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Daily Market Commentary

US foreclosures jumped 57% in March alone, and have doubled from a year ago, according to a report from RealtyTrac Inc.  California, Nevada and Florida lead the country in foreclosure rates.  Rising foreclosure rates add to the already large inventories of unsold homes, and banks tend to be a little more ruthless in their selling, just wanting to recover some of their loan.  These will both have continuing negative effects on house prices, and American household wealth in general.



  Heavy data for the rest of the week begins this morning with Producer Prices and Empire Manufacturing in the US.  Empire, along with the other purchasing managers surveys like the ISM, Chicago, Milwaukee and Philly are all firmly in the negative sentiment side of their respective break evens.  This means they are all calling recession, as most are finally conceding.  The chatter has now changed from whether or not the US is in a recession (the definition itself open to interpretation), to whether it will be short/deep, long/shallow or any other combination.  Frankly, we don't really care what shape it takes, only how asset prices will react to it.



  Because we are refusing to throw all of history's lessons out the window for this cycle, we have to assume that with a retrenchment in US house values (and therefore household spending), inflation indicators will pull back and interest rates will stay low.  We have already seen what we anticipated in the yield curve; getting steep from a large drop in short rates while long term rates stay essentially flat (see chart in snapshot).  What should happen next is that credit should start its recovery - your guess on when is as good as mine at this point.  It will, however, lead the market.


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