Summary
In Ben Bernanke, has Wall Street found another Alan Greenspan? It sure hopes so!
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In some circles, Alan Greenspan is known as "Uncle Al, Wall Street's pal." Stock-market bulls in particular are hopeful that in Ben Bernanke, they will have someone who is as irrationally exuberant as Uncle Al.
The markets' two-day reaction to the coming of Bernanke has been interesting as well as divergent:
10/25 10/21
Close Close Change
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90-Day T-Bill 3.93% 3.85% +8bp
5- Yr. T-Note 4.40% 4.25% +15bp
10-Yr. T-Note 4.52% 4.38% +14bp
30-Yr. T-Bond 4.73% 4.60% +13bp
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DJIA 10378 10215 +1.6%
S&P 500 1197 1180 +1.4%
NASDAQ 100 1586 1565 +1.3%
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Dollar Index 89.24 90.31 -1.2%
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CRB Index 329.19 322.51 +2.1%
Crude Oil 62.45 60.63 +3.0%
Gold 472.10 466.65 +1.2%
XAU 108.56 104.93 +3.5%
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The markup in stock prices has been pretty spiffy, with an average rise of more than 1.4% in the three proxies shown in the above table. However, this has been accompanied by the onerous behavior of instruments often sensitive to inflationary expectations.
The rise in Treasury yields, especially at the longer end of the curve, has been significant. Moreover, the 10-year note and 30-year bond finished yesterday's trading at their highest yield levels since the spring of this year. Both instruments possess negative technical patterns, including having prices that now stand well below respective 200-day moving averages.
NOTE: In the most recent edition of "Last Week in Markets..." I stated:
"Some quarters continue to express a good deal of enthusiasm for bond-market prospects for the next few months. This is a position I do not share. Soon, I will publish a missive illustrating that on a total-return basis, the rise in yields occurring over roughly the last five months was not as innocuous as some people may believe."
The Dollar Index, although down a solid 1.2% since the Bernanke announcement, has technical characteristics that are a good deal more neutral than longer Treasuries. Nevertheless, any major pullback from last Friday's close of 90.31 would look increasingly like a double top at that approximate level, which would indeed be a negative portent.
In a recent missive, I reaffirmed a very positive view on physical gold, which is up 1.2% since the Bernanke news broke. I believe the stage was being set for a major upward move in gold and in most of the stocks that underpin the XAU anyway. I feel confident that the knowledge that Ben Bernanke will be the next Federal Reserve chairman won't interfere with it!
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