We need interest rates to rise for an 'all clear' for equities.
The 30-year bond auction completes the trifecta (three-year and 10-year) of good auctions this week.
The yield was 2 basis points below the when-issued, the bid-to-cover of 2.8 was above the previous averages, and direct and indirect bidders took a lot of it.
If QE3 is in fact needed, we would have to take a much deeper drop in economic activity and in stock market prices. It would have to get very ugly, accompanied by a lot of pain.
Neither the political will nor the electorate's acceptance should guide us toward the expectation of more quantitative easing.
Indeed, most agree that the consumer got screwed and the middle class got crushed by QE2 as the necessities of life rose in price while their wages stagnated.
After all, what was The Bernank going to say yesterday -- that the Fed will never do anything? Of course not!
But the reality today is that neither the Federal Reserve nor the Treasury Department have the carte blanche that they once did with regard to aggressive stimulus policy.
These are the facts. Disregard the bullish spin.
Miller Tabak's Peter Boockvar's comments on inventories this morning conform with what I believe are second-half economic risks:
May Business Inventories rose 1%, a touch above estimates of a gain of 0.9%, and April was revised higher to also a 1% gain. Because sales fell by 0.1%, the inventory-to-sales ratio rose to 1.28 from 1.27, the highest since December. The gain in inventory was particularly felt at the wholesale level where it rose 1.8% month-over-month, led by a 4.7% rise in autos, a bounce back from the 2.3% fall in April and 0.7% drop in March, mostly related to Japan. The inventory gain at the retail level was also led by the autos/parts sector. Bottom line, the gains in inventories of 1%-ish in March, April and May were definitely influenced by the Japanese disaster as businesses tried to get their hands on as much product as possible in order to prevent disruptions. As seen with the sluggish pace of sales, though, the inventory build could lead to smaller ordering in the next few months as this inventory gets worked down as Japan gets back to some normality and end-customer demand remains sluggish. With this said, the higher inventory build will be a support to second-quarter GDP.
