This week saw another set of impressive returns in the markets. The Dow finished the week +2.2%, the S&P +2.45% and the NASDAQ  +2.5%. Our fears of a correction in September are abating, and we remain hopeful that the month can finish strong.

Housing starts for August were up 1.5% since July, more evidence that the  housing market’s worst is past.  Jobless claims fell to 545,000 last week from 550,000 the week before. Inflation was up .4%.  We do not like inflation, of course, but a small dose of inflation is certainly preferable to deflation- the specter that has haunted us these past months. The Federal Reserve released its industrial production numbers, which were up 2.08% on a month-to-month basis.  The bump may be largely attributable to the “cash for clunkers” program.  We look forward to untainted-but-still-improving numbers for these figures next month.

Next week, the Treasury is issuing a record $112 billion in notes in 2-, 5-, and 7-year bonds. In anticipation, prices have inched up a bit. The Treasury is not, to date, having any trouble selling these bonds to investors.  Build America Bonds are driving down competing municipal bond yields, causing problems for income investors.  The supply of tax-exempt municipals is down and demand for them is still high.

We remain disappointed that nothing has changed in financial regulation, despite the chaos in the markets made clear by our recession.  Firms are borrowing short and lending long- leaving themselves open to problems covering their obligations yet again.

Next week, we will be watching the reports on Leading Indicators, Initial Claims, and Durable Orders.