EQUITIES

It took some doing but stocks pulled through on Tuesday to reach new highs for 2009 after retail sales data proved the cash-for-clunkers program a success, but also vindicated more bullish predications for a return of consumerism.

A 2.1% monthly increase in the volume of August sales was far in excess of Wall Street's best guesses, while even without auto sales the gain of 1.1% was far ahead of the expected rise of 0.4%.

Meanwhile we learned that Citigroup and bank of America's credit card customers defaulted on their credit cards during August at the fastest pace since the start of the recession. A brief dip in defaults during July had raised the specter that, perhaps miraculously customers' balance sheets were healing automatically. Speculation grew that it was nothing more than seasonal tendencies of tax payments that was propping up the outward appearance of consumer health.

As we've stated before, there is no point in bucking the trend and that pretty much seems to be the case today with the S&P rising to a spectacular 1052, while the bond market slacked off sending yields a little firmer to 3.45%. When equity traders get the bit between their teeth, don't expect this cute little puppy to let go anytime soon. It's all well and good predicting a fourth quarter crash, but be prepared to wait.

The charge off rate at Bank of America rose to 14.54% and up from 13.81%, while Citigroup stated its charge off rate rose from 10.03% to 12.14% in August. Those rates are for loans the banks don't expect to be repaid. Bank of America and Citi were the principal beneficiaries of government bailout money during the recession and these numbers show more problems to come, perhaps for financial markets too.

But fears for rising unemployment, which will likely drive credit card delinquencies further still into 2010 were not a player in Tuesday's market. It was the retail sales report that drove share prices higher starting with retail and basic material companies.

The Reuters-Jefferies CRB index of commodity prices rose 2.2% for its biggest gain in a month, buoyed also by a New York state survey of manufacturing that indicated strengthening demand.

Perhaps the most significant vignette of Tuesday's news were comments from ben Bernanke, chairman at eth Fed speaking on the anniversary of the collapse of Lehman Brothers. His comment that the recession was "very probably over" inspired optimism and marked a clear spike in equity indices prevalent through the end of trading.

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