SAM's Blog: Daily Market Analysis - Thursday, 7 July 2011

Wednesday, 6 July 2011 AMC

Dow	12,626.02	+56.15	+0.45%

Nasdaq	2,834.02	+8.25	+0.29%

S&P 500	1,339.22	+1.34	+0.10%

Russell 2000	845.23	+3.61	+0.43%

Thursday, 7 July 2011 Economic Data

Thu Jul 7	8:15am	USD	ADP Non-Farm Employment Change	67K	38K
	8:30am	USD	Unemployment Claims	421K	428K
	10:30am	USD	Natural Gas Storage	80B	78B
	11:00am	USD	Crude Oil Inventories	-2.4M	-4.4M

News

Small Gains: Treasuries saw small gains today as yesterday’s downgrade of Portugal to junk caused a small bid in the complex today. Yields across the curve eased by a couple of bps as the belly (5- and 7-yr) saw the steepest declines. Underperformance in the wings of the curve (2- and 30-yr) held throughout the session with those yields seeing declines of no more than 2 bps. Slight flattening of the yield curve took form with the 2-10-yr spread ending the day tighter at 267.4. Debt ceiling talks will soon begin to move to the forefront as a new level must be passed by August 2 in order to avoid a default. Read more: http://briefing.com/investor/markets/bond-market-update/2011/7/6/treasuries-gain-on-european-sovereign-debt-worries.htm#ixzz1RNNXws81
Obama expects deficit deal within two weeks - Congress and the White House can strike a deal to cut the deficit and raise the debt ceiling “over the next week to two weeks,” President Barack Obama said Wednesday. The Treasury says the government will exhaust its borrowing power on Aug. 2 if Congress doesn’t raise the $14.3 trillion debt ceiling.
We are levering up like crazy. Looking for a “credit bubble”? We’re in it. Everyone knows about the skyrocketing federal debt, and the risk that Congress won’t raise the debt ceiling next month. But that’s just part of the story. U.S. corporations borrowed $513 billion in the first quarter. They’re borrowing at twice the rate that they were last fall, when corporate debt was already soaring. Savers, desperate for income, will buy almost any bonds at all. No wonder the yields on high-yield bonds have collapsed. So much for all that talk about “cash on the balance sheets.” U.S. nonfinancial corporations overall are now deeply in debt, to the tune of $7.3 trillion. That’s a record level, and up 24% in the past five years. And when you throw in household debts, government debt and the debts of the financial sector, the debt level reaches at least as high as $50 trillion. More leverage means more risk. It’s Econ 101. - http://www.marketwatch.com/story/the-next-worse-financial-crisis-2011-07-06?link=MW_story_popular
China Central Bank Adviser Calls For More Rate Increases - SHANGHAI (Dow Jones)--China needs to gradually raise its interest rates to reverse the negative real-interest-rate situation, the state-run China Securities Journal reported Thursday, citing a central bank adviser

Summary

When you can see digest your data, you get to stay ahead of the game. There are 3 mains things now :

Money flowing into the Treasury bonds driving yield rates down (huge buying from Fed previously but QE2 ended now...and reason for people getting into bonds ? looking some kind of security "safe heaven" to put their money. Also volume on equity market dropping ? Last 7 days vol of DOW

Date	Open	High	Low	Close	Volume	Adj Close*
Jul 6, 2011	12,562.47	12,668.03	12,507.84	12,626.02	3,564,190,000	12,626.02
Jul 5, 2011	12,583.00	12,642.90	12,504.10	12,569.87	3,722,320,000	12,569.87
Jul 1, 2011	12,412.07	12,596.13	12,404.08	12,582.77	3,796,930,000	12,582.77
Jun 30, 2011	12,262.10	12,464.63	12,262.10	12,414.34	4,200,500,000	12,414.34
Jun 29, 2011	12,187.63	12,311.03	12,148.88	12,261.42	4,347,540,000	12,261.42
Jun 28, 2011	12,042.28	12,225.89	12,042.28	12,188.69	3,681,500,000	12,188.69
Jun 27, 2011	11,934.73	12,113.50	11,907.71	12,043.56	3,479,070,000	12,043.56

Portugal downgraded to junk another Greece upcoming - bring to an example when you use credit A to pay for credit card B's debt which is incurred by paying credit card C's debt. Check out this video from conrad's blog - World collapse in 3 minutes (Vicious cycle of debts)
What's the impact of rising the debt ceiling?

“The real question commercial real estate should be asking is how large the budget cuts will need to be to get Republicans to buy into raising the debt ceiling, and what impact those budget cuts will have on GDP. Commercial real estate demand is correlated with GDP,” observed Chris Macke, senior real estate strategist for CoStar Group.

“If the government cuts spending, somebody has to make up the difference, or the economy will shrink. That means commercial real estate needs corporate America to increase its hiring and investment levels.”

“The safe bet is that Congress and the Administration will come to terms and raise the debt limit as they’ve done 70 times in the past 60 years,” said Cassidy Turley Chief Economist Kevin Thorpe, co-author of the white paper.

Under the worst-case scenario, most believe that a U.S. default on its debt would be devastating for the country, the economic recovery and commercial real estate. The Treasury Department would have no choice but to deeply slash spending, which would sharply reduce short-term economic growth. More importantly, a default could permanently damage the country’s credit and ability to borrow.

“It would wreak havoc on the property markets in the form of massive layoffs, surging interest rates, spiking vacancy across all product types including trophy assets — in other words, results much like those from the recent financial crisis, only worse,” Cassidy Turley said.

If Congress raises the ceiling but approves deep spending cuts such as the House’s aggressive proposal to cut nearly $6 trillion over the next decade while also cutting taxes, it could also deeply hurt the recovery, the Cassidy Turley white paper said. Under the House plan, total federal outlays would shrink by $89 billion in fiscal year 2012 compared to those in fiscal year 2011. Some analysts have estimated that the U.S. would create 900,000 fewer jobs in 2012 under the House plan.

http://investmentedge.wordpress.com/2011/06/09/what-impact-will-debt-ceiling-decision-have-on-commercial-real-estate/

Check out the debt graph - http://en.wikipedia.org/wiki/United_States_public_debt