Friday, July 29, 2011

Market Update 7 29 11 _ Momma said there'd be days like this...

 

The markets can remain irrational longer than you can remain liquid

 

First there was concern over a default of US debt…and Treasuries rallied.  Then there was concern over a downgrade…and Treasuries rallied.  Then we got a brutal downward revision of GDP which should kill anyone’s expectations for robust corporate profits…but after only a very brief drop…stocks rallied back to be slightly up on the day.  It’s like it’s “opposite day” in the markets.  The headlines would have you think that our market is like the Titanic…but the way money is flocking to us you’d think we were the last helicopter leaving the top of the embassy.

 

The 10-year Treasury is currently trading at a 2.86% (after hitting a 2.84% this morning) and the NASDAQ is up 2.8 points on the day.   Unemployment is high, housing is in the dumps, GDP is falling, and the NASDAQ is up…if anyone can explain the stock market to me I would really appreciate it. 

 

In the words of super-spy Maxwell Smart we “missed it by that much”. 

 

GDP was released this morning at 1.30% vs. a survey estimate of 1.80%.  As bad as that is…it’s nothing compared to the downward revision of the prior number that we also received this morning.  GDP was released last quarter (March 2011) at 1.90%.  At that time the comments from the Fed were that this indicated that the recovery was underway but not as robust as they’d like, and that they viewed the sluggishness as transitory in nature.  This morning we got the revision of 1Q GDP.  It was released in March at 1.90%...the revision today showed the actual number was 0.40%.  That is a dismal figure.  You’ll recall that the technical definition of a “recession” is two consecutive quarters of negative GDP.  I was going to say we inched closer to that threshold today with this revision but that would be inaccurate.  We took a hop-skip-and a jump toward that threshold with todays downward revision. 

 

As we’ve written in the past there are a few FOMC members who have outlined their triggers for another round of quantitative easing.  These triggers revolve around the Feds dual mandate of maximizing employment and controlling inflation.  A GDP figure of 0.40% will not create jobs, and it won’t push inflation up to levels that the Fed feels is consistent with their mandate.  This type of GDP figure is going to make some FOMC members talk a little more boldly about another round of QE.  I don’t view more QE as imminent as there doesn’t appear to be much appetite among the majority of FOMC members for such a plan…but at the least the timeline for the Fed raising rates looks to be even further away than it did last month. 

 

While we may not slip back into a recession it’s important to keep our perspective.  Even if we avoid the technical definition of a recession, there will be plenty of pain to go around if we just limp along at low levels of GDP.

 

That’s the news for this morning.  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 

Thursday, July 28, 2011

AA+ in a BBB world

 

Kick the Can

Many people have recently (and correctly I believe) compared the government’s current actions with regard to fiscal policy to playing a game of kick the can where we push all of our problems down the road, make some very optimistic assumptions and hope it all works out in the end.

When I think of this it reminds me of the first (and only) time I ever played kick the can.  I was in the fourth grade and the teachers brought out a big Folgers coffee can and explained the game to us.  Being in the fourth grade we thought this was wonderful…we get to run around and kick something.  What I remember most is how the game ended.  It ended with Felicia Martin running toward the can with outstretched arms and a big smile when someone else booted the can as hard as they could…right into her face.  Felicia (representing the average American taxpayer) went along with the kick-the-can game only to leave the field bleeding and crying.  The rest of us stood looking at each other in stunned silence until one of the teachers announced that the game was over.  She took the can and we never played it again. 

I can’t help but look at my experience in the fourth grade as a metaphor for the current game we’re playing.  Will the government keep kicking the can down the road until the tax payers are bleeding and crying and sitting in the nurse’s office?  Will they play ‘til the point where someone forcibly takes the can (i.e. foreign central banks quit funding our current account deficit at very low Treasury yield levels) and announces that the game is over?  I don’t have the answer but it sure feels a lot like the fourth-grade playground right now…we’ve got just the right mix of energy and lack of common sense to get someone hurt.

Downgrade?

We’ve previously covered our thoughts on the probability of a default on US Debt.  In short, we don’t see it as something to worry about.  The market doesn’t see it as something to worry about, and if you’d like the more full blown commentary just let me know and I’ll make sure you get some of the prior commentary on the issue.

Now let’s turn our attention to a downgrade and what that might mean. 

What does a downgrade mean? 

A downgrade indicates deterioration in an issuer’s ability to repay its obligations.  It doesn’t necessarily mean that they can’t repay them…it just means that the financial condition of the issuer has deteriorated to some degree.  Essentially, it means that the debt of this issuer is more risky today than it was before the downgrade.

Going back to Finance 101 we need to answer the question “how does the market compensate me for taking more risk?”  The answer is that the issue must provide increased returns for increased risk.

For example, how much money would it take to get you into the ring with Mike Tyson?  I’m guessing it will take a higher amount than to get you in the ring with…say…Tim Geithner.  Clearly there is more risk involved with fighting the former heavy weight champ and ex-con Mike Tyson than fighting welterweight Treasury Secretary Tim Geithner…therefore you need more money to compel you to get in the ring.  This is a basic view of the risk/reward structure of a downgrade.  Your AAA fight is against Geithner…if your fight schedule gets downgraded to BBB then you have to fight Tyson…and you’ll need more return to take the risks that come with that fight.

Despite the massive government intervention of the past few years this next law of finance might be one of the few that they’ve not managed to turn on its head…bond yields have an inverse relationship to bond prices.  If the price goes up, the yield goes down and vice versa.

So if today I wake up to find that my bonds have been downgraded (risk has gone up)…the prices of the bonds I own will drop to reflect that new level of risk.  When the price drops the yield rises until it hits a level that entices new buyers into the market.  This is the natural effect of a downgrade….falling prices.

Is that it?

In the case of a downgrade on a normal corporate bond, the effect of a minor downgrade will generally be limited to the price adjusting in the market to reflect the new information.  Everyone then gets on with their business.

US Treasury debt however is not normal corporate debt.  The US Treasury market is the world’s safe haven…it’s where people flee when there is a storm in the financial markets.  The US Treasury market serves as the very benchmark for almost all other risky assets.  The US Treasury curve serves as the “risk free rate” in countless financial valuation models.  A downgrade of this debt would certainly cause ripples to run through every other area that prices off of this curve.  Will the ripple become a tsunami?  Nobody knows.  It is certainly a very scary proposition to consider…but we need to consider both the theory of asset pricing as well as the reality of asset pricing. 

In reality we are just a few short weeks away from the deadline that decides if we default, get downgraded, or fix things…and the market shows very few signs of concern.  How could this be?

How could we be looking straight down the barrel of a default or downgrade of the world’s most reliable debt market…and still have huge demand for the paper? 

In the theoretical world of asset pricing models we would expect that the default/downgrade news in the markets would be causing Treasury bond prices to fall as investors moved to protect their assets.  In reality we continue to see robust demand for US Treasury debt.  What should we make of this?

The market doesn’t appear to be pricing in any chance of default, and very little chance of a downgrade.  It’s easy to see why nobody is concerned about a default…but why isn’t there concern about a downgrade?

Shouldn’t we be selling off ahead of a downgrade?

It would appear that the market’s view is that even if we get downgraded to AA…we’ll still be the biggest and best market around.  It’s good to be AA+ in a world of BBB markets.  Relative to the rest of the world…and despite all of our shortcomings…we’re still rock-stars by comparison.  Market participants recognize this and they still view our markets as a safe haven.

Can’t investors just go somewhere else?

Whether they are rated AAA or AA+, our debt markets are deep, liquid, and safe.  The size of the US Government debt is roughly $14 Trillion.  The next largest AAA rated sovereign behind the US is the UK.  The total available government debt in that market is $8.9 Trillion.  Behind the UK are Germany and France with roughly $4.6 Trillion apiece in public debt.  After that the supply of AAA debt falls off sharply to the point where the markets get so small that Bill Gates or Warren Buffet could single-handedly buy the entire supply of debt of some of these issuers. 

While there may be poorly fitting substitutes available for those searching for high quality sovereign debt, there are no perfect replacements for our debt markets.  Like Richard Gere’s famous line in “An Officer and a Gentleman” investors may end up crying “I’ve got nowhere else to go!”

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

 

Thursday, July 14, 2011

Politically motivated story of the week _ Treasury Debt Downgrade?

 

In a world of indecision and timidity Moody Investor Services has taken a bold and decisive stance (please note the sarcasm)…after years of recession, fiscal irresponsibility, political corruption, and cronyism they have decided to place the credit rating of US Government debt on review.  The timing just happens to be right before the government has to make a big decision on the debt ceiling.  Moody’s has taken the bold stance that if the US defaults they may downgrade our debt…way to go out on a limb guys.  Normally I’d just ignore stories like the one that hit the screen today, but in the digital age information can spread rapidly and I thought I’d provide some clarification before this story got out of hand.  Moody’s said that the US has been placed on review for possible downgrade because there is a possibility that the debt ceiling won’t be raised in time and the Treasury will default. 

 

There are a few funny things going on here.  First is the timing…which is obviously aimed at prodding politicians into getting something done.  The second is the logic being used…” we are going to downgrade the U.S. if they don’t raise their debt ceiling”.  In other words…if you don’t borrow more money we are going to downgrade you.  I understand what Moody’s is saying, but on a fundamental level how much sense does this make?  Moody’s thinks we are in terrible financial shape and the only way they see to keep our high quality credit rating is to borrow more.   This is like the cops at a DUI check point telling you “unless you drink a few more beers we’re gonna give you a ticket.”

 

I’m not at all concerned about the US Treasury missing a payment on an obligation…in my opinion that is a zero probability scenario.  However, I understand that everyone on this distribution list is sure to get some questions on this topic over the next few weeks and I thought I’d provide some ammunition to help you answer these. 

 

A CFO’s survival guide

 

Over the last few years we’ve fielded the following question in one form or another “is FNMA/FHLMC/US Treasury going to default?”  Today’s article from Moody’s will only serve to increase the number of phone calls you get from directors and shareholders on this topic.  These inquiries will likely be of two types…the first will be concerned and very interested in hearing your answer, the second will be in a near-panic and frantically seeking your answer.  Given the probability of you having to field such phone calls I wanted to provide a primer/refresher on the topic of “Why the GSE’s/Treasury won’t default”.  I’ve answered the question so many times that it prompted a Market Update piece in March of 2010 which I’ve attached for reference. 

 

Much of the attached write-up centers on the GSE’s…but the U.S. Treasury is even higher on the totem pole so anything you read about the importance of the GSE’s will count doubly so for the U.S. Treasury.  Without much further intro…here is the write up from back in March of 2010 that discusses the likelihood of a default by the GSE’s…if you have any questions just let me know.

 

Steve Scaramastro, SVP

800-311-0707

 

 

 

 

March 2010 write up

 

Why Barney Frank is wrong…and I am right        

Barney, Barney, Barney…today Mr. Frank is in “fear monger” mode.  I don’t know if he is trying to flex a little muscle to get some attention or if he is trying to prove that ignorance truly knows no bounds inside the halls of Congress.  This morning he made a statement to effect that the future of Fannie and Freddie debt holders might involve haircuts or bonds not being paid back at all. 

Mr. Frank either doesn’t understand the nature of the global financial system, or he’s willing to look like a complete buffoon to get some attention.

Before anyone gets too worked up about Barney’s statements let me point out a few facts, and then we’ll look at why we will never see anything like what he just mentioned.

In the beginning

Fannie and Freddie were created by the by the government, they were allowed to trade in the market with lower risk premiums due to their quasi-government nature (the implied full faith and credit), and they were mismanaged by the government (think “congress appointing their cronies to positions within the GSE’s and forcing them to lower their lending standards and help create this mess in the process”).  They have become so large that their debt is distributed throughout the global financial system, and I don’t know of a single bank in this country that doesn’t own their paper.  If you buy bonds and you don’t own GSE paper then you are in an exceptionally small minority of institutions.  Another material point is that they currently have “unlimited” lines of capital from the US Government.  The government owns responsibility of the GSE’s…Barney Frank can’t come out and say he’s bailing anyone out by allowing the GSE’s to meet their commitments.  The politicians created the mess at the GSE’s and they are responsible for cleaning it up.

If Mr. Frank thinks that he has the ability to force a “haircut” on the holders of this paper then he needs to be tested for drug use right now.  This is a move that would destroy much of the US banking system virtually overnight…it would also extend to foreign countries…some of whom own a tremendous amount of our debt and who would quite willingly punish us by dumping it on the market and causing interest rates to skyrocket.

Secondary effect

Any failure to pay 100% principal WILL result in a downgrade.  There is no way around it.  Fannie and Freddie would be immediately downgraded to “D” by the ratings agencies.  Now a “D” in high school was a passing grade for me…but for the GSE’s it stands for “Default” and it occupies the absolute lowest rung on the credit ratings scale.  This downgrade would cause a massive secondary effect.

To help you visualize the impact of a downgrade I’d like you to think back to all of the Gulf War footage we got to see on TV.  Footage where an F15 Strike Eagle drops a laser guided 500 lb. bomb right on top of a tank…you get the initial explosion which is pretty impressive, but then you get what is called a “secondary”.  The “secondary” is where the fun really starts…it’s where all of the fuel and ammo that was onboard that tank blows up as a result of the first explosion.  The secondary is what spreads the damage far beyond what would have been done by the initial impact.

The secondary effect from any failure to pay on the part of the GSE’s will come right after the downgrade.  Every bank in the country that owns this paper will have an immediate and ginormous loss that runs straight through to capital.  If you have 30% of your assets in the portfolio and 80% of that goes into default you’ve got a real problem.  Imagine the impact to capital if you have to mark all of your Agency debt from 100 down to say…20.

Your losses will be compounded because you’re not allowed to own “D” rated paper which means you will be forced to realize the loss by selling it.  When you go to sell your junk bonds you’ll quickly realize that a crowd has formed because everyone is selling their bonds.  More and more people sell which pushes prices lower and lower in what is commonly referred to as a fire-sale.  The GSE market will spiral into the deck where it will leave a giant smoking crater similar in size and historical significance to the meteor impact that killed the dinosaurs (I’m watching a lot of Discovery Channel lately so please forgive the analogy).  And this is just the impact on the domestic banking system.

Now look at the situation faced by foreign central banks.  Some of these folks are ALREADY talking about selling US Securities…this type of action will solidify and accelerate those plans.  This will add even more selling.  “Panic selling” doesn’t really begin to describe that activity that will be taking place at this point.  I wouldn’t expect US Treasuries to be the safe haven after this.  I don’t think investors will continue to view debt from the same folks that just blew up the financial system with the GSE default as “safe”. 

If you’d like to take it further you could even move on to how many American citizens would have their retirement savings wiped out by this move.  It will be tough to get reelected after you torpedo the entire country’s banks, jobs, and retirement dreams.  Feel free to come up with some more and shoot them back to me…the possibilities are almost endless.

And do you think anyone would be willing to buy a US “Housing Finance” bond EVER in the future after this fiasco? 

Prove it

Lest you think I am merely being an alarmist look at the “secondary effect” we got from the failure of Lehman Brothers.   Lehman is a much smaller institution than the GSE’s yet their demise pushed the US financial system to the verge of collapse.  When the powers-that-be decided that Lehman was where the bailouts stopped it set in motion a very unintended set of consequences.

Lehman’s default shook the foundation of our economy because their debt was widely held by money market funds.  Money markets are tremendously important pools of capital that provide the liquidity for our economy.  These funds are the oil in our economic engine.  When Lehman defaulted it caused losses in money market funds.  Money market funds aren’t supposed to “do” losses.  You put a dollar in and you get a dollar out.  If you get less than a dollar than the fund “broke the buck” as we say.  Breaking the buck is the death knell for a money market fund.  So Lehman caused a lot of losses for money market funds.  Losses were so widespread that concern that began as a ripple from a corporate bond default, then formed waves, which in turn became a tsunami.

Half of the liquidity in money market funds in the country was poised to leave OVERNIGHT.  The sell orders were on the books and ready to be executed when the firms that run the order books raised the alarm.  Treasury got a phone call describing the carnage that was about to unfold and they immediately put a Full Faith and Credit Guaranty on all money market funds to avoid the panic.  Think about that for a moment…they let Lehman fail and in turn were forced to insure all money market funds in the country against loss.  This huge impact was just from the default of a single corporate issuer…Lehman Brothers.  This example should provide some very recent insight into what type of events can be triggered by a default of a big institution.  If Lehman can do that much damage just think of what the GSE’s hold in store.

In summary

SO…the GSE’s fail to pay or force a haircut, they kill most of the banks in the country in the process (through OTTI capital write-downs on their GSE debt), they anger foreign central banks to the point that they sell their holdings partly out of self-defense and partly as a punitive measure, the secondary effect that we love so much roils through to the rest of the investing world in the form massive liquidations in response to the  downgrade to “D” and giant swathes of the American public see their retirement portfolios wiped out.

In my opinion there is nobody in politics that is going to light the fuse on that scenario.  If your goal were to destroy the US economy and set us on an equal economic footing with say…Kurdistan…then I’d say it’s a good plan.  Short of that…ain’t gonna happen.

I believe that my view on the GSE’s is far closer to reality than Mr. Franks’.  It seems to me that the most likely scenario is that existing debt of the GSE’s gets “grandfathered” into a Full Faith and Credit status, then they can re-invent the GSE’s and release them into the wild as healthy institutions whose debt going forward will have a much clearer status. 

This allows you to avoid nuking the financial system, and at the same time privatize a function that should have been private this entire time anyway.  It moves a few trillion worth of obligations onto the Federal balance sheet but hey…that doesn’t seem to bother anyone nowadays.

Wrap it up already

In summary the GSE’s do not have the ability to miss a payment or force a haircut on bondholders.  The markets seem to agree with this assertion as well…they are unmoved by Barney’s blabbering today.  Don’t lose any sleep over the misguided ramblings of one Congressman. 

I’m sorry if I’ve gone on longer than you or I wanted…but I can get passionate about these topics.  Halfway through this piece it began looking more like a manifesto of some sort rather than a market update but some things just need to be said.  In my view it is pure ignorance for someone of Frank’s stature to be spouting off in such an irresponsible manner on a topic like this.  I can only imagine the phone calls his secretary is fielding this morning…most of them from people far more important than me.  “Congressman Frank you’ve got Bernanke on line 1, Geithner line 2, Obama line 3, and some fixed income guy from Memphis on 4…”

I hope everyone has a great weekend.  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

 

Wednesday, July 13, 2011

Market Update 7 13 11 _ Bernanke's Testimony

Testimony

Chairman Bernanke delivered his testimony to the Committee on Financial Services in Congress this morning.  There won’t be many surprises in the testimony for those who have been following our Market Updates.  Much of what was delivered was a re-hash of prior speeches from the various Fed Presidents.

One of the most obvious traits of recent Fed speeches has been the idea of “transitory” or “temporary” setbacks for the economy.  Everyone acknowledges that the pace of the recovery is “moderate”.  The Fed strongly believes that most of the factors that are currently dragging on the economy are temporary in nature and they are doing much of their planning on that assumption.  If that assumption proves to be incorrect then they will have to make significant adjustments to their plans.

What if we weaken?

A few courses of action have been mentioned recently as potential responses to deterioration in our economic prospects (i.e. if our current obstacles turn out to be something less than transitory). 

The first plans is that the Fed could tell us in more explicit terms what “extended period” means and how long they will keep their balance sheet at current levels.  This one makes me laugh a bit because it implies that they’ve been intentionally avoiding the topic so far.  It’s like when the wife asks me if I want to go see the new chick flick at the theatre.  My standard response is to initiate a round of delaying tactics.  It’s always easier to delay answering the question until her girlfriends arrange a girls-night-out to the movies rather than take the hit on my own.  I usually say something like “let’s talk about it later…” and then I sneak off to the garage.  If the situation deteriorates (i.e. she gets more persistent about it) I can provide her with more detailed guidance on the odds of me going to that movie…but if I’m not forced into that spot…why put myself there?  So that’s the Fed’s first tactic for dealing with adverse economic developments …we’ll call it the “Chick-Flick strategy” of monetary policy…where they only provide more guidance on intentionally vague statements against their will.

Another tactic mentioned was to reduce the 25 bps that the Fed is paying on reserves held with them.  They don’t mention the magnitude of the impact they expect this action to have…most likely because it will be immaterial. 

Finally the FOMC minutes that came out earlier this week mentioned that a minority of the members were in support of QE3 if conditions deteriorated.  I guess they didn’t want to name names but we know that Minneapolis Fed President Kocherlakota has already gone on record as saying a drop in PCE (the Feds preferred gauge of inflation) from his 2011 forecast of 1.50%, along with unemployment remaining elevated would be a trigger point for considering QE3.  There doesn’t appear to be a huge following at the FOMC for more Quantitative Easing.  Everyone acknowledges that at the start of the program they didn’t expect spectacular results…it was a big program which at its best was expected to deliver marginal results.  The Fed has acknowledged that monetary policy has its limits…and QE2 was pushing them, so I don’t expect a huge appetite for more quantitative easing in the near term.

Keep in mind that the Feds dual mandate is to foster maximum employment and price stability.  They have to be feeling more than a bit insecure about their performance on these fronts so far.  I’m not trying to imply that monetary policy has all the cures for these issues because it certainly doesn’t.  The point is that the Fed is the only entity standing in the spotlight trying to fix these issues and so far the economy is about as squared away as a soup sandwich.   Month after month they spend more money and things don’t get better.   At this point they’ve got to be feeling like Rodney Dangerfield…they’re not getting a lot of respect.  

What if we strengthen?

In the best case scenario where all of the obstacles turn out to be transitory and the economy finds itself picking up steam with people going back to work and inflation on the rise, the Fed will be in a spot where they have to tighten.  With the tangled network of programs that currently exist there have been a lot of questions regarding HOW they will tighten if and when the time arises.  Questions such as:

-         Will they raise the overnight rate first?

-         Will they sell bonds out of their portfolio?

-         What will they do with their portfolio cash flows?

-         Will they execute these steps concurrently?

-         Do they favor one tactic over another?

Bernanke said today that the FOMC has reached a “broad consensus” on how they will begin tightening monetary policy once they decide that it’s the appropriate time.  Those steps are listed below.   Print this off and tape it to your wall

1 – They will stop reinvesting their portfolio cash flows

2 – At the same time (or shortly after) they will change the guidance in the FOMC statement

3 – Initiate temporary reserve draining operations

4 – Raise the Fed Funds target rate

5 – Sometime after they’ve begun raising rates they will begin outright sales from the portfolio

At the end of this road they would be in a spot where the Fed Funds target rate has been returned to its normal role as the primary driver of monetary policy.  You have to have a plan…and that is the one the Fed has come up with.  The timing of any such plan will of course be “data dependent”.  

The item that jumps out at me immediately is that “raising the Fed Funds rate” is pretty far down the priority list.  So not only does the economy have to see huge improvement before we get to a point where tighter monetary policy is appropriate…but once we get there you won’t be getting immediate relief from the pain of selling Fed Funds. 

That’s all for today.  If you have any questions or if there is anything I can do just let me know.

Steve Scaramastro, SVP

800-311-0707

Friday, July 8, 2011

Market Update 7 8 11 _ Lipstick on a pig and strategic blunders

Chaos, mayhem, disorder…my job here is done

Bloomberg reported a few weeks ago that Geithner was considering leaving the U.S. Treasury.  For his part Geithner said he’s not going anywhere, but on mornings like today it must be tempting to consider it.

Economists expected Non-Farm Payrolls to add 105,000 jobs…it only delivered 18,000.  The Change in Private Sector Payrolls was expected to be 132,000…but the private sector could only scrounge up 57,000 positions.  The Unemployment Rate increased from 9.1% to 9.2%.  Those are terrible numbers no matter what light you try to view them in.

Politics and economics

If you are on the current administrations economic team you’ve got a long weekend ahead of you.  I feel badly for them…their job is to spin the economic news in a positive way yet there’s no amount of lipstick you can put on this pig to make it look good.

Today’s numbers made me think of Christine Romer, the former White House economic chief who stood before the camera and told us that if congress passed the stimulus bill that the Unemployment Rate would not go above 8.00%.  I remember staring slack-jawed at the screen after she said it…mouth agape in disbelief…wondering why the White House didn’t have a compliance department that would keep such a statement from ever being uttered in public.  In my mind the statement ranks right up there in the history of great strategic blunders alongside statements like the following:

-          “Don’t worry…the Americans will never come here and fight.” Al Qaeda

-          “I think a frontal assault might work this time” Robert E. Lee, Gettysburg

-          “Just take out Pearl Harbor and they’ll be out of the war for good.” Someone in Japan

-          “I’m gonna look cool on the jumbotron.” Dallas Cowboy Leon Lett right before Don Bebe stripped the ball in Super  Bowl XXVII

Many of the people on this list are no longer with us…which leaves me with a picture of former White House economic advisor Christine Romer sitting in a Starbucks somewhere with former Cowboys defensive tackle Leon Lett commiserating about how things could have been different for them both if they could just have a do-over.

The Market

Market reaction to the data was sharp.  The 10-year Treasury is up almost a point, pushing its yield down to a 3.02%.  The Dow is off 121 points to trade at 12,592.  With no rebound in the employment market and a housing market that is still in the dumps it’s difficult to paint a realistic picture of where the growth will come from.  I’m reminded of the old Wendy’s commercial with the two little old ladies asking “Where’s the beef?”  Our current question is a derivative of that… “Where’s the growth?”

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