Running out of Credit

Monday, December 24, 2007

ECONOMIC DATA / NEWS

Today is a shortened trading day.  The stock markets will close at 1:00 PM ET, and the bonds markets close at 2:00 PM ET.  There is no economic data and trading volume will be light as many traders are already on vacation for the holiday.  However, like we saw around Thanksgiving, some larger traders will take advantage of the lighter volume, by using putting in large trades, which move the markets more significantly with less opposition.

One bit of significant news from over the weekend is a spike in credit card defaults.  We’ve been saying for over a year now that eventually consumers would run out of credit, home values would level off, and there would be no money in savings.  The national savings rate has been negative for over two years, so it is no wonder that credit debt is finally overtaking card holders.  It could lead to a weaker December for consumer spending relative to previous years.  November’s numbers may have been much better than expected, but that could very well be more than offset by December’s results.

TECHNICAL ANALYSIS

Oftentimes, a bounce off an upward trend line that fails to reach a new high before falling back down represents a loss of momentum in that trend.  The FNMA 30-year 6.0% has done just that, and this morning it has breached the upward trend line by 12bp.  The one hope for a rebound in the short-term is the 50-day moving average, which is barely keeping prices above 100.93 at the moment.  However, if this level is broken, we could be looking at a drop to 100.41.

Treasuries are being sold off so the few investors that are out there this morning can buy stocks.  The 10-year Treasury yield popped to 4.22%, but it did hit the 50-day moving average and drop to 4.19%.  That leaves it room to drop to the 10-day moving average at 4.12%.

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