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Thing One: The Phantom Panic: Dow 36,000, here we come!
When the market opens this morning, the Dow Jones Industrial Average will be less than 50 points away from the nice, round number 14,000, a level it hasn't seen since 2007, when the financial crisis was in its infancy. From there, it'll be just a short climb to its all-time high of 14,164.53. Econo-nerds may argue that we should adjust the Dow for inflation and therefore we're not as close to a record as we think we are, but those people will be ignored because shut up, nerds. After that, it's certainly only a matter of time before James Glassman and Kevin Hassett of "Dow 36,000" fame can finally end their long reign as the clown princes of stock prognostication, along with Donald Luskin.
Whatever number you want to use, the Dow has more than doubled from its crisis low of 6,547.05 in March 2009. And most of that climb has been driven by professional investors -- twice-burned individuals have doggedly shunned stocks throughout the rally, pouring their money into bond mutual funds at a record pace. That pattern has changed lately, writes Tom Lauricella of the Wall Street Journal, as small investors have started to crawl back into stock funds.
This behavioral shift has raised all sorts of talk of a "great rotation" out of bonds and into stocks. While that is good news for the stock market, it is potentially awful news for the bond market. And that bond market, as you may recall from the paragraph above, happens to be where a lot of us have poured our money in recent years. So this fact has naturally led to a panic that the bond market is about to undergo a horrifying collapse, punishing bond investors (including you and me), much as it did in 1994, when Alan Greenspan's Fed abruptly raised interest rates without warning anybody and crushed the bond market.
Adding fuel to these worries, the WSJ's Victoria McGrane and Jon Hilsenrath write about how the Fed might need to be worried that its own massive bond holdings will suffer losses in the near future. The Fed ends a two-day policy meeting today, at which it will likely agree to keep on adding to that stockpile of bonds, in an effort to pump more money into the economy.
Home prices are rising. The euro is at a 14-month high, as European policy makers have figured out a way to stop perpetually blowing the dolphin. And speaking of mammal-sexing, U.S. policy makers have temporarily averted various terrifying cliffs and ceilings.
But that does not necessarily mean that things are so great that we can expect Dow 36,000, or a terrifying bond market collapse, any time soon. There are still plenty of risks to the economy. Europe's problems aren't all solved yet. Fiscal tightening is going to hurt U.S. growth this year. Consumer confidence tumbled last month to its lowest level since November 2011, as people got disgusted with Washington and prepared for smaller paychecks due to the expiring payroll-tax cut.
Do a Google search for "1994 bond market," and the top results are from 2009, 2010 and 2011 -- all years in which people worried about a 1994-style bond-market crash. It didn't happen in those years, and it's not going to happen this year, either. Small investors may be buying stocks again, and that's probably not a bad idea, no matter the risks. But they are also still buying bonds at a healthy clip, Lauricella notes in the WSJ. They have dabbled in stocks before in recent years, only to retreat again.
The key thing to remember is that, given all the risks, the Fed is not going to abruptly raise interest rates as it did in 1994. And though the Fed might lose some money on its massive bond holdings, it almost certainly considers that a small price to pay for keeping the economy afloat.
Thing Two: Crisis Tab Keeps Rising: Meanwhile, it turns out that we are still paying the tab for the previous financial crisis. The latest quarterly report from Christy Romero, the special inspector general for the $600 billion bailout program, points out that taxpayers are still owed about $67 billion, including a nearly $15 billion investment in Ally Financial, which is weighed down by toxic subprime mortgages. Taxpayers are still likely to see a net loss on the bailout of about $60 billion, after already writing down $27 billion in losses. More alarming than all that, Romero writes, the bailout and subsequent regulatory fiddling have done little or nothing to prevent another crisis in the future.
Thing Three: Top Cop Flops, Stops: Steely enforcer of justice Lanny Breuer, who all but admitted to Frontline that he hadn't bothered to investigate charges of fraud that led to the financial crisis, and who flat-out admitted to The New York Times and others that he was too terrified to bring criminal charges against big banks will announce today that he is stepping down from the Justice Department, writes Ben Protess of the New York Times. He will likely return to private law practice, Protess writes, where he can continue to help banks, but get a much bigger paycheck for his efforts. (Fairness break: Justice has lately pushed a smattering of criminal charges, in the easier-to-prosecute Libor scandal.)
Thing Four: Silicon Valley Hearts Visa Plan: President Obama yesterday pushed an immigration-reform plan that included a call for more temporary visas for skilled workers, echoing a bipartisan Senate bill introduced yesterday and a House bill passed in November. This got a cheer from tech companies who claim they don't have enough skilled workers, the Wall Street Journal writes. It will probably get a boo from skilled American workers who claim they don't have enough jobs.
Thing Five: Weaker Watchdog Worries: After fighting and clawing for years against the creation of the new Consumer Financial Protection Bureau, banks are now worried... that the CFPB will be weakened, the Wall Street Journal writes. No, this makes no sense, at least not at first. The CFPB's authority is threatened by a recent court decision that Obama didn't have the authority to make a recess appointment of CFPB chief Richard Cordray. The banks may hate the CFPB, but they apparently hate the uncertainty of knowing whether or not they should care about the CFPB's rules even more.
Thing Six: Boeing Battery Troubles Run Deep: Months before they started catching fire and such, lithium batteries in the new Boeing 787 Dreamliner were a problem, it turns out. Japanese airlines had replaced several of the batteries in planes when their charges weakened unexpectedly, the New York Times writes. They didn't tell regulators about the battery problems because they didn't think they were a risk to passengers.
Thing Seven: Gas Chief Burns Out: Aubrey McClendon, the high-flying chief of natural-gas producer Chesapeake Energy, is finally stepping down after months of pressure from Chesapeake's board, in a notable sign that the natural-gas fracking boom is running out of, um, gas, writes the New York Times. McClendon and the company had borrowed like there was no tomorrow to finance new wells, a strategy that has started to backfire.
Thing Seven And One Half: Why Don't We Do It On The Roof: On this day in 1969 the Beatles performed a concert on the roof of Abbey Road studios in London, in what would be their last public performance. The concert, which was ended by the police, followed quarrelsome recording sessions for the album that would later be released as "Let It Be." Later that year, they would start fresh with "Abbey Road," the last album they recorded together (though the far-less-good "Let It Be" was released in 1970, most of it had been recorded before "Abbey Road").
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Calendar Du Jour:
Economic Data:
8:15 a.m. ET: ADP Employment Report for January
8:30 a.m. ET: Fourth-Quarter GDP
2:15 p.m. ET: Federal Reserve policy announcement
Corporate Earnings:
Boeing
ConocoPhillips
Heard On The Tweets:
-- Calendar and tweets rounded up by Alexis Kleinman.
And you can follow us on Twitter, too, if you want, no pressure: @AlexisKleinman and @MarkGongloff
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