $34.00.

The FOMC minutes from the December 16 and 17 meeting were released this afternoon. Most of the details were what markets already knew - there was one remark though that grabbed us. “However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely”.  The Fed talks the talk but understands it is walking on sand. No history for economists to draw from for their forecasts. Calling the drop in oil and commodities as temporary and using words like medium term to forecast views. Continually missing forecasts, hanging on the low rate of unemployment and outwardly at least ignore the quality.

Stocks lower today in a volatile low volume session. No panic noticed but buyers are absent. This is not the major reversal we expect later this year, nevertheless values are down across all indexes. We still are concerned about the level of the 10yr - it broke 2.20%, now we want follow-through. With today’s MBS price gains the risk of overnight floating is much less. Is it time to float?  I am waiting to see what happens in the morning…

In summary, rates seem to be benefiting from a rough start to the year for the Stock Market and further declines in Oil prices.  With the Fed moving in the direction of higher rates I think we will need a stronger impetus to push rates even lower in the near term.  We may get that, but I would be cautious and tend to lock in these gains for now.