Rates Rally Gives Bounce to Markets

The Dow had a nice day as the Bulls fight back and FSO Market Commentator, Chris Puplava notes that the Interest Rate Rally May Be Over Short-Term, but Ripple Effects Will Only Worsen Housing Situation.

• The bond sell-off that began last month with the 10-year UST rising from a low of 4.602% on May 11th to a high of 5.316% yesterday may have reached a short-term top with the RSI near 90, the highest level seen in more than 20 years. Readings over 70 have marked peaks in interest rates previously (as marked below), and the current reading near 90 hints at either a pause or a pullback in rates.
  
  
  

Lastly, do give Ms. Claire Barnes, of Apollo Investment Management made the following remarks.

• Some commentators were reassured that US first quarter reporting passed without financial disaster, and concluded that new age financing had painlessly dispersed systemic risk. My suspicion, on the contrary, was that market-fundamentalist accounting is postponing the emergence of problems: judgment is no longer required to be exercised in provisioning, and prudence is deemed old-fashioned - instead we have "fair value", relying either on a mechanistic marking-to-market, by reference to last trade. The nature of niche markets is that when problems emerge, they first become illiquid (and even more easily manipulated); only later when other options have been exhausted can a single distressed-seller cause prices to fall off a cliff. I then discovered that US accounting rules require holders of CDO paper to value it with reference to questionable models (such as the aptly-named Monte Carlo simulations) from the far-from-disinterested rating agencies. 'I knew it was bad but...' says John Succo (must read). 'The levels at which investors are carrying [mortgage-backed securities] paper is not reflecting underlying reality as the holders simply hold their collective breath and the rating agencies ignore a worsening environment.'
  
  Before buying a money market fund or structured product, remember the old maxim:
  
  'More money has been lost reaching for yield than at the point of a gun.'
  
  And before assuming that a money market fund will be liquid when you need it, consider the Paper Chase.