I was reading the news about the Chilean miners that are trapped 2,500 feet below the surface of the earth and I realized that there is a corollary for our economy in the making here. There are tremendous difficulties associated with their rescue and many had written them off for dead at the outset. Now however, there appears to be some hope. They can communicate with the men, they can get food down to them, and eventually they should be able to drill a hole large enough to rescue them from their dire predicament. It’s going to take a long time, a lot of money, and a great deal of emotional and physical difficulty but it’s possible for them to come out of this alive. That is truly great news and they’ll probably all get big movie contracts after they get rescued. I figure if Hollywood can make a movie with nothing more for a story than Tom Hanks, a raft, and a volley-ball then this miner story should be a slam dunk.
There is one man in the bunch though that serves as an interesting corollary to our economic predicament. Yonni Barrios is one of the men who is stuck underground in Chile. By all reported measures he is a hero to his teammates as he has delivered first aid, provided flu shots and more importantly provided leadership in a time of great uncertainty. Much like the economy Yonni’s future looked to have some dark times coming as he was buried 2,500 feet below the surface a few weeks ago. As the world rallied around them, and great steps were taken to effect their rescue the clouds hovering over their future lightened in color and the worst of the threats seemed to pass. The future of these miners is heading toward a very happy ending at this point…except for Yonni’s.
Yonni’s problem (much like the problems our economy faces) is that while he might escape the worst potential outcome…he still has some very serious problems to deal with once he gets passed the immediate threat. You see…Yonni’s problem is that while he was trapped under the earth fighting for his life…his wife bumped into his girlfriend at a vigil being held half a mile above him. Yep…I’ll let that sink in for a minute. Picture the scene…a candle light vigil in the barren wind-swept foothills on a cool Chilean evening…a very somber yet hopeful energy fills the air. His wife was calling his name aloud…and then she heard someone else calling his name aloud…they sought each other out and I can only imagine how the conversation unfolded from there. If it were my wife I imagine they’d have to restrain her to keep her from plugging the air hole they had drilled for me.
I don’t know if anyone has alerted Yonni to what awaits him on the surface when they get him out in December…maybe they avoided the topic to keep his spirits up…but he runs the real (and ironic) risk of rescuers pulling him up from 2,500 feet only to have his wife put him back 6 feet under when he gets there.
The FOMC, the economy, and Yonni’s girlfriend
The Fed has been dealing with a situation that is conceptually similar to Yonni’s. The economy appears to be headed in a direction with fewer dark clouds hanging over it…but there remain significant obstacles to getting things back to normal.
The FOMC minutes showed that while the Fed believes we’re not faced with the threat of imminent deflation or inflation there remain significant obstacles as we move forward. Unemployment, housing, and consumer spending are essentially like Yonni’s girlfriend…they represent significant obstacles to things getting back to “normal”. So while we might have avoided the worst of the danger we’re far from being out of the woods (or copper mine for that matter).
Initial Jobless Claims were released this morning at 472,000 vs. a 475,000 expectation…very much in line. Continuing Claims achieved similar results posting 4.456 million vs. an expectation of 4.45 million. Continuing the recent trend both numbers had prior month revisions that took last month’s numbers to levels that were a bit worse than originally thought.
The market is off a bit on this news today. The 10-year is currently trading at a 2.62%.
Pessimist of the week award
In perhaps the most pessimistic change of view this week Bank of America revised their 1st quarter 2010 forecast on the 10-year Treasury downward to 2.00%. TWO PERCENT by 1Q 2011. To put things in perspective the cycle low on the 10-year is a 2.08%. We achieved that low point at the height of the economic melt-down. B-of-A predicts we will punch through that level shortly. I find it a stretch…but that’s just one man’s opinion.
Their forecast is based on the premise that the Fed will spend $500 to $750 billion to purchase Treasury bonds in another round of quantitative easing to support the economy.
As a counterpoint we have at least two Fed officials speaking this week stating that they are reluctant to do any more quantitative easing. They maintain that any additional measures will require a very thorough cost-benefit analysis, and they liken more quantitative easing to “pushing on a string”.
If you have any questions or if there is anything I can be doing for you just let me know.
Steve Scaramastro, SVP
800-311-0707
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