News from Ara Melkonians/ Week of August 23, 2010/ update #2

Good Morning Everyone and Happy Tuesday! The sour mood prevalent in equity markets today is largely the result of weakness in Asian and European markets over night. Most Asian markets closed down over 1% -- Japan's Nikkei was down 1.3% to its lowest level since May of 2009. European markets followed suit as all bourses closed in the red, most of them down around 1.5%. It's actually interesting to click on world markets and see all the red. Only China's Shanghai Composite closed in positive territory of all the true major indices around the globe.
Here in the States, traders had to overcome fears from comments of a second recession and dwindling optimism that the economic recovery, slow as it may be, is losing steam and we're sinking back into negative growth. Ben Bernanke will address this on Friday. As insurmountable a task as this one might have seemed, Existing Home Sales was released to put further pressure on the market. It was reported by the Nat'l Assoc of Realtors that existing home sales dropped, or should I say plunged, 27% month-over-month. The figure for existing sales came in at 3.8M which is quite a difference from the 4.7M anticipated. We anticipated this might happen when the tax credit expired, and boy did it happen!

The Dow dipped below the 10,000 mark earlier this morning for the first time in a month, and although we've recovered some of those losses, there's not really anything on the horizon that leads us to believe we'll have a sustainable rally for some time. Do I seem a little pessimistic about the economy? Well, I guess I am, but at the same time I'm optimistic about interest rates and what's happening in the bond market today.

The yield on the 10 year note hit 2.46% earlier in the session -- its lowest mark in 17 months. The 2 year note yield dropped to .45% earlier this morning -- a record low. The difference between the 2 yr note yield and the Fed Reserve's target lending rate reached its narrowest point since December of 2008 -- amid the financial collapse many of the country's largest banks. These are truly fearful times for traders and the short term future of our economy. Good news is . . . rates thrive on bad news, and rates are smokin' hot lately. Hope you can take advantage of it!