New York Stock Exchange

The Dow Jones Industrial Average on Monday closed at a 13-month high; Gold futures finished about $1,100 for the first time and the US dollar briefly fell above $1.50 to the euro.

The Dow rose 203.52 points, or 2.03%, to 10226.94, its highest finish in 13 months and its second 200-point rise in three trading days.

The Dow is down 28% from its 2007 record and is up 56% since hitting its 12-year low on March 9th this year.

Dow Jones Milestones

The S&P 500 closed up 2.2% at 1,093.08 and the Nasdaq Composite gained 1.97% to 2,154.06. The S&P 500’s high for the year was 1097.91 on October 19th, while the Nasdaq’s high was 2176.32 on the same day.

The S&P 500 financial index rose 3.63%.

The Fed reported on Monday that in its October bank lending survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. However, the net percentages of banks that tightened standards and terms for most loan categories continued to decline from the peaks reached late last year. The exceptions were prime residential mortgages and revolving home equity lines of credit, for which there were only small changes in the net fractions of banks that had tightened standards.

Banks also said they were not yet fully compliant with the consumer credit card legislation passed in May and said they expected to tighten many of their terms and conditions on credit card loans as a result of the legislation.

According to the Fed’s latest weekly measure of bank assets and liabilities, released every Friday, banks held $1.37 trillion of Treasury and debt of Fannie Mae or Freddie Mac, the federal mortgage loan guarantors, at the end of October and $1.37 trillion of commercial and industrial loans.

At the end of October, business loans were down 17% from a year earlier, while low-risk Treasury and agency debt holdings were up 8%. Total bank loans and leases are down 8%.

Gold futures finished about $1,100 for the first time, reaching a record $1,100.80 in late New York trading. The dollar, hurt by low US interest rates, briefly moved above $1.50 per euro and closed in New York at $1.4988.

Global stocks also rallied.

The Wall Street Journal says on an inflation-adjusted basis, gold would have to hit $2,291.55 to equal its 1980 record. The nominal price has quadrupled since 2001, when it traded below $260.

It is argued that the rally in stocks and commodities is fuelled by the trillions of dollars in debt-financed stimulus that governments and central banks have been pouring into economies, in their effort to end the deep recession. The money boosts corporate profits, making stocks appear more attractive. Since businesses can't put it all to productive use, some finds its way into asset markets.

Bank profits have been boosted by close to zero fed funding rates, which in turn is resulting in demands for big bonus payments.

Banks like Goldman Sachs set-aside 50% or more of their revenue for employee compensation.

Last month, the Economist said that the top ten investment banks at the start of 2008 made an average return on equity of just 8% between 1999 and 2008. Four made cumulative losses. Staff got four times as much as shareholders did in profits.

Discussing the state of the world's markets on the anniversary of the fall of the Berlin Wall, with Neil Hennessy, Hennessy Funds; Donald Luskin, Trend Macro and Vince Farrell, Soleil Securities: