Update 1:05 p.m.:

Update 10:10 a.m.:

This is a "no update" update.  The markets have been stuck in idle all day.  Perhaps the troops on Wall Street have already left for the Hamptons.  That's what they do.  The Dow is higher by 8 points. 

Bond prices have slipped just a bit.  The 2-year is .63%, the 5-year 1.84%, and the 10-year is lower by 6/32s to yield 3.06%.

Update 7:00 a.m.:

The Dow opened down about 20 points and is now higher by about 5 points.  It certainly looks like a dull day is in store. 

Bond prices have weakened just a tad.  The 2-year is .63%, the 5-year 1.83%, and the 10-year is down 3/32s to yield 3.05%. 

I guess it's my day to report news from newspapers.  I mentioned a Wall Street Journal article below, and I have since happened onto a noteworthy article in The New York Times.  The article is based on some recent information provided by the real estate analytics firm of CoreLogic.  One out of twelve mortgages in the U.S. are seriously delinquent.  That's not news.  But, it turns out that the rich really are different.  For mortgages originally $1 million or more, the seriously delinquent rate is one out of seven mortgages. 

It's even worse for second homes or investment properties over a million; one out of four are seriously delinquent.  The CoreLogic spokesperson said that while some defaults are for legitimate job loss reasons, there is evidence based on incomes and other payments that a fairly large number of these are in fact driven solely by the negative equity.  Many of the defaulters clearly have other assets and are not worried about their credit scores or any other trivial concerns.  They are simply dumping a bad investment.  As the CoreLogic spokesperson said, "the rich are different, they're ruthless."   

Morning Comment:

After two big days, or I should say one big day and one 30 minute stretch yesterday, stocks should be set for a quiet day today.  Dow futures are trading about 25 points lower in pre-opening trading.  This week, bullish traders successfully created the set-up they wanted for the beginning of earnings season next week.  They wanted the market to be in rebound mode, which it is, and they wanted to make people forget about all of those pesky weak economic numbers.  Just one week ago we got a horrible payroll report that revealed that 652,000 people simply withdrew from the labor force feeling hopeless.  We also have the piling up of people who have lost unemployment benefits which will reach the 3,000,000 mark by the end of the month.  How much talk have you heard about that this week?  Zero.

On the bond side, bond traders will have to put up with the incessant earnings beat expectations game while at the same time bidding on three big Treasury auctions next week.  The Treasury will come with 3-year, 10-year, and 30-year bonds.  While the Treasury market has seemed bulletproof for the past few weeks, the bond market could easily give back some ground if the bullish equity market environment prevails.  This morning the 2-year is .62%, the 5-year 1.81%, and the 10-year is 3/32s higher to yield 3.03%. 

Stock traders have the first two days of next week worry free from economic numbers, but Wednesday will bring Retail Sales.  Given the focus on the consumer weakness over the past month, this report might take on more than usual importance.  Later in the week we’ll get Industrial Production, Weekly Jobless Claims, and the inflation indexes. 

 The Wall Street Journal has an article today in which they inadvertently laid out the spin that all market pundits are expected to use this earnings season.  First, all earnings will beat expectations and look good, especially in comparison to the weak quarter a year ago.  Second, there has been some chatter that what matters this round is top line revenues, not just earnings.  But, the Journal said traders have already factored that into prices, ergo, revenue misses will not really hurt.  Third, the only thing that could possibly hurt stock prices during earnings season is if the companies themselves forecast a weak second half of the year.  Seriously?  How many companies do you think will come out and say, “Earnings were great the first half, but we’re really going to stink up the joint the rest of the year.”  One out of 1,000 companies might predict weakness.  The WSJ might not have created the spin game, but they have made it easy for everyone to know the rules to follow.  Traders are again thinking they are set up for another one of those infamous “can’t lose” weeks.  

Good luck with that next week.  Mercifully, I’ll be out next week and won’t have to listen to the hype and report on it. 

I’ll be back with updates.

Dwight Johnston