Sunday, September 10, 2006

Much Has Changed in Four Months

While the media divines the changes in the U.S. since 9/11 five years ago, I look back four months to 5/11 and see quite a few changes in the financial markets.

On 5/11, West Texas Intermediate Crude (cash) stood at $73.33 a barrel. Friday it closed at $67.33.

On 5/11, interest rates on the ten-year note were 5.15%. Friday, they were 4.79%.

On 5/11, gold was trading a bit over $715 an ounce. On Friday, gold closed at $621.

The CRB Index topped above 360 in May. On Friday, it closed a little over 320.

The Housing Index ($HGX) is down about 20% since May.

On 5/11, the S&P 500 Index had just hit a peak value for this bull market, a bit over 1325. As of Friday, the S&P is at almost 1299 and has not surmounted that May peak. The NASDAQ and Russell averages, in percentage terms, are even further from their May peaks.

M1 money supply also peaked in May, according to the Federal Reserve. M1 money supply, from late 2004 to the present, is down over a 20 month period. I last show that happening in late 2000, as the markets were topping, and in late 1997 in the lead up to the Asian currency crisis and market drop.

The good news is that the Fed seems to be having success in cooling the hot housing and commodity sectors. Such restraint of money supply needed to accomplish the cooling has only been reversed once we've had meaningful market drops. Let's see if this time is different.