Facebook didn’t exactly do a faceplant but fell far short of the Wall Street hype. As indicated by the title I used today, this was given the treatment last seen for the first landing on the moon. The good news is that if you couldn’t get in on the IPO, you can buy it at the original price. Facebook closed at $38.07, and the rumors are that the underwriters had to buy heavily in the last hour to keep the stock from cracking below the issue price. As for me, I’m just glad the insanity is over.

It was certainly not a good week for stocks. The Dow was down 100 points with ten minutes left, but the index managed to closed down only 73 points. The Dow lost 3.4% for the week. Don’t look now, but the Dow is only 150 points above the year-end closed. The NASDAQ fared the worst this week, losing 5.2%, but that index has a bigger cushion from year-end.

Bonds closed with small losses today for the long-end of the market. The 2-year closed at .29%, the 5-year .74%, and the 10-year dropped 4/32s to yield 1.71%. The 30-year bond lost 3/32s to yield 2.79%. For the week, yields through five years were unchanged. The 10-year yield declined 10 basis points, but the 30-year bond had a sizeable 20 basis point decline in yield.

Amidst all of the Facebook hoopla, the state employment figures were released today. The California Unemployment Rate edged down from 11% to 10.9%, but the state lost 4,200 jobs. The miracle of lowering the “available labor pool” was at work. The news from Nevada seemed even better. The UR dropped from 12% to 11.7%, the lowest level in three years. Just as in California, Nevada actually lost 1,000 jobs but saw the labor pool shrink. Still, the rate a year ago was 13.6%, and the decline is a welcome headline.

What’s ahead for next week? Europe of course, although there are no elections or planned meetings. But, I expect various comments from “unnamed sources” will bomb the tape from time to time. Traders are desperately hoping that some officials start talking about the European Central Bank being closer to printing money. That might not be a bad bet with the deterioration in the European banking system.

Existing Home Sales and New Home Sales will be our economic highlights next week. Both are expected to rise rather sharply in a typical seasonal pattern. May has been a miserable month for stocks, and traders will be hoping for rebound as the end of May approaches. Bond investors are probably pleased and surprised at the results this month.

Have a great weekend.    

Update 11:45 a.m.:

Heading into the last hour of trading, stocks have started to weaken. Traders are now back to the focus of what really happened this week. Those I mentioned in the Morning Comment. The Dow is down 70 points and the NASDAQ is down almost 1%. Facebook is trading quietly at $40.

Bonds have recovered all of the early losses. The 2-year is .29%, the 5-year .73%, and the 10-year is unchanged on he day at 1.70%. The 30-year bond yield is down to 2.79%.  

Update 10:35 a.m.:

Once again an over-hyped Wall Street event failed to match traders expectations. Facebook has actually traded very quietly around $40 a share. It is currently $41. What this tells us is that the underwriters did a very good job of pricing this. Traders would have preferred a mispricing that would have resulted in a huge surge today. Yesterday there was talk of the stock hitting $70 in early trading. This “failure” put a damper on the market, but this is an emotional response. The Dow is trading quietly down 12 points, and the NASDAQ is off by 10 points. Now that this silliness is out of the way, the fundamentals will matter again. Traders now have to decide how much risk to take home over the weekend. There is a G-8 meeting this weekend, which always brings the chance of headline surprises.

The bond market, never really interested in Facebook, has cut the early losses. The 2-year is .29%, the 5-year .73%, and the 10-year is down 3/32s to yield 1.71%. The 30-year bond is quoted down 10/32s to yield 2.80%. Bond traders also have to decide how much “insurance” they want over the weekend. I’ll say this, the cost of insurance now is very expensive.

Update 8:40 a.m.:

The eagle has landed. Facebook has opened for trading. The IPO price was $38, opened at $43, and is now trading at $40. The Dow was higher by 21 points before Facebook opened and is trading down 42 points . That’s a disappointment, but the day is young.

Bond prices remain lower on the long end. Looks like those big yield curve trades are over. The 2-year is .29%, the 5-year .74%, and the 10-year is down 10/32s to yield 1.73%. The 30-year bond remains down a point to yield 2.84%.

Update 6:40 a.m.:

The Dow opened higher by 50 points as traders await the first trade of Facebook, but the index has retreated to +10 points. The timing of the first trade is not known. It could be 8:00 a.m. PDT. This was to do with sorting orders.

Bond prices are in retreat. As I mentioned below, the bond market move yesterday had more to do with some big position changes than fundamentals. The 2-year is .30%, the 5-year .75%, and the 10-year is down 11/32 to yield 1.73%. The 30-year bond is off by a point to yield 2.84%.

I’ll be back with updates.

Morning Comment:

Today is Facebook Day. Given all of the attention being paid to Facebook this seems like a national holiday; make that international holiday. The decks are clear for Facebook focus. Europe is quiet today, and there are no economic releases. Dow futures are up 40 points in early pre-opening trading, and bond prices are lower.

Especially given today is only about Facebook, I thought it was worth considering what happened yesterday. I am including much of what I wrote in the closing comment, but I think yesterday’s events are worth a closer look. Here’s quick recap: 1. JP Morgan’s market value loss on the “hedge” was reported to have grown from $2 billion to $3 billion. What other lesser but still significant “hedges” are out there? 2. Contagion fears surged about European banks, and quiet bank runs were rumored in the PIIGS. (Moody’s cut the ratings of 16 Spanish banks last night) 3. Another big drop in Apple and other glam NASDAQ stocks. 4. A weak Philadelphia Fed index that caused more attention than usual. The Philly Fed is considered a better index than most regional Fed indexes, and all components were weak. The result of all of this and everything else that has happened since the beginning of May is that the global equity market value was dropped by $4 trillion.

But the bond market had a performance that rivaled the stock market – in reverse. The move in the bond market was not due solely to the stock market and the reasons cited above. The bond market had its own intrigue.JP Morgan has been a huge buyer in the long-end for several days. This supposedly has something to do with helping its risk measurement. A hedge to hedge a hedge? As an aside, how can buying 30-year bonds be considered a risk lowering trade? Something is very wrong with that. The buying of the long-end caught speculators short that were setting bets against bonds in advance of the end of Operation Twist in June by shorting bonds.

Yield curve traders had also been setting up for this event. Those traders have been buying short treasuries and selling short long treasuries, expecting short-term rates to be stable to lower and long-term rates to rise. Those traders were already working against these speculators, and the JP Morgan trades forced many of those traders out of those positions. You could see this in that yields under 5-years actually rose by a tick, but longer-term yields plunged. The 10-year gained 18/32s on the day to close at 1.70% – a new all-time low record close for the 10-year note. The 30-year bond gained a huge 2&2/32s to yield 2.80%. Believe it or not, yields were even lower earlier.

That’s a lot of explanation for something in the past, but I thought it was worth pointing out that the bond move wasn’t strictly fundamental. I also thought it was worth recapping the stock market move because it was fundamental.

Next week we’ll return to Planet Earth, and the focus will be mostly on the housing numbers. Enjoy the holiday today.

Bond prices are lower to start the day. The 2-year is .30%, the 5-year .75%, and the 10-year is lower by 7/32s to yield 1.72%. The 30-year bond is off by 17/32s to yield 2.81%.

I’ll be back with updates.

It’s still somewhat of mystery why the market sold off so sharply today. I mentioned a few issues in the updates today, but the explanations seem incomplete. JP Morgan’s growing losses, contagion fears in European banks, another big drop in Apple and other glam NASDAQ stocks, and weak Philadelphia Fed index combined to cause the decline. Actually, now that I look at the list, heck yeah that’s explanation enough! The Dow closed down 156 points and the S&P dropped by 1.5%. The NASDAQ fared the worst losing 2.10%.

The bond market had its own intrigue today. The performance in the long-end of the market seemed to come out of the blue. Some the action came from yield curve trades (see earlier comment), but there was more to it than that. The story running around is that JP Morgan has been a huge buyer in the long-end for several days. This supposedly has something to do with helping its risk measurement. A hedge to hedge a hedge? The buying of the long-end caught speculators short that were setting bets against bonds in advance of the end of Operation Twist in June. Whatever the heck the factors were, the results were big. The 10-year gained 18/32s on the day to close at 1.70% – a new all-time low record close for the 10-year note. The 30-year bond gained a huge 2&2/32s to yield 2.80%. Believe it or not, yields were even lower earlier. Meanwhile the short-end did nothing. The 2-year ended at .29% and the five-year .78%.

I hate it when Wall Street gets obsessed with one event. Last month it was Apple. Apple hit $644 prior to earnings, dropped to $560 just before the release, and hit $616 the next day after “blowout” earnings. Apple closed today at $530. Any wonder why you aren’t hearing any Apple talk these days? Of course the current obsession is Facebook. Traders are looking for an explosive day tomorrow. But are they setting themselves up for a disappointment? I certainly don’t know, but it wouldn’t be the first time a big event failed to live up to expectations. The talk is that Facebook will price just below $40 and trade as high as $70 or more tomorrow. But what comes afterward? Just don’t expect to hear much about anything else tomorrow other than Facebook. After such a miserable two weeks or more for stocks, traders will be looking for something to buoy spirits and prices. They are hoping that everyone “likes” Facebook tomorrow, and some of that love rubs off on the rest of the market.

There are no economic releases tomorrow, not that the economy matters these days.

Update 10:50 a.m.:

After the Dow fell to -103 points and the NASDAQ lost 1.3%, stocks have calmed. The Dow is now dwon 82 points and the NASDAQ off by 1%. Volume has been heavy today.

Bond prices remain sharply higher on the long-end. The 2-year is .29%, the 5-year .74%, and the 10-year is higher by 13/32s to yield 1.72%. The 30-year bond is up 1&15/32s to yield 2.83%. Read earlier update about the bond move.

Update 9:30 a.m.:

If there is so much excitement about Facebook, traders have a funny way of showing it. The Dow is down 75 points, but the NASDAQ is off by 1.3%. Perhaps traders are selling today to raise cash to buy Facebook tomorrow. Not likely. But the market is clearly in a defensive posture.

Positively offensive though is the 30-year bond. The bond has shot up by 1&5/8ths points to yield 2.82%. The 2-year is .29%, the 5-year .73%, and the 10-year is up 11/32s to yield 1.72%. Looking at the curve, it looks like one or more big accounts are putting on yield curve flattening trades (shorting the short-end and buying the long-end). Since it seems unlikely that short rates are going to move higher anytime soon, these accounts must be betting that long rates fall further. Seems almost inconceivable, but so did a 2% 10-year note seem inconceivable a few years ago when it was 6%.

I’ll be back with updates.  

Update 8:20 a.m.:

The markets have been tossed around this morning by a variety of crosscurrents, but the moves haven’t been huge. In the Morning Comment I mentioned that the Philadelphia Fed Index shouldn’t matter given it is just a regional manufacturing index, but I was wrong. The index fell sharply vs. expectations of an increase. All componenets were weak. I still contend you cannot follow these regional Fed indexes individually or on a single month basis, but the markets reacted. The Dow briefly fell to -80 points on the news. An overall negative theme on European banks has emerged, with words like contagion being used.

But, the  Facebook chatter seems to be the salvation today. The Dow is now down only 50 points.

Bond prices have risen, mostly on the weakness in the Philly Fed. But the gains aren’t across the curve. The 2-year is .29% and  the 5-year is .78%. But the long-end is moving. The 10-year is now higher by 8/32s to yield 1.74%. The 30-year bond has jumped over a point to yield 2.84%. Why the big jump? With the banking woes in Europe and some signs here of weakening, traders are already beginning to think about QEIII.

This has also infected the gold market. After a huge and relentless decline, the price of gold is up $35 this morning.  

There are a lot of funky movements going on today. It’s somewhat unsettling.

Update 6:40 a.m.:

The euro has crawled back above 1.27 vs. the dollar, and this has temporarily taken away the European risk factor in early trading. The Dow opened up about 20 points but is now down 20 points. Some of the drag in the early going is due to financials. There are more problems surfacing today in the Spanish and Greek banks. In additon to those worries, the business wires are reporting that the latest valuation of the JP Morgan “hedge” is now up to a $3 billion loss.

Bond prices remain close to unchanged. The 2-year is .29%, the 5-year .75%, and the 10-year is 1.77%. The 30-year bond is unchanged at 2.90%.  

Morning Comment:

The euro and European stocks are weaker this morning, but that isn’t having the usual downer effect on the U.S. Perhaps it’s the Facebook Eve effect. U.S. traders and talking heads are focused on the first day of Facebook trading tomorrow. They are expecting a huge surge in the newbie and hopeful that will lift the entire market.

Dow futures are roughly unchanged in early pre-opening trading. Bond prices are also close to even to start the day. The 2-year is .29%, the 5-year .74%, and the 10-year is unchanged at 1.77%. The 30-year bond is 2.90%.  

Weekly Jobless Claims are out, and claims were unchanged at 370k. We’d like to see claims back at the 350k level, but at least the moving average of claims is down from the 385k seen in April. Later today we’ll get Leading Indicators and the Philadelphia Fed manufacturing index. Those should have little to no impact. 

Do you remember when the March FOMC meeting minutes were released? The markets did not like that minutes said that a “couple” of members thought more monetary action might be needed if the recovery faltered as opposed to the January minutes stating a “few” members thought that. In the April minutes released yesterday, the word “couple” was replaced by “several.” The market did like that wordplay at first, but that’s a silly game. The minutes were quickly dismissed. But after reading the minutes carefully, it does appear there was more unease around the FOMC table about the economic outlook than indicated in the official statement. The minutes showed the Fed spent considerable time focusing on the possible impact here from events in Europe. There was also a general fear expressed about another possible budget impasse. Bernanke might the only one going on record with these concerns and expressing a willingness to do more, sooner rather than later, but Bernanke seems to have some folks who could be easily pulled across the line.  

Data on Southern California home prices for April was released yesterday by DataQuick, and year-over-year home prices rose of the first time since 2007 (excludes a 0.3% increase in December 2010). The median price rose by 3.6%. Home prices aren’t generally rising though. What we’re seeing is the impact of a drop in sales of foreclosure sales, especially in the hardest hit areas. Investor activity in those areas has absorbed much of the distressed supply. As distressed home sales decline the sector makes up a smaller portion of the total home sales, and the median rises accordingly. Here’s the reality check. The median home price in Southern California remains 42% off the peak.

The news yesterday from the Mortgage Bankers Association is also consistent with a bottoming in the housing market. The number of new delinquencies fell in the first quarter to “normal” historical levels. I mentioned earlier this year that eventually we’ll just run out of people to foreclose. Maybe we’re getting there. The bad news is that the pipeline remains full. There has been progress in the California pipeline and a few other states without the judicial process involved in foreclosures. Nevada in bucking that trend, and the pipeline in that non-judicial state continues to expand. The pipelines in judicial foreclosure states have grown. 

Speaking of mortgages, do I ever have a lead for some credit union in Illinois. A Chicago man has a few million in assets and no debts other than his home mortgage of $500,000 to $1,000,000. He has owned the home for many years and should not be underwater. The rate on his current 30-year mortgage is 5.625%. Talk about a prime refi candidate. The man has been in his current job over three years, but the outlook for remaining in the job is somewhat questionable. The man’s name Barrack Obama. You should be able to locate his address and contact information rather easily. This information came from the latest release of his financial statement, and the rate on that mortgage jumped out at me. I guess he has been a little too busy to apply.

Stocks limped along in the last hour after another day with a promising start ended in disappointment. The Dow closed down 34 points, the S&P lost 6 points, and the NASDAQ lost 20 points. The “sell in May” strategy is looking pretty good so far this month. Since May 1 the major indexes are all down roughly 5%. A 5% drop on the Dow amounts to about 650 points on the downside. Nothing that some good news from Europe couldn’t cure in a few days.

Bond prices closed modestly higher today after overcoming early losses. The 2-year ended at .78%, the 5-year .74%, and the 10-year gained 4/32s to yield 1.76%. The 30-year bond added 13/32s to yield 2.90%.  

We’ll get the last of week’s data tomorrow with Weekly Jobless Claims, the Philadelphia Fed manufacturing index, and Leading Indicators. Of those, only the claims report really matters. Overall it’s been a pretty good week for economic statistics with the exception of a so-so Retail Sales report. But good news is wasted in this market with Europe hovering overhead. Europe should be less of a factor tomorrow. Both Germany and France are on holiday.

In case you missed, I gave a quick recap below of the FOMC minutes based on the headlines. After reading the minutes, it does appear there is more unease about the economic outlook that indicated in the official statement. The minutes indicate the Fed spent some considerable time focusing on the possible impact here from events in Europe, and there was certainly fear expressed about another possible budget impasse. Bernanke might the only one going on record with these concerns and expressing a willingness to do more, sooner rather than later, but Bernanke seems to have some folks who could be easily pulled across the line.   

Update 11:15 a.m.:

The FOMC minutes from the April meeting are out. Nothing of note on the economic outlook, but the markets are focusing on a word change. Remember when the March meeting minutes were released? The markets did not like that minutes said that a “couple” of members thought more monetary action might be needed if the recovery faltered as opposed to the January minutes stating a “few” members thought that. In the April meetings, the word “couple” was replaced by “several.”

Stock traders reacted in the usual silly fashion as the Dow jumped from -5 points to +40 points. Gold bounced from down $20 to down $10. Sanity has quickly returned. Perhaps another section of the minutes caught the attention of traders. In the March meeting two members thought that more action (QEIII) was likely (Bernanke and Yellen most likely). In the April meeting only one member still felt that way (Without a doubt, Bernanke). Sounds like Bernanke was alone in what he said after the last meeting. I put this in the category of much ado about nothing.

The Dow is now down 6 points, and the other indexes are also off a few points. Bond prices have now fully recovered the early losses. The 2-year is .28%, the 5-year .74%, and the 10-year is unchanged at 1.77%. The 30-year bond is also status quo at 2.91%.   

Update 10:30 a.m.:

There has been little to update since the last update two hours ago. After the early enthusiam in stocks was shaken by the euro news, trading has been very quiet and in a narrow range. The Dow is currently up 11 points, and the S&P and NASDAQ are both close to unchanged.

Bond prices are continuing to come back from the very early losses. The 2-year is .28%, the 5-year .74%, and the 10-year is down only 4/32s to yield 1.79%. The 30-year bond is off by 9/32s to yield 2.93%. As mentioned earlier, dealers reported that the speculative crowd was shorting bonds early today. Another bad move by the bond bears.  

Update 8:30 a.m.:

The Dow was cruising up 90 points as the euro crawled upwards, but the Dow dropped quickly to almost unchanged after a rumor that the ECB had stopped dealing with Greek banks. That’s the short version anyway. Most likely this is nothing but a technicality, but it shows you how hyper-sensitive the markets are to any news from Europe – whether traders understand it or not. The Dow is now higher by 20 points. European markets have just closed. That usually helps our traders.

Bond prices remain lower but the losses have been cut back. The 2-year is .28%, the 5-year .74%, and the 10-year is down 6/32s to yield 1.79%.  The 30-year bond is down 15/32s to yield 2.94%.

Update 6:40 a.m.:

The good economic numbers and the rebound in stocks are causing bond prices to retreat. Dealers say they are seeing speculative accounts come in to short again after being burned and staying out for some time. The 2-year is .28%, the 5-year .77%, and the 10-year is down 12/32s to yield 1.81%. The 30-year bond is down 21/32s to yield 2.95%.

The Dow did not open up quite as much as expected. The Dow is currently up 35 points. The S&P is up 5 points and the NASDAQ is higher by 7 points. Some traders are worried about the continued retreat in commodities. Gold is off $17 to $1540, and oil is trading below $93 a barrel. The fear in some small circles is that the commodity selloff is related to falling global demand.

Update 6:20 a.m.:

The good news for the U.S. economy rolls on. Industrial Production was expected to rise by .5% but instead jumped by 1.1%. But this does come with an asterisk. The March reading was originally reported as unchanged but was revised down to -.6%. Effectively this made the latest number “as expected.” Still, it’s a good number.

There were no market reactions to the number. Dow futures remain +60 heading into the open and bond prices are lower.  I’ll be back after the open.

Morning Comment:

Yesterday the NAHB builders’ sentiment index for April jumped several points, recapturing the big point drop in the March reading. That sentiment didn’t result in a big jump in Housing Starts in April, but there was a big revision to the prior month. Housing Starts rose by 2.6%, less than expected, but there was a big upward revision to the prior month. Housing Starts in April were rose to 717k, but March starts were revised from 645k to 699k. This is a pretty good number, but let’s remember that housing starts remain about a third of the peak in 2006. Industrial  Production will be out shortly and economists are looking for a bounce of .5% vs. two consecutive months of flat readings. Should be a good day for economic numbers.

Of interest later today will be the release of the FOMC minutes from the April meeting. As you recall, the official FOMC statement contained nothing regarding plans for any operations beyond the end of Operation Twist in June. But, in his press conference, Bernanke made a point of telling the market that the Fed would be ready to do more if needed and was studying possible actions. The minutes might give us some idea if that discussion was a figment of Bernanke’s imagination or simply not included in the statement. 

European markets and the euro were down sharply in the wee hours of the morning, but there has been a turnaround in the last hour. The euro traded below 1.27 vs. the dollar and is now back to 1.274.Our Dow futures were also down and bond prices were higher. Apparently the turnaround was due to more comments from Merkel. Merkel and Hollande met yesterday and emerged from their first meeting with the usual talk of unity. Merkel also said the EU might find ways to help Greece economically if Greece follows through on the austerity measures. In other words, she was telling the Greek people how to vote.

Dow futures are higher by 60 points in the early going. Bond prices are lower on the calm in Europe. While it’s a good day for the economy so far, we know that traders are still focused on Europe. Stocks were higher all day yesterday until bad news from Europe broke. Our markets remain captive to Europe. Fortunately, our economy is not – at least not yet. The 2-year is .28%, the 5-year .76%, and the 10-year is down 9/32s to yield 1.80%. The 30-year bond is off by 21/32s to yield 2.95%.

I’ll be back with updates.

Stocks seemed set to close unchanged to perhaps a bit higher heading into the last hour of trading. But stocks did a faceplant in the last hour. Europe of course. The euro edged lower as the day wore on and closed at the low of 1.272 vs. the dollar. Anxiety about the Greek elections in June was heightened by comments by the German Finance Minister. He said the Greek election was a vote on whether or not Greece would remain in the euro. The Minister is certainly not the last word on this, but his comments do carry some weight in the markets. At the same time there was a report from Greece of massive money flights from the Greek banks. Seriously? Only now there is a money flight?

The Dow fell to -85 points but did manage to rebound late to close off down 64 points. The Dow had a 150 point range today. The S&P fell by .6%, and the NASDAQ lost .3% after being up .9% earlier. Gold and oil also took it on the chin due mostly to the stronger dollar.   

Bond prices were in the red most of the day, but the last hour of trading brought prices back to unchanged or slightly higher. The 2-year ended at .27%, the 5-year .72%, and the 10-year was flat to yield 1.77%. The 30-year bond added 5/32s to yield 2.91%.

There will be two rather important economic releases tomorrow. Economists are forecasting a gain of .5% for Industrial Production after two consecutive months of flat readings. Housing Starts are also expected to record a fairly sharp gain after two consecutive months of declines. Starts are forecast to rise from 654k annualized units to 690k. Hope these forecasts are right. We need all of the good news we can get to offset some of the European news.

Also of interest tomorrow will the release of the FOMC minutes from the April meeting. As you recall, the official FOMC statement contained nothing regarding plans for any operations beyond the end of Operation Twist in June. But, in his press conference, Bernanke made a point of telling the market that the Fed would be ready to do more if needed and was studying possible actions. The minutes might give us some idea if that was a figment of Bernanke’s imagination.  

Update 11:15 a.m.:

In the previous update it appeared the stock market was recovering, but that effort faded. The Dow, once higher by 60 points is now down 10 points. The easy answer is the euro, which has eased back from 1.277 to 1.274. That is certainly not a big move, but traders (or at least their high-frequency computer programs) react to minor movements in other markets.

Bond traders are sitting this one out, prices are down only a few ticks. The 2-year is .27%, the 5-year .73%, and the 10-year is off by 2/32s to yield 1.77%. The 30-year bond is down 3/32s to yield 2.93%.

Update 9:50 a.m.:

Although Europe didn’t lift the market, the mere fact that market closed seem to free U.S. traders to do their thing. The Dow is now higher by 53 points, the S&P is up .4%, and the NASDAQ is up .8% mostly on positive news on Amazon.

Bond prices are doing very little today but are lower. The 2-year is .27%, the 5-year .74%, and the 10-year is down 6/32s to yield 1.79%. The 30-year bond is off by 15/32s to yield 2.94%.

Although the Retail Sales number was as expected, the news wasn’t especially encouraging. The BLS also reported that “real” earnings were flat last month. Consumers have benefited this year from lower natural gas prices, warm weather, and tax refunds. Only the price of gasoline was a headwind. There was also some good news for a few months at least on jobs. But the latest data concerns me that the consumer sector can only keep the economy level and not contribute upward momentum.  

Update 8:30 a.m.:

U.S. traders were hoping that the euro and European stocks would rebound into the close there, but that did n’t happen. The euro is trading at 1.277 vs. the dollar, and European stock indexes are closing down 1% or so. The Dow is down 5 points and trading is quiet.

The bond market is also trading quietly with small losses. The 2-year is .26%, the 5-year .72%, and the 10-year is down 2/32s to yield 1.77%. The 30-year bond is down 5/32s to yield 2.93%.

Update 6:40 a.m.:

The calm I described in the Morning Comment didn’t last long. Shortly after that posting the Greek Parliament announced it failed again to form a government. Dow futures were up 70 points before that announcement, and the Dow opened lower by 20 points. But there isn’t much of a shock factor in the news. An agreement was a very long shot. The Dow is now higher by 12 points. Our traders will follow the euro and European stocks the next two hours. The euro fell as low as 1.276 vs. the dollar after the news but is already rebounding a bit.

Bond prices have recovered over half of the early losses. The 2-year is .26%, the 5-year .72%, and the 10-year is now off by 5/32s to yield 1.78%. The 30-year bond is down 13/32s to yield 2.94%. 

Morning Comment:

The market, or should I say Europe, is continuing the familiar pattern. One day of freak-out followed by a day of calm. There was no news overnight, and Europe has traded quietly and slightly better so far this morning. That has allowed our traders to react to our own early economic data, but there wasn’t much interesting in the numbers. The Consumer Price Index was unchanged in April, and the core rate rose by .2%. On a year-over-year basis both the headline and core are up by 2.3%. This was in line with expectations.

Retail Sales was the most anticipated number of the week, but it too was merely in line to very slightly lower than expected. Retail Sales rose by .1%, and the ex-auto sales component also rose by .1%. There was nothing in the breakdown that hinted of any underlying change in spending.

There was also a very minor report from the NY Fed manufacturing index. That index rose more than expected. This is a very volatile index and covers only manufacturing in the NY Fed district, but traders seized on that number as a reason to move prices up a bit more.

While our traders are focused on the U.S. in the early going, that isn’t likely to last. The Greek Parliament is trying once again to form a government. The results of that meeting are likely later today. This is really irrelevant at this point, but the markets are still likely to react to that announcement.

Dow futures were up about 50 points heading into the economic releases and now higher by 70 points. The Facebook frenzy is building. The number of articles in the business journals are spiking as are the mentions on CNBC. While this doesn’t matter to the economy or to you (unless you’re getting some shares), some analysts believe this frenzy will be good for the overall market psychology and draw money into stocks. I wish it were that simple. The cautious psychology is not going to lift any time soon for more than a few days.

Bond prices are lower on the calm in Europe. After closing at the lowest yield level since September 2011, the 10-year note is down 11/32s to yield 1.80% this morning. The 2-year is .27%, the 5-year .73%, and the 30-year bond is off by 27/32s to yield 2.96%.

I’ll be back with updates.

Heading into the final trading hour it appeared the market would settle with modest losses, but the Dow fell to a close of -125 points. The Dow closing price today is the lowest since January 31. The good news is that stocks are still higher on the year. The S&P and NASDAQ each retreated by 1.1%. Volume was not especially heavy but there was little of the usual “bottom fishing.”

Bond prices jumped early in the day and held on throughout the day. The 2-year ended at .26%, the 5-year .72%, and the 10-year gained 17/32s to yield 1.78%. The 30-year bond added 1&14/32s to yield 2.94%.  This was the lowest closing yield for the 10-year note since last September.

Gold closed down $26 today at $1557 . For the past two years, gold rallied along with bond prices whenever fears escalated. Something has changed. No one seems to know exactly why the two diverged, but it’s clear that gold has lost a big base of speculative buyers. That seems to be the case for the entire commodities market. The CRB index has set a new low for this year.

Update 12:00 p.m.:

The markets remain very quiet heading into the last hour of trading. The Dow is down 87 points, and the S&P and NASDAQ are both down roughly .8%.

The 2-year is .27%, the 5-year .72%, and the 10-year is higher by 14/32s to yield 1.79%. The 30-year bond is up 1&5/32s to yield 2.95%.

I’ll be back with the close and a look ahead at tomorrow.

Update 10:40 a.m.:

Once the European markets closed, our markets became very quiet. The stock indexes continue to claw back. The Dow is now down only 74 points, and the S&P and NASDAQ are off by .6%.

Bond prices are off the highs but not far off. The 2-year is .26%, the 5-year .72%, and the 10-year is up 1/2 point to yield 1.78%. The 30-year is higher by 1&9/32s to yield 2.94%.

Update 8:15 a.m.:

After dropping to -155 points at the end of the first hour of trading, stocks have been climbing back. The Dow is now down only 105 points, and the NASDAQ and S&P are down roughly .9% after being off as much as 1.2%. The euro and the European stock indexes remain sharply lower on the day but better than the worst levels. Those markets close soon.

Bond prices remain higher, and bond traders don’t seem to be impressed with the stabilization in stocks. The 2-year is .26%, the 5-year .71%, and the 10-year is now higher by 19/32s to yield 1.77%. The 30-year bond up almost a point and a half, dropping the yield down to 2.94%.

Update 6:40 a.m.:

Stocks have opened down sharply and bond prices remain higher as indicated in the early pre-opening trading. The Dow is down 110 points, and the NASDAQ and S&P are off by .9%. That reaction is far better than in Europe where those indexes are down over 2%. U.S. traders will be watching Europe for the next two hours and will be hoping for a rebound there.

The 2-year is .26%, the 5-year .72%, and the 10-year is up 15/32s to yield 1.78%. The 30-year bond is higher by 1&7/32s to yield 2.95%. You think our rates are low? Check out the German 10-year note. That yield just hit 1.44%.

I’ll be back with updates.

Morning Comment:

In an all-too-familiar pattern, stocks are starting the week down sharply and bond prices are higher on European worries. European stock indexes are off by roughly 2% in the early going and the euro is trading below 1.29 vs. the dollar. Dow futures are down about 90 points in pre-opening trading. The news from Europe is that Greece has failed again to form a government, and new elections are all but certain. The fear is that the new elections will produce a solidified government and one that would tear up the debt agreement. This in turn would most likely lead to a hard default on all debt and an exit from the euro currency.

Central bankers in Europe seem to be signaling that they are preparing for this eventuality. Several officials addressed openly the likelihood of such an exit and the ramifications on the eurozone. These were not off-the-cuff comments. It’s clear that the central bankers have been planning for this. Frankly, it’s a good thing that they have been thinking about crisis management. The key is limiting the collateral damage. European debt yields of the weak sisters are up sharply today with the Spanish 10-year note moving from just under 6% to over 6.30%.

While the markets are having the usual knee-jerk reaction to bad news from Europe, these early moves could easily be reversed. Traders will be hoping to hear hints that part of a “solution” in the crisis management will be another round of money-printing by the European Central Bank. The money printing is more likely now if the European Central Bank decides that effort is needed to provide more liquidity to banks to protect them during the Greek exit process. Printing money is always the answer for traders. If the ECB does print money, this will effectively be QEIII for Europe. With problems intensifying in Portugal, Spain, Ireland, Italy etc., just how many QE’s will the ECB expected to produce?  And, once the dust settles, what will be the impact such an enormous effort? I don’t think we want to know the answer.

Traders believe the ECB will have no other choice, but the ECB does have a choice. They could elect to do nothing and let the markets do their thing. The markets, no longer buoyed by money-printing, would force the countries of the European Union to make the hard choices that they don’t want to make but are necessary in the long run. This would be better for the U.S. in the long-run as well. Our economy would be hurt by the fallout but is in a position to withstand the hit.  Once businesses see the world will survive with a different looking euro, the rebound could be sharp as the dark cloud from Europe breaks up after three years.

As mentioned at the beginning, the start today is familiar. If the pattern follows through this week, Europe will calm soon and we might be able to follow our own economic numbers. There is nothing today, but we’ll get Retails Sales tomorrow. Later in the week Housing Starts, the Consumer Price Index, and a host of other lesser numbers.

For stock traders, Friday is the day they are most looking forward to. There are no economic numbers that day, but Facebook will begin trading for the first time. No doubt the new issue will be a big success regardless of market conditions. As I mentioned last week, the California Treasury was as eager as traders for the Facebook IPO. The IPO will bring millions to the state. But over the weekend we learned that the budget hole that Facebook is expected to help fill in California is much deeper than expected. Governor Brown announced over the weekend that after disappointing tax revenues in April, the state will be facing a deficit of $16 billion instead of the $9 billion projected at the beginning of the year. Governor Brown will announce this week more cuts in services, but the cuts will only cover a small portion of the shortfall. The state will resort to the usual shell game to cover the budget and then hope the Californians will approve tax increases on the November ballot. California has avoided draconian cuts and needed structural reforms for the past three years by playing games with the budget. The games are running out.

Bond prices are sharply higher to start the day. The 2-year is .26%, the 5-year .71%, and the 10-year is higher by 18/32s to yield 1.78%. The 30-year bond is up 1&1/3 points to yield 2.94%. The buyers of last week’s Treasury auctions are feeling very good about their buys.

I’ll be back with updates.

Some stock traders decided to get out before the weekend, and the Dow hit a low of -75 points in the last half hour. But a few late buyers brought the close back to -34 points for the day. The S&P closed down .3%, and the NASDAQ closed flat after being up as much as .7%. Volume was light all day.

Bond prices closed higher across the board. The 2-year ended at .26%, the 5-year .75%, and the 10-year rose by 7/32s to yield 1.84%. The 30-year bond gained 21/32s to yield 3.02%. It’s been another good week for bonds, especially considering all of the new supply. I mentioned the other day that any price gains (lower yields) from here will be difficult as it’s like pushing on a string. Let’s just hope Europe doesn’t yank on that string. It’s nice to have big, fat profits in the bond portfolio, but lower rates from here can only mean things are not going well for the economy.

In the Morning Comment I mentioned that Retail Sales and Housing Starts are the big economic releases ahead next week, but there are several others worth noting. Here’s the list: 1. Homebuilders sentiment index 2. Industrial Production and Capacity Utilization 3. The Consumer Price Index 4. The regional indexes from the New York and Philadelphia Feds. 5. Weekly Jobless Claims. Traders’ interest in these numbers will likely be dependent on whether or not there is any big news from Europe. For the rest of us, these economic numbers will matter.

But there is one more event that Wall Streeters will be focused on above all else. Facebook will be priced and start trading for the first time next Friday. Hope all the anticipation and excitement is worth it.

Have a great weekend. It’s been mostly of a bummer week when it comes to bad news. It’s time for some fun. Happy Mother’s Day to all of the mothers out there.

Update 11:50 a.m:

Heading into the final hour of trading, equities have retreated a bit with the Dow down 15 points. The NASDAQ is holding some gains. Looks like a quiet end to a volatille week.

Bond prices have continued to edge higher. Mostly likely some speculative accounts are taking out some weekend “insurance. The 2-year is .26%, the 5-year .75%, and the 10-year is up 9/32s to yield 1.84%. The 30-year bond is higher by 24/32s to yield 3.01%.

I’ll be back with the close and a look ahead at next week…

Update 9:30 a.m.:

The markets have taken on that familiar slow Friday feel. The Dow is up 30 points and volume is light. Jamie Dimon remains the hot topic of conversation, but the impact on the overall market has vanished.

Bond prices remain higher but off of the best levels. The 2-year is .26%, the 5-year .75%, and the 10-year is up 5/32s to yield 1.85%. The 30-year bond is higher by 13/32s to yield 3.03%.

Update 8:15 a.m.:

Stock traders had surprising little trouble shaking off the Morgan blues. While JP Morgan and most of the financial sector stocks are lower, the rest of the market has picked up the slack. The Dow is currently higher by 48 points, the S&P is up .%, and the NASDAQ is higher by .8%. Helping the tone in our stock market has been a recovery of early losses in European indexes. This has not been a good week for global stock markets, and it looks like traders just want to end the week on a quiet note if not brighter.

Bond prices have pulled back a bit on the upswing in stocks. the 2-year is .26%, the 5-year .75%, and the 10-year is higher by 5/32s to yield 1.85%. The 30-year bond is up 12/32s to yield 3.03%.

Update 6:40 a.m.:

Stocks have opened lower as expected, and bonds have added to early gains. The Dow is down 65 points in the early going. The S&P is down .5%, and the NASDAQ is off by .3%. With all of the attention on the Morgan debacle, traders have yet to notice that European markets are declining and commodities are off sharply. Traders left yesterday hoping to end a bad week on a positive note, and the early losses are surprisingly modest. But you have to wonder how many traders will want to bid up the market ahead of the weekend.

The 2-year is .25%, the 5-year .74%, and the 10-year is down higher by 9/32s to yield 1.84%. The 30-year bond is up 22/32s to yield 3.02%.  Bond traders and pundits were concerned about the Treasury’s big auctions this week coming at such low yield levels. Once again bond bears were thwarted, and all three of the bond auctions are in profit positions.

I’ll be back with updates.

Morning Comment:

Stocks are indicated to open lower this morning, but for a change of pace it isn’t Europe’s fault. The markets are reacting to the news from JP Morgan that broke last night when the banking giant reported a $2 billion mark-to-market loss on a synthetic position. The position was classified as a hedge, but something went terribly wrong. The issue isn’t the loss. JP Morgan can take that.

The issues are twofold primarily. First, the loss on the position was in the investment office which is funded mostly by plain vanilla bank deposits, not set aside in a separate risk taking arm. Morgan has been leading the charge against new regulations coming from Dodd-Frank and the Volcker rule. Morgan’s Jamie Dimon has seized every opportunity to blast any and all proposed regulations, while touting his bank’s “fortress balance sheet” as proof no regulatory reform is needed.This debacle will seriously derail the big banking lobby’s push to neuter the rules. Second, and perhaps more importantly, JP Morgan was considered the paragon of virtue (if there is such a thing on Wall Street) of risk management among investment banks. This will cause people to wonder if this can happen at Morgan, what could be lurking on the books of those firms of lesser stature?

The hue and cry to do something about the “too big to fail” banks began in 2008. That was deemed the top priority for financial reform. The efforts since then have resulted in banks that are even too bigger to fail. The total assets of the big five are higher than in 2007, and the concentration of the nation’s deposits at the top five is even greater. I doubt that the JP Morgan kerfuffle will spark a move to reverse the concentration, but regulators will stiffen risk rules on how these banks are actually making money.

To add to market worries, it was reported last night that the reception to the Facebook road show has been very disappointing. Apparently big investors don’t “like” Facebook as much as expected. Big investors have expressed less interest than expected at the proposed valuation. As I’ve mentioned in the past, the success of Facebook is important to California especially. The California Treasury stands to gain substantial tax revenues on the IPO. The Treasury office has already calculated what it will receive. Additionally, a hot Facebook deal was expected to unleash a round of IPO’s for more companies located in the Silicon Valley. Facebook is likely to recover from this, but it does call into question some expectations of the impact of Facebook on the market and state revenues.

Turning to more mundane matters, the Producer Price Index fell by .2% and the core rate rose by .2%. The year-over-year PPI gain fell to 1.9%. PPI is not a market mover.

Dow futures are down roughly 60 points in pre-opening trading. Bond prices are higher but off the levels reached during the Asian trading hours. In addition to the Morgan news there was a weak economic report from China. The 2-year is .26%, the 5-year .75%, and the 10-year is higher by 5/32s to yield 1.85%. The 30-year bond is up 15/32s to yield 3.03%.

Looking ahead to next week we’ll have the usual worries European headline risk, but we have two relatively important economic statistics. Retail Sales and Housing Starts will be released. Housing Starts might be the one to watch. Although starts remain very low, the last three month average has shown very minor signs of life. The growth in starts has been mostly in apartment construction. Perhaps this is the month we’ll see some real growth in the more important single-family home sector.

After several days of volatility and down markets for stocks and commodities, traders got a break today. After some early, brief gyrations, stocks traded safely and quietly in the green most of the day – until the very end. The Dow was trading higher by roughly 60 points with 30 minutes to go but closed higher by only 19 points. At least it stopped the losing streak for stocks at six days.  The S&P gained 3 points, but the NASDAQ lost 2 points. Traders have Europe thank for this quiet day as there were no compelling stories from Europe. The Weekly Jobless Claims number this morning was also reassuring.  

After the long-end of the bond market traded sharply lower in price in advance of the 30-year auction, bonds recovered some but not all of the losses. If Europe stays quiet tomorrow, bonds could give up more ground. But yields are unlikely stray far from these levels with the cloud over Europe. The 2-year closed at .26%, the 5-year .77%, and the 10-year lost 8/32s to yield 1.88%. The 30-year bond closed down 18/32s to yield 3.05% after peaking at 3.12% before the auction.

Tomorrow’s economic calendar includes the Producer Price Index and the University of Michigan Consumer Sentiment Survey. PPI will receive very little notice. The UM number might get more attention, although it is undeserved. As you know, I’m not a fan of these “mood” indicators.

Nice break from Europe today wasn’t it? Hope it lasts a while.  

Update 11:45 a.m.:

Heading toward the last hour of trading, stocks remain very quiet but higher. Bond prices remain lower but the losses continue to be chipped away. The Dow is up 45 points.

The 2-year is .26%, the 5-year .77%, and the 10-year is down 10/32s to yield 1.89%. The 30-year bond is off by 19/32s to yield 3.05%. Bond dealers and speculators have been covering shorts since the better-than-expected auction results.

I’ll be back with the close and a look ahead at tomorrow.

Update 10:05 a.m.:

Bond prices fell sharply before the Treasury’s 30-year auction, and that probably helped the auction. Demand was very good, and the yield was slightly lower than expected. The 30-year came at 3.09% vs. expectations of 3.11% to 3.12%. The results have brought bond prices off the lows. The .2-year is 26%, the 5-year .77%, and the 10-year is now now 10/32s to yield 1.89%. The 30-year bond is now down 29/32s to yield 3.07%. Just prior to the auction the 30-year bond was off by 1&1/3 points.   

Stocks continue to trade okay but quietly. The Dow is up 60 points, the S&P is higher by 7 points, and the NASDAQ is off by 6 points.

Dow Jones reported that Greece might be able to form a new government from the wildly diverse parties after all. This does not mean the new government will go along with the austerity plans, but it could lead to clarity sooner rather than later. Caution – the Dow Jones cites “unnamed sources.”

Update 8:25 a.m.:

After trading as high as +96 in the first hour, stocks ran out of gas. The Dow pulled back to +14 points but is now up 40 points. The S&P is up 5 points, and the NASDAQ is off 3 points. Volume remains very light.

Despite the faltering stock rally, bond prices remain near the lows of the day. This is mostly likely due to concerns about the upcoming auction. The 2-year is .26%, the 5-year .77%, and the 10-year is lower by 11/32s to yield 1.89%. The 30-year bond is off over a point to yield 3.08%.

I’ll be back with updates and the results of the bond auction.

Update 6:40 a.m.:

Stocks are up in the early going as expected. The Dow is up 65 points, the S&P is higher by.7%, and the NASDAQ is better by .3%. After relatively heavy volume in the selloff, volume is light today.Oil and gold are also modestly higher.

Bond prices continue to push lower. The 2-year is .27%, the 5-year .78%, and the 10-year is down 12/32s to yield 1.90%. The 30-year bond is down a point to yield 3.08%. The Treasury’s 30-year auction results will be out at 10:00 a.m. PDT.

Morning Comment:

Stocks have been down very sharply in the morning hours for four straight days, mostly due to events in Europe. Stocks look set to break a six-day losing streak today with Europe relatively quiet. European stocks are modestly higher after Spain pumped money into its third largest and weakest bank in exchange for a 45% ownership stake. This bailout move was a violation of an election pledge by politicians not to use tax money to bailout bank. Imagine that. A politician going back on a pledge. While the Spanish populace might not like the move, it did calm the markets a bit. The European Rescue Fund also confirmed it would send the scheduled bailout payment to Greece today.

Weekly Jobless Claims came in much as expected. Claims fell to 367k from an upwardly revised 368k. This number should indicate that the next payroll figure should be in line with the past two months, not worse. After four weeks of elevated claims numbers, these latest two weeks of lower claims is a relief. Ben Bernanke is speaking this morning, but his topic is not about the economy or rates.

Dow futures were up roughly 40 points ahead of the claims number and now higher by 65 points. That coupled with the quieter tone from Europe is putting downward pressure on bond prices. The 2-year is .26%, the 5-year .77%, and the 10-year is lower by 9/32s to yield 1.89%. The 30-year bond is off by 26/32s to yield 3.06%. Dealers and traders are probably happy to see the 30-year yield rise ahead of today’s 30-year bond auction. But the yield is still very low by any historical measure. The quiet in Europe today might temper some speculative demand for the new issue, but the longer-term buyers for bonds are unlikely to be scared away from the auction.

The stock market could rally very strongly today. This would not be because of any great fundamental improvement; it would come merely because stocks have been trading steadily down and might be technically “oversold.” The flip side is that the bond market has been on a steady run higher, and a stronger than expected selloff wouldn’t be surprising. Despite this, nothing has changed. We’re still stuck in a eurozone news cycle.  

This is a shorter than usual Morning Comment due to the lack of interesting news, but I have posted a new Longer-term Commentary.

Close:

As mentioned in the previous update, stocks rallied on the story from “unnamed” sources that Greece would get its next bailout payment. The fact is that particular payment wasn’t in question, and there is no anti-austerity leader in Greece that has the authority to say no to the money. But this next payment does little to nothing. After the Dow recovered to -25 points and the NASDAQ went positive, stocks slumped one more time in the final hour. The Dow fell to a close of down 97 points on the day. The S&P lost .7%, and the NASDAQ gave up .4%. The issue today was not Greece, it was Spain. And there was no positive news for Spain. But, as I mentioned earlier today was just one of those days for traders with complex computer program trading. Investors are firmly on the sidelines.

After some very modest volatility compared to stocks, bond prices closed unchanged on the day. The 2-year ended at .26%, the 5-year .76%, and the 10-year ended the day unchanged at 1.83%. The 30-year bond was also dead even at 3.04%.

If Europe somehow manages to calm itself tomorrow, we will have a couple of things of our own to pay attention to. First up will be Weekly Jobless Claims. After the relief last week when claims fell from 392k to 365k, traders and economists will be looking for validation of that level tomorrow. Ben Bernanke will also be speaking. His topic is not the current economic condition, but traders will still be watchful for any stray questions and answers. The Trade Balance is set to be released, but that is unlikely to garner any attention. Finally, the Treasury completes this week’s round of auctions with the 30-year bond. Demand was good but not great for today’s 10-year note. Demand for the 30-year should be good but not great as well.

Update 11:10 a.m.:

While the prior bounces in stocks were based on nothing but mindless computers, at least the latest bounce had a tiny bit of substance. Reuter’s is reporting that the European Stability Fund will give Greece its next $5 billion payment. There were fears the money would stop immediately. Guess they don’t mind continuing to throw money on the pyre. Of course Reuter’s sources were the infamous “unnamed” sources. The Dow is now down only 40 points, and the NASDAQ and S&P have fractional losses.

Bond prices have retreated but not too far. The 2-year is .26%, the 5-year .76%, and the 10-year is up 2/32s to yield 1.83%. The 30-year bond is off by 5/32s to yield 3.04%.

Update 10:05 a.m.:

Dealers and bond traders were worried about the demand for the Treasury’s 10-year note auction today at these low yields. Demand wasn’t fantastic, but the overall results were certainly acceptable.  Bond prices aren’t reacting to the results though and remain at the levels just prior to the auction. As mentioned in the Morning Comment, pushing bond prices higher from here is like pushing on a string. The 2-year is .25%, the 5-year.24%, and the 10-year remains higher by 6/32s to yield 1.82%. The 30-year bond is up 2/32s to yield 3.03%.

It’s been a fun day for stock traders I guess. After rallying from -180 to -52, the Dow stalled and has since been jerking back and forth between -60 and -100. The Dow is currently off by 70 points. The S&P is down .5%, and the NASDAQ is off by .5%. There is nothing really driving the erratic action. The euro is stable above 1.29 vs. the dollar and commodity prices are lower but trading quietly now.

Update 8:20 a.m.:

Investors moved to the sidelines last week leaving the stock market wide open to those high-frequency traders, especially those chartheads. That was evident yesterday and is showing up in spades today. After hitting -140 early, traders bot and cut the loss to -90. Within 30 minutes of that, the Dow plunged to -180. The S&P also hit an “important” technical level, and this tripped the buy switches again. The Dow is now down only 65 points, the S&P is off by .5%, and the NASDAQ’s loss is a mere .4%. The talking heads on CNBC are gleefully predicting a positive close today.

Bond prices have given up most of the early gains, and that’s probably okay with traders and dealers worried about today’s 10-year note auction. The 2-year is .25%, the 5-year .75%, and the 10-year is higher by 6/32s to yield 1.82%. The 30-year bond is also up 6/32s to yield 3.02%.

Update 6:40 a.m.:

Stocks have opened sharply lower for the reason below.  The Dow is down 120 points, and the S&P and NASDAQ are each off by 1.1%. As mentioned below, traders are being given another chance to “buy the bottom.” Traders will probably take their cues from what happens in Europe over the next two hours before those closes.

Bond prices remain higher, but pushing prices higher and yields lower from these levels is like pushing on a string. It’s hard to imagine that rates can continue to sustain downward momentum. The 2-year is .25%, the 5-year .74%, and the 10-year is up 10/32s to yield 1.81%. The 30-year bond is higher by 19/32s to yield 3.00%. The Treasury’s 10-year auction will be out at 10:00 a.m. PDT.

Morning Comment:

Stocks closed down yesterday but cut the early steep losses by more than half by the close. This was mostly due to some computer trading based on technicals (charts). The S&P hit a key level then bounced on buying triggered by a “re-test” of that level. Based on early pre-opening trading today, it looks like those technical trading programs will get a chance for a re-test of the re-test. Dow futures are off by 100 points in pre-opening trading.

Spain was the center of focus for the European crisis most of April, but Spain disappeared into the background as the focus shifted to the European elections. The elections brought Greece to center stage once again. But the fears of contagion from Greece are striking quickly at Spain. The Spanish 10-year note seemed to have stabilized below 6% but surged well above 6% overnight. The credit default swap contract on Spanish debt hit a new all-time high, and the Spanish stock market is down over 3% as its banking stocks are tumbling.

In early pre-opening trading Dow futures are down roughly 100 points. The renewed concern in Spain looks likely the benefit the U.S.Treasury today when it auctions a new 10-year note. The 10-year note is trading at 1.80%. Demand at these low levels remains uncertain, but the Spanish turmoil will likely draw in more buyers. The 2-year is .25%, the 5-year .74%, and the 10-year is up 12/32s to yield 1.80%. The 30-year bond is higher by 24/32s to yield 2.99%.

There are no economic releases of importance today, but the weekly MBA mortgage application count has been released. Refinancing applications rose by over 1%, and purchase applications rose by over 3%. The rise in purchase applications was good for the week but still leaves the four-week average down .8%. Refinancing applications are expected to continue to stay strong as more people apply in hopes that they can qualify for HAMP and other programs offered by Fannie and Freddie. Last week I highlighted the concentration in the mortgage market, notably the 34% market share of Wells Fargo. The Wall Street Journal has an article today reporting that the concentration has led to big delays in response for loan applications and higher fees as well. These delays weren’t limited to distressed borrowers but extended to those simply wanting a lower rate. I’m not suggesting that credit unions pour all resources into creating new mortgage lending services, but there is clearly an opportunity for credit unions that have capacity to highlight the credit union advantage.

It’s always good to find a source that agrees with you. As I’ve written in the past, I expect the housing market will complete the bottoming process this year with modest price increases to follow. FiServ has weighed in today with a similar outlook. The service provider expects home prices to bottom by the end of the summer and increase by 4% per year for the next five years. FiServ cites low rates and falling inventories as the reasons for the rebound.

Although I like to find sources that agree with me, it also makes me uncomfortable. I guess I prefer to be out on the limb by myself. Here is the potential flaw in the outlook. The surge in investor demand is what has sopped up the supply the supply of homes. The view that housing will improve remains largely dependent on those investors staying active through this year as more foreclosures hit the market. But investors can be fickle. Certainly real estate investors aren’t usually as fickle as stock investors, but most of today’s real estate investors are former stock investors. Investors have been buying over 30% of the homes sold for more than a year now. Should investors be scared away by some negative economic events, they could easily be turned off the housing market. The elements are certainly in place for a rebound from a housing bottom, but we can’t afford to presume the rebound is inevitable.

I’ll be back with updates, and I’ll also be posting a new Longer-term Commentary once editing is done  with it.

The Dow fell by almost 200 points early today and spent all but the last thirty minutes in triple-digit loss territory.  But the Dow rallied in that last half hour to close down only 76  points. The S&P lost .4%, and the NASDAQ came back from a 57 point drubbing to close down 11 points. There was no news whatsoever responsible for the rebound. This felt very much like the high-frequency crowd was driving the bus.

Bond prices closed well off the best levels but higher on the day. The 2-year ended at .25%, the 5-year .76%, and the 10-year gained only 5/32s to yield 1.84%. That new low closing yield since September will have to wait. The 30-year bond gained 17/32s to yield 3.03%. The Treasury will auction a new 10-year note tomorrow.

There are no economic releases here or in Europe tomorrow. No scheduled European conferences. No more votes in Greece. What the heck will traders do? Perhaps it will be a quiet day of following the euro. Always a fun and completely worthless way to run a market. I’m looking forward to next week when we’ll get some economic data to dissect.

Update 11:45 a.m.:

As the final trading hour approaches, traders are slowly chipping away at equity losses and bond prices are off the lofty levels. Volume in both markets has slowed considerably. The dow is now down only 135 points, and the broader indexes have also rebounded from the lows.Traders seem cheered a bit since the plunges in gold and oil have been arrested.

The 2-year is .25%, the 5-year .76%, and the 10-year is up 12/32s to yield 1.83%. The 30-year bond is higher by 25/32s to yield 3.02%.

I’ll be back with the close and a look ahead.

Update 10:05 a.m.:

In this atmosphere it’s not a surprise that the Treasury’s 3-year auction went well. Demand was heavy despite the ultra-low rate. The longer-term auctions will be a bit trickier. Bond prices remain higher but off the best levels as dealers are reporting some profit-taking interest from the trading crowd. The 2-year is .25%, the 5-year .75%, and the 10-year is up 12/32s to yield 1.83%. The 30-year bond is higher by 26/32s to yield 3.03%.

The close of European markets did calm our markets, but traders are having difficulty generating a big rebound. The Dow is now down 165 points. The low was down almost 200 points. The S&P is down 1.3%, and the NASDAQ is off by 1.5%. Volume has been relatively heavy today.

Update 8:30 a.m.:

I think stock traders finally got the message that Greece represents a serious threat – again. The Dow is down 180 points, the S&P is down 1.4%, and the NASDAQ is off by 1.7%.  As mentioned below, the downward plunge in commodity prices is contributing to the woes. Oil is off by over $2 and gold is down $40. It’s somewhat surprising to see gold off so sharply given the safety concerns, but some big leveraged players are obviously being forced to liquidate.

Bond prices have continued to edge higher. Greece is no surprise to bond investors. The 2-year is .25%, the 5-year .74%, and the 10-year is up  1/2 point to yield 1.82%. The 30-year bond is higher by over a point to yield 3.00%.  If the 10-year closes at 1.82% or below, this will be the lowest closing yield for the 10-year since September.

Europe is closing now, perhaps that will help the U.S. market stop the bleeding.

Update 6:40 a.m.:

In the Morning Comment I noted that stock traders didn’t seem to be taking the Greek news seriously. But stocks have opened lower than the early pre-opening trading indicated. The Dow is down 90 points in the early going, and the other indexes are down about .7%. Traders might also be a bit worried about the commodities markets. Gold is off by $25 today and down to $1613. Oil has lost another $1. The overall commodities market as represented by the CRB index has yet new lows for the year. While this is beneficial for consumers and businesses, stock traders don’t like this because of the implications for commodities related companies. Other traders fear that the weakness in commodities is also due to falling global demand.

Bond prices remain higher but off of the best levels. The 2-year is .25%, the 5-year .77%, and the 10-year is up 7/32s to yield 1.85%. The 30-year bond is up 1/2 point to yield 3.03%.

I’ll be back with updates.

Morning Comment:

European markets are down modestly on news from Greece (see below), as are U.S. stock futures. But bond traders and investors seem to be taking this more seriously as prices are higher to start the day and pushing toward some extreme lows. The 2-year is .24%, the 5-year .77%, and the 10-year is up 7/32s to yield 1.85%. The 30-year bond is up 20/32s to yield 3.03%. The Treasury will auction a three-year note today with the 10-year tomorrow and 30-year on Thursday. While the 3-year auction will not prove to be a challenge, the longer auctions will test the desire of big buyers to continue to add at these levels.

Greece wasted no time in proving the new Parliament will not be able to form a government. The conservative leadership quickly declared it failed in its attempt to form a union. Today the anti-austerity parties will take their swing at it, but they have no better chance. Greece, the cradle of democracy, has two parties of the roughly ten parties represented in Parliament that are sort of shocking to Western sensibilities. One party is the Communist party, and it is the second biggest in Parliament. The second is a first time party in Parliament – the Neo-Nazi party. No kidding. In this crazy house of a government, how can anyone expect a reasonable coalition can emerge? We often moan and groan about our dysfunctional, broken political process. After reading about Greece, I feel a lot better about our system. Greece will likely have new elections within weeks. Better luck next time. But the fact is that the longer Greece continues down this path, the greater the risk that it lights a fire under the euro debt crisis.

One target market of many credit unions is growing in confidence. The National Federal of Small Businesses released its latest confidence poll. Economists were expecting a flat reading but confidence increased two points. Businesses said they expect sales and profits to grow, and many businesses reported plans for new hiring and new equipment. The level of confidence was the highest in just over a year. Much like consumer confidence readings, business confidence is higher but not yet at levels that have historically been associated with a strong economy. But this is another good sign that small businesses do see a brighter future through the haze of the current environment.

In case you missed yesterday’s closing comment, I don’t want you to miss this. Consumers must be feeling pretty good as well if the following is any indication. Consumer Credit was released yesterday afternoon, and the headline number was startling. Consumers took out over $21 billion in non-mortgage related debt last month. This is the biggest monthly gain in ten years. For what it’s worth, economists were looking for a gain of $9 billion. The number does come with a minor asterisk. Student loans jumped by over $7 billion, and this could be parents and students taking out loans in case Congress can’t agree on keeping the rates low. Still, consumer credit grew by $14 billion without student loans, and that is a very hefty amount. Credit card and related debt grew by $5 billion after declining for three straight months. Is this a sign of growing confidence or a sign that consumers are trying to keep spending up while incomes stagnate? Let’s hope it’s a sign of confidence.

With small businesses, a target market for credit unions, growing in confidence, and consumers, the primary market, at least willing to borrow, credit unions should be feeling some growing confidence as well. Our industry doesn’t have a true national poll to measure this, but I think our numbers would be rising as well.

I’ll be back with updates.