Houghton and Atkeson

Watching the Treasury's Actions

by Houghton and Atkeson   05/28/09

What the Markets Are Saying

Since the credit crisis began, the equity market has been ruled by the credit markets. Toxic debt, unavailability of debt, high corporate debt rates, government debt, etc. have been the determining forces in setting equity prices.

A critical component of the March 9 market rally has been an improvement in private capital flows in the corporate debt market. The unfreezing of the corporate debt market is a necessary and important component of rebuilding our economy. What is currently starting to stall the rally is government debt.

As the U.S. goes deeper into debt, fears of inflation rise which lead to fears of eventual U.S. government default.

In 2008, the federal government spent $412 billion on interest payments (this is relative to $15 billion for NASA, $61 billion for education, and $56 billion at the Dept. of Transportation). As of April, 2009, we have spent $193 billion on interest.

Interest payments on debt are crowding out other productive investment. Today, we will see how the seven-year Treasury auction goes. In the short-term, this auction is likely to be a key driver of stocks. Longer term, the issue of mounting national indebtedness may become the controlling factor in our standard of living.

Today's Trading Landscape

Earnings Before Market Open: Arctic Cat, Ahold, Big Lots, Canadian Imperial, Costco, dELiA*s, Descartes, Fred's, Freeseas, Frontline, Genesco, Heinz, Mentor Graphics, Monro Muffler, Perry Ellis, Sanderson Farms, Show Carnival, Toronto-Dominion Bank, Trina Solar, VimpleCom.

Earnings After Market Close: Dell, Esterline Technologies, GSC Investment, Iteris Holdings, J. Crew Group, Jamba, SourceForge, Marvell, Novell, Quanex, OmniVision, QAD Inc., Sonic Solutions, Wet Seal.

On the economic front, we will see Initial Jobless Claims (for the week ending May 23 -- the consensus is 635,000), Continuing Claims (the week ending May 16 -- the consensus is 6730,000, Durable Goods (for the month of April -- the consensus is 0.5% and excluding transportation the consensus is 0.3%) and New Home Sales for April (the consensus is for 360,000; month over month, the consensus figure is 1.1%)

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