| Market Index | 12/31 Close | 4/08 Close | Week Change | Simple YTD % |
| Dow Industrials Avg | 11,577.50 | 12,380.00 | 0.03% | 6.93% |
| S&P 500 | 1,257.64 | 1,328.17 | -0.32% | 5.61% |
| Fed Funds Rate | 0.10% | 0.08% | -0.02% | -20.00% |
| 10 yr T-note Yld | 3.29% | 3.60% | 0.16% | 9.42% |
| 5 yr T-note Yld | 2.01% | 2.34% | 0.10% | 16.42% |
| 5 yr TIPS - 'Real' Yld | -0.06% | -0.58% | -0.07% | -866.67% |
| Implied 5 yr Inflation % | 2.07% | 2.92% | 0.17% | 41.06% |
| 2 yr T-note Yld | 0.59% | 0.83% | 0.03% | 40.68% |
| 2-10 Yr Slope | 2.70% | 2.77% | 0.13% | 2.59% |
| 90 day T-bill Yld | 0.12% | 0.11% | 0.05% | -8.33% |
| Gold ($/oz) | $1,421.40 | $1,476.60 | $47.70 | 3.88% |
| WTI Oil ($/brl) | $91.38 | $113.28 | $5.34 | 23.97% |
| VIX "Worry Index" | 17.75 | 17.87 | 0.47 | 0.68% |
| Credit Spreads | 12/31 Close | 4/08 Close | Week Change | Simple YTD % |
| Inv Grade Credit Idx | 4.78% | 4.71% | 0.01% | -1.46% |
| Low Grade Credit Idx | 8.32% | 7.82% | -0.03% | -6.01% |
| Markit CDX Inv Grd Idx | 85 | 94 | -2.08% | 10.59% |
| Markit CDX Mid Grd Idx | 131 | 152 | -1.30% | 16.03% |
Monday, April 11, 2011
Market Data: Week Ending April 8, 2011
Tuesday, April 5, 2011
Economic Condition Review 1Q2011
Looking back on the end of 1Q2011, the world is still reeling from the tsunami and earthquake damage in northern Japan, and traces of radiation turning up in unwanted places like certain food and drinking water sources and in ocean water along the plants. In northern Africa, the civil revolt in Egypt has resulted in the departure of the 4 decades long dictatorship of Hosni Mubarek leaving a power vacuum which will be resolved later, hopefully with a democratically run election. Next door to Egypt, the dictator of Libya is fighting his own countrymen who want him, Muammar Gadhafi, to give up his dictatorship. Other uprisings are beginning to build in several other oil producing countries in the region, including the Arabian peninsula. The threat of crude oil shipments being interrupted is a big concern for all countries importing from this region and is the reason for the multi-lateral military action intensifying now, particularly targeting Libya.
In Europe, the government of Portugal has collapsed. The government voted to not accept more austerity measures which was recommended by the former prime minister and his finance minister. This development is expected to lead to a bailout of the country's sovereign external debt by the European Central Bank and/or the IMF. The financial conditions attached to bailouts have been painful so far for Greece and Ireland. Both of those governments are debating how to incorporate the painful bailout conditions or to default on them. Default is immediately easier and politically popular in the countries. China is concerned with internal high and climbing food and shelter inflation threatening the massive lower classes, potentially destabilizing the power of the ruling party. Published reports claim that interest rate increases are on the calendar in China now to slow lending and personal discretionary consumption.
In the US, the Treasury market is finding some strength on a risk-off move recently. The US$ is weak, currently near the 76 mark. New and existing house sales numbers were reported recently by the Commerce Department and are lower than projections. Nationally, median house prices are now at December 2003 levels. Banks, the primary source of credit for economic expansion, both consumer and commercial borrowers, are lending only to prime customers, letting growth of credit remain below trend. Bank closings totalled 11 in January, 12 in February and 3 through March 25, according to the FDIC. Most businesses do not have pricing power, so prices are holding the line so far despite rising commodity prices. Exceptions are businesses with pricing power such as universities, health care services, food and energy producers. Inflation (see Q4 CPI) for gasoline in 2010 came in at 13.8%, the overall energy component at 7.7%, and in the major grocery store food groups, the index for meats, poultry, fish and eggs posted the largest increase at 5.5 percent.
The Federal Reserve is pulling the strings to guide global perception about the strength of the US$. The Fed has no choice but to continue it's zero interest rate policy and money printing practice. They will attempt to support the Treasury market when the primary dealers and global participants back away more than they have now. How the Fed uses it's power may look different and they will call it by another name to put watchers off the scent. But we are talking about a global economy here. Not just the US. Other major economies are directly impacted by the Fed's actions. So they become partners in the deed and will cooperate to the greatest possible extent. This will buy time. The possible time frames are wide ranging from many months to years. Unforeseen events, natural and physical, with financial consequences are wild cards that can, of course, shorten the time frame by changing the delicate balance in place now.
In Europe, the government of Portugal has collapsed. The government voted to not accept more austerity measures which was recommended by the former prime minister and his finance minister. This development is expected to lead to a bailout of the country's sovereign external debt by the European Central Bank and/or the IMF. The financial conditions attached to bailouts have been painful so far for Greece and Ireland. Both of those governments are debating how to incorporate the painful bailout conditions or to default on them. Default is immediately easier and politically popular in the countries. China is concerned with internal high and climbing food and shelter inflation threatening the massive lower classes, potentially destabilizing the power of the ruling party. Published reports claim that interest rate increases are on the calendar in China now to slow lending and personal discretionary consumption.
In the US, the Treasury market is finding some strength on a risk-off move recently. The US$ is weak, currently near the 76 mark. New and existing house sales numbers were reported recently by the Commerce Department and are lower than projections. Nationally, median house prices are now at December 2003 levels. Banks, the primary source of credit for economic expansion, both consumer and commercial borrowers, are lending only to prime customers, letting growth of credit remain below trend. Bank closings totalled 11 in January, 12 in February and 3 through March 25, according to the FDIC. Most businesses do not have pricing power, so prices are holding the line so far despite rising commodity prices. Exceptions are businesses with pricing power such as universities, health care services, food and energy producers. Inflation (see Q4 CPI) for gasoline in 2010 came in at 13.8%, the overall energy component at 7.7%, and in the major grocery store food groups, the index for meats, poultry, fish and eggs posted the largest increase at 5.5 percent.
The Federal Reserve is pulling the strings to guide global perception about the strength of the US$. The Fed has no choice but to continue it's zero interest rate policy and money printing practice. They will attempt to support the Treasury market when the primary dealers and global participants back away more than they have now. How the Fed uses it's power may look different and they will call it by another name to put watchers off the scent. But we are talking about a global economy here. Not just the US. Other major economies are directly impacted by the Fed's actions. So they become partners in the deed and will cooperate to the greatest possible extent. This will buy time. The possible time frames are wide ranging from many months to years. Unforeseen events, natural and physical, with financial consequences are wild cards that can, of course, shorten the time frame by changing the delicate balance in place now.
Monday, April 4, 2011
Market Data & Graphs: Week Ending April 1, 2011
| Market Index | 12/31 Close | 4/01 Close | Week Change | Simple YTD % |
| Dow Industrials Avg | 11,577.50 | 12,376.70 | 1.28% | 6.90% |
| S&P 500 | 1,257.64 | 1,332.41 | 1.42% | 5.95% |
| Fed Funds Rate | 0.10% | 0.10% | -0.05% | 0.00% |
| 10 yr T-note Yld | 3.29% | 3.44% | 0.00% | 4.56% |
| 5 yr T-note Yld | 2.01% | 2.24% | 0.08% | 11.44% |
| 5 yr TIPS - 'Real' Yld | -0.06% | -0.51% | -0.03% | -750.00% |
| Implied 5 yr Inflation % | 2.07% | 2.75% | 0.11% | 32.85% |
| 2 yr T-note Yld | 0.59% | 0.80% | 0.07% | 35.59% |
| 2-10 Yr Slope | 2.70% | 2.64% | -0.07% | -2.22% |
| 90 day T-bill Yld | 0.12% | 0.06% | -0.02% | -50.00% |
| Gold ($/oz) | $1,421.40 | $1,428.90 | $1.30 | 0.53% |
| WTI Oil ($/brl) | $91.38 | $107.94 | $2.54 | 18.12% |
| VIX "Worry Index" | 17.75 | 17.4 | -0.51 | -1.97% |
| Credit Spreads | 12/31 Close | 4/01 Close | Week Change | Simple YTD % |
| Inv Grade Credit Idx | 4.78% | 4.70% | 0.08% | -1.67% |
| Low Grade Credit Idx | 8.32% | 7.85% | -0.03% | -5.65% |
| Markit CDX Inv Grd Idx | 85 | 96 | 1.05% | 12.94% |
| Markit CDX Mid Grd Idx | 131 | 154 | 0.65% | 17.56% |
Friday, April 1, 2011
Non-Farm Payroll Perspective
Today, the Labor
Department reported that nonfarm payrolls (jobs) increased by 216,000 in
March. Today's chart puts the latest data into perspective by
comparing nonfarm payrolls following the the end of the latest economic
recession (i.e. the Great Recession -- solid red line) to that of the
prior recession (i.e. 2001 recession -- dashed gold line) to that of the
average post-recession from 1954-2000 (dashed blue line). As today's
chart illustrates, the current jobs recovery is much weaker than the
average jobs recovery that follows the end of a recession. Today's
chart also illustrates that the current jobs recovery is slightly
stronger than what occurred following the recession of 2001 and that the
trend is up.
One Eye on The Fed: 'Dual Mandate' is Camouflage
Today New York Fed President William Dudley spoke about the condition of the US economy. His record reflects that of a supporter of current Fed policy. Here is a brief statement from his speech that illustrates his overall sentiment about the economy and the need for the Fed to continue its money printing and intervention in certain asset markets.
"On the activity side, a wide range of indicators show a broadening and strengthening of demand by households and production by firms. For example, on the demand side, after an unusually deep retrenchment during the recession, consumer spending has begun to recover, and that recovery strengthened considerably in the final months of 2010. Not surprisingly, businesses' orders and production are following suit.
These factors led to a 3.1 percent growth rate in our most comprehensive measure of national output (real, or inflation-adjusted, gross domestic product or GDP) in the fourth quarter of 2010. Growth for the first quarter looks likely to be similar, near 3 percent. In my view, the revival in demand and production—while not as strong as desired—suggests that we may be much closer to establishing a virtuous circle that will support stronger growth. What I have in mind is a cycle in which rising household and business demand generate more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. This is why we upgraded our assessment of the economy at last month's FOMC meeting, noting the economy is now on a "firmer footing". The major missing piece of the puzzle has been the absence of strong payroll job growth. We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established.
With respect to the labor market, we have seen some conflicting signals. On one hand, the unemployment rate has fallen sharply over the past four months, dropping to 8.8 percent from 9.8 percent in November. On the other hand, payroll employment gains have been relatively modest."
Dudley's message is that there is still work to be done by the Fed before he can feel assured of an economy that will sustain itself in terms of employment growth and consumer spending growth (maybe GDP above 3.0). This is camouflage to the real purpose of QE.
"On the activity side, a wide range of indicators show a broadening and strengthening of demand by households and production by firms. For example, on the demand side, after an unusually deep retrenchment during the recession, consumer spending has begun to recover, and that recovery strengthened considerably in the final months of 2010. Not surprisingly, businesses' orders and production are following suit.
These factors led to a 3.1 percent growth rate in our most comprehensive measure of national output (real, or inflation-adjusted, gross domestic product or GDP) in the fourth quarter of 2010. Growth for the first quarter looks likely to be similar, near 3 percent. In my view, the revival in demand and production—while not as strong as desired—suggests that we may be much closer to establishing a virtuous circle that will support stronger growth. What I have in mind is a cycle in which rising household and business demand generate more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. This is why we upgraded our assessment of the economy at last month's FOMC meeting, noting the economy is now on a "firmer footing". The major missing piece of the puzzle has been the absence of strong payroll job growth. We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established.
With respect to the labor market, we have seen some conflicting signals. On one hand, the unemployment rate has fallen sharply over the past four months, dropping to 8.8 percent from 9.8 percent in November. On the other hand, payroll employment gains have been relatively modest."
Dudley's message is that there is still work to be done by the Fed before he can feel assured of an economy that will sustain itself in terms of employment growth and consumer spending growth (maybe GDP above 3.0). This is camouflage to the real purpose of QE.
Subscribe to:
Posts (Atom)