Foreigner

The market is firmly focused on this weeks U.S. treasury auctions and the FOMC meeting. Prices of U.S. treasuries rallied today on speculation that long-term bond yields have risen too far, too fast considering it is unlikely that the economy will generate inflationary pressures to warrant significantly higher long-term interest rates. The market is looking to this week's auctions and the FOMC statement for guidance.

Market participants were mostly in agreement that this week's 10-year treasury note and 30-year government bond auctions will be well-received by foreign investors. As I have stated before, foreign central banks and producers have a vested interest in buying treasuries. First: They want to support the dollar to keep their home currencies relatively week to make their goods affordable in the U.S. They also wish to keep our long-term borrowing costs low. I do not think that they will abandon the dollar any time soon.

This does not mean that long-term yields will never rise or that the dollar will not weaken. Both will happen to some extent. This makes U.S. companies with export potential attractive. The last time the dollar weakened, companies such as Caterpillar experienced rising overseas sales. If you think that developing countries will eventually be purchasing equipment to build modern infrastructure or improving agriculture, companies such as Cat and Deere could do well.

The U.S. consumer is likely to be less active than in recent recoveries. It could be U.S exports which help lead us out of the "Great Recession".

Note: I am on vacation next week. I will be publishing sporadically (if at all) for the next two weeks. Feel free to leave a message on this blog if you need assistance.