U.S. stocks lost ground for the fifth-straight session, erasing a 90-point gain on the Dow Industrials, as the major indices dove just as Bernanke’s press conference got underway (the text was released just ahead of the speech, which took place 15 minutes before the close).  The market wanted a Jackson Hole-type speech, but it will likely take a substantial slide in stocks before the Fed Chairman pulls another more-QE-is-coming announcement. 

Tech, financial and telecom shares led the broad market lower.  Financials have had a rough few days as the market worries that regulators will raise capital requirements for systemically important financial institutions (SIFI) even higher than Basel III called for last year.  Basic materials, health care and utilities were the day’s winners – a strange mix of high cyclical and areas of safety, but we’ve seen this thing before over the past several months. 

What goes up must come down – and the bounce wasn’t much.  In our May 5 letter we mentioned that one has to expect a dollar bounce after falling 10 of the previous 12 sessions.  Well, we got that bounce but it wasn’t much as the chart below illustrates.  Still, I would expect the greenback to rally again (possibly to the 80 level), but not exactly for great reasons as it will be a safety trade event. 

And the CRB Index gained a little ground as the prices of sugar, hogs, gasoline, cattle and corn remain elevated.  Crude rose just slightly as traders reversed course to rally from the session’s low, settling at $99.09/bbl. 

Market Activity for June 7, 2011

Sector Activity for June 7, 2011

Sundry Comments

Yesterday I stated that the big hurdle for the EU’s latest Greek bailout plan would be achieving ECB acquiescence as the central bank’s president JC Trichet had made comments he wouldn’t accept the new restructured paper as collateral – he wanted more IMF/EU funds to keep kicking that can down the road.  Well, yesterday he reversed course and endorsed the plan.  We’ll see how this goes over when the technical default is implemented in July. 

And speaking of central bank presidents, Mr. Bernanke’s speech at the International Monetary Conference yesterday had traders expecting some tacit comments on additional QE (or LSAP for large-scale asset purchases, which is the term the Fed prefers), but didn’t get it.  It appears the FOMC will wait for continued deterioration in the data, a more pronounced slide in stocks, or both before rolling it out.  But they will be doing more, digging an even deeper hole for themselves and the rest of us. 

Oh, and the central bank will once again be lowering their growth forecast, as they’ve been behind the curve (or have the forecasts never really been that serious, nothing more than their typical cheerleading?).  I ran across a speech by The Bernank nearly three years ago to this day – June 3, 2008.  He saw growth picking up in 2009; instead, the economy endured its deepest contraction since the Great Depression.  So this Fed certainly makes a habit of predicting unrealistically optimistic forecasts, which makes its very difficult to take seriously.   

President Obama’s chief economist Austan Goolsbee resigned Monday night.  It’s hardly a coincidence the resignation occurs just a couple days after he termed the latest jobs report as a “bump in the road.”  Hardly the politically correct phrase for an economy stuck with 9%+ unemployment for longest stretch since the Great Depression and a long-term unemployment situation that has been at postwar highs (and by a mile). 

Reuters reported that China implemented the latest bailout of their banking system last week, taking $463 billion in bad loans off Chinese banks’ books (infrastructure loans gone bad from their 2009 stimulus program).  That’s equivalent to $1.4 trillion here in the U.S. in terms of GDP.  When all this toxic debt explodes, and global economies can’t just sweep this stuff under the rug forever, it’s likely going to take the term credit crisis to a whole new massive level.  Bailouts all around, yeehaw!

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