Market Update _ When Bernanke speaks...people listen

Today’s episode of government efficiency

A failing, uncompetitive GM has been receiving taxpayer money for the last two years.  NASA is having their budget cut at the same time.  My last GM product made it about 70,000 miles before it broke down.  I read today that NASA’s Voyager 1 vehicle is currently 11 BILLION miles away from earth...and still working fine.  It would appear to me that if we are going to give anyone money to be making vehicles…it should be NASA…not GM.

On to more relevant matters

Bernanke speaks

Chairman Bernanke gave a speech on monetary policy to the International Monetary Conference today.   For those of you that like the short story here it is:

The job market stinks, there is no inflation, don’t blame the Fed for rising commodities prices, and we’re keeping rates low for a long time.

You can stop reading right here if you are a “just give me the short story” type of person.

For those that want more detail…read on…

The song remains the same

Much of what Bernanke had to say today has been said ad nauseam for the past two years.  There are too many people unemployed, and too many have been that way for too long.  Housing is in terrible shape.  Individuals are reluctant to spend due to all of the pressures they face.  Who wants to go blow a bunch of cash on a new TV when they know they could lose their job tomorrow?   I love a big screen TV as much as the next guy, but they don’t work too well when you’re forced out to curb.  Housing prices have fallen and become more affordable…but the pool of qualified buyers has shrunk tremendously. 

The Fed sees a modest recovery underway that was hampered in first quarter by a major disaster in Japan and rising fuel costs.  Fuel costs get a lot of attention but Bernanke points out that of the inflation that has shown up recently most of it is attributable to one item…gasoline…and that they expect this to be a transitory issue.  The Feds outlook is that gasoline prices will moderate later this year and help fuel growth (no pun intended). 

He is somewhat positive on the business sector.  As many have noted this year, business spending on equipment and software has been expanding.  Firms associated with the export industry have one well. 

With regard to the construction industry just envision him putting his palm to his forehead and mumbling something along the lines of “don’t even get me started…”  The housing market is in bad shape and will likely remain that way for a while. 

There’s no crying in central banking

Bernanke’s speech was 15 pages long.  I don’t say this to try to get some sympathy for having to read a 15 page paper on monetary policy…well…I might want a little bit of sympathy…but the main point is that of the 15 pages….a full 6 pages of it were dedicated to discussing commodities prices.  Why spend so much time on commodities prices?

It’s always interesting to hear a discussion on the determinants of price performance in the global commodities markets.   My wife can wait for me to come home each night with new and exciting stories about emerging markets impacts on global copper supplies.  I’m kidding of course…my wife has to use 30 thousand words per day…there is no room in the traffic pattern for my commodities discussions.

Bernanke on the other hand had a lot of room for commodities discussions.  He essentially said that emerging market demand along with failure of supply to keep up is the main culprit in the meteoric rise of prices.  Furthermore he insinuated that these countries need to stop crying about our domestic monetary policy being to blame for their inflation woes…they each have their own central banks who could…and should…be doing something about their issues.  They have the tools necessary…they just need to act.

He went on to point out that while the Feds activities have caused some erosion in the foreign exchange value of the dollar that their policies have not had a material impact on commodities prices.  While it is true that a drop in the value of the dollar causes dollar-denominated assets to rise in price, the rate at which the two have moved is not highly correlated.  George and I did the same math one day here in the office…if the dollar is off 15% and oil is up 160% it becomes very difficult to argue that the dollar’s drop is causing oil to rise.

Furthermore he points out that monetary policy is not the only factor that affects the FOREX value of the dollar…this fact will reduce even further the impact the Fed has had on commodities prices.

Bernanke concludes:

·         Recovery proceeding at moderate pace

·         Job situation far from normal

·         Inflation up some but should moderate

·         Conditions likely to warrant exceptionally low levels of Fed Funds Rate for extended period

·         Economy still producing well below its potential

·         Accommodative policies still needed

·         Won’t consider recovery sustainable until we see “sustained period of stronger job creation”

So…get used to low rates.  The end. 

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

 

Market Update 6 6 11 _ Middle of the road

The Fed is getting squirrely

The mercury pushed up toward 100 degrees in Memphis yesterday, and the humidity seemed determined to keep pace.  It can get so oppressively hot in this part of the country that people just go inside and stay there when the sun is high.  I joked to the wife last week that this must be one of the few places where you can occasionally have a legitimate fear of dying of thirst in your own front yard.  These are some of my favorite days though because it means I’ll have all of the local mountain biking trails to myself.  There will be no crowds at all and I can fly through the woods with very few distractions. 

It was on one such ride yesterday that I saw what might be an omen.  We’ve all seen squirrels wrestle with the “do I run left or do I run right” dilemma.  This usually occurs as you barrel toward them in your car.  It’s easy to see how the squirrels have a tough time with the decision.  They have eyes only on one side of their head and the car is coming pretty fast…maybe it looks different out of one eye than it did the other…this way…no that way…and so it goes until it becomes a very close call. 

Well yesterday on my afternoon ride there were a ton of squirrels on the ground.  To my surprise the squirrels had some trouble with the “left or right” dilemma even with threats moving as slowly as me on a mountain bike in 100 degree heat.   Some of this I figure was due to the fact that they are in a state park…they are used to seeing lots of people and maybe they get complacent about the magnitude of the threats they face.

Squirrel after squirrel darted back and forth in front of me as the miles went by.  Ultimately though, one squirrel took far too long deciding if it would be “left or right.”  Indecision paralyzed this squirrel as he darted back and forth in a tighter and tighter range until it was too late.  It was left, right, left…and then right into the path of my bike.  As he went under the front tire I realized that I just joined what must be a very small group of people in this world…people who have run over a squirrel while riding a bike.   What struck me most about the deal was that he not only got hit squarely by the front tire, but that he bounced off the chain, and then got the rear tire as well…it was an abrupt and  pointed lesson on the dangers of complacency and indecision.

As I finished my ride I couldn’t help but compare the squirrel’s dilemma to that of the Fed.  Both have to make some big decisions, both have to be timely in their decision making, and both can get run-over if they stay in the middle of the road for too long.

Where are we now?

The Fed has put itself in a precarious position.  Short term rates are at zero percent and the Fed’s balance sheet has swollen to well over $2 trillion over the preceding two years. 

Our current situation is one where core inflation is low, unemployment is stubbornly high, and there is a very modest recovery underway.  The risk the Fed has feared most is tightening too soon and choking off a blossoming recovery before it has a chance to get deep roots.  On the other hand…if they don’t act soon enough and they let inflation get out of control they could do real damage as well.  The Feds “too early/too late” dilemma isn’t much different than the squirrels “left/right” dilemma. 

We know that they can’t/won’t wait until unemployment is significantly reduced and inflation is off to the races before they tighten.  So the question is “when will they do it?”

Several Fed officials have given us guidance recently.  Most recently the Minneapolis Fed President (Kocherlakota) and the Philadelphia Fed President (Plosser) have given us some color.  As we discuss this issue keep in mind that there are two ways that the Fed can “tighten” monetary policy.  The first is to simply raise the overnight rate.  The second is to monkey with their balance sheet via selling securities or by simply halting the reinvestment of portfolio cash flows.

When will they tighten?

Kocherlakota (Minneapolis) said recently that his forecast is for PCE (the Feds preferred inflation measure) to be at 1.50% and for unemployment to be 1.00% lower by year end (as a point of reference the unemployment rate ROSE to 9.10% on Friday so this one isn’t going his way at the moment).  He went on to say that if his forecast is correct then he would argue for a 50 bps increase in the overnight rate.  His statements were more long winded and full of caveats and cautions regarding the problems of forecasting such things but he at least put some numbers on the board for us to look at.

Plosser (Philadelphia) began discussing his thoughts on tightening back in the 1^st quarter.  In a perfect world Plosser would like to see the Fed Funds Rate regain its role as the primary tool of monetary policy.  To achieve this goal the Fed would have to shrink their balance sheet tremendously.  In his 1Q speech he provided a look at how this shift might look if executed over two time frames.  The first was a 12 month window and the second was over 18 months.  Reviewing that data is beyond the scope of today’s update but if you would like to see it just let me know and I’ll shoot you the Powerpoint presentation where we reviewed the plan.

More recently Plosser has said that “somewhat tighter monetary policy is possible by the end of the year”.  He acknowledges that the Fed will have to begin reversing course on monetary policy before all of the data look good…and that’s not a huge surprise.  Nobody expects that the Fed will wait until the Unemployment Rate is back down to 5.00% before they decide “OK…now it’s time to tighten.”

What to expect?

This talk from the Fed is very preliminary.  As a counterpoint to the items we just discussed we should consider last week’s statement from St. Louis Fed President Bullard.  He noted that there is historical precedent for the Fed going on hold and staying on hold for a long time period.  So while there is talk among some at the Fed about tightening policy, there is plenty of talk on the other side about sitting still. 

In my opinion the Fed will let QE2 expire and then sit back and watch the data for a few months.  They will want to see if there are any adverse effects from their departure from their role in that market.  If the data are positive over that time frame we’ll hear more chatter amongst the members as to which way to go.  This is not going to be a quick process…certainly not fast enough to make you feel better if you are sitting on a lot of cash…that should still be a fairly painful position as short term rates are likely to remain low for quite some time.

It’s very easy to see the first step in this process being the halting of portfolio cash flow reinvestment.  This is a great way to test the waters because it’s a passive move.  It shouldn’t be terribly alarming to the markets and it’s probably going to be the easiest thing to get the FOMC to agree upon.

If the markets don’t freak out over the move then you can begin a very well communicated plan to begin selling assets at a pace that the market can digest.  This will be the first big step toward restoring Fed Funds to its role as the primary tool of monetary policy.  If we get to a point where PCE is rising toward 1.50% to 2.00% then you should expect to hear a lot more talk about a hike in the overnight rate.  Several Fed members have gone on record as saying that inflation will not be tolerated…even if it means raising rates with a high unemployment rate. 

So today we have some very early discussions that are beginning to nudge the FOMC in two directions.  How they proceed will depend entirely on the data…but at this point I can only hope that they are better at zigzagging than yesterday’s squirrel.

If you have any questions or if there is anything I can be doing for you just let me know.

Regards,

Steve Scaramastro, SVP

800-311-0707

 

 

 

Market Update 5 25 11 _ Slow is not good

It got a little slow around here during the month of May, and when things get slow we find ways of entertaining ourselves.  These aren’t always the healthiest episodes.  Much like when your dog gets bored and eats your wife’s purse…it helps pass the time but in the long run it’s not going to end well for him.

Fast forward from the dog’s life to my office…we have multiple Bloomberg screens in front of us all day quickly flashing a myriad of green and red numbers and pushing headlines and data to us in a staccato beat…it is the point where high tech meets high finance.  When things slow down here we tend to get very bored.  Sometimes we do harmless things to pass the time…like seeing who can eat the most hot-wings…and then who could forget the famous “sour kraut and spam” incident from a few years ago.  Harmless stuff really.  But sometimes things take a more serious turn…and we decide to do something with…the Bloomberg.  In this case several of us saw all of the volatility in the silver futures market and we decided “yeah…let’s play in THAT sandbox!”

So we did.  We took positions and tried our hand at trading silver futures via ETF’s.  And oooooohhhh what a mistake that turned out to be.  If I ignore the emotions, frustration, and financial discomfort the trades brought me I’m left only to ponder the pure stupidity of the move…which is very painful for people unaccustomed to doing stupid things. 

I got a glimpse of the future on my drive in this morning when I saw a guy driving a car with vanity license plates that read “FUTURES”.  It made me want to laugh and cry at the same time…ultimately I went with laughing because I’ve got reputation to uphold.  What made this so funny was that these custom tags (that seemingly proclaimed participation in the fast paced and lucrative futures markets) hung on the back of a beat up old Ford Taurus. 

As I drove past him I had a moment of great clarity.  I realized that those tags probably used to hang on the Mercedes he lost due to trading futures and now he has to drive around with that ridiculous license plate on a beat-up, second-rate, mid-90’s domestic sedan as a horrific reminder of how his luck treated him in the world of speculative derivatives trading.  At that very moment I decided to walk away from this game.  So you’re in luck…I won’t be quitting my day job to become a silver trading futures baron.  Next time it gets slow I’m just going to unplug the Bloomberg and eat my wife’s purse…it will help pass the time, be just as stupid, and be far less costly.

News of the day

Durable goods orders delivered bad news today posting a -3.6% vs. an expectation of -2.5%.  Under normal circumstances you’d expect this to cause a rally in the Treasury market.  The problem with that theory is that the Treasury market has rallied so much lately that it barely budged on this morning’s data.  The 10-year Treasury is up only a single tic to trade at 3.107%. 

There is still a fair amount of data to come this week.  Tomorrow we get GDP, Personal Consumption, Initial Jobless Claims, and Continuing Claims.  Friday we get Personal Income, PCE deflator (Feds preferred inflation gauge), Michigan Confidence and Pending Home Sales. 

Déjà vu

Our current situation seems eerily familiar.   We have the 10-year Treasury sitting very close to 3.00% and we have a wad of investors saying they are going to sit on cash until rates improve.  It reminds me of June 2010.  Roughly a year ago the 10-year was trading at a 3.05%...and by the end of August it had dropped to 2.50%.

Other stuff

Economic data lately has been disappointing and over the next few months the market will continue to wrestle with the situation in Europe.  It’s anyone’s guess where rates are going but there are still significant obstacles in the pathway of global growth.

QE2 is scheduled to end next month.  The Fed appears intent to let that happen and then take a wait and see approach.  There has been no shortage of people forecasting rates to skyrocket after the Fed quits buying but players in the Treasury market don’t appear to be paying heed to such arguments.  A month before the end of QE2, buyers are pushing Treasury yields to fresh lows.  This is not the pattern of people who expect prices to drop significantly 30 days from now. 

The second half

Ready or not we are about to enter the second half of 2011.  Fed Funds has been at zero percent for 2.5 years and the forecast for Fed Funds rising keeps getting kicked further down the road.  It’s not the prettiest backdrop but it is what it is.  Many investors have registered a great deal of uncertainty as to how to deploy their excess cash.  The solution is different for every bank…if you’d like someone to bounce ideas off of just give us a call.  We have a lot of analytics we can deploy to help you arrive at the answer that is right for you.

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

 

 

Market Update 5 1 11 _ Weekend at Binnies

 

Tough weekend for Bin Laden.  You KNOW he had the Spurs going past the first round in the NBA playoffs…it should be a slam dunk against the number eight Memphis Grizzlies…pun intended.  He’s got satellite TV, nowhere to be, and a great hideout.  So he gets his official NBA Tony Parker jersey on the black market (which is no easy feat in Abbottabad, Pakistan) and he sits down to watch the game on the dish network.  The next two hours are spent calling his bookie discussing point spreads, watching Memphis dismantle the number-one-seed San Antonio Spurs, and threatening to burn his Tony Parker jersey. 

 

Shortly after losing his shorts on the San Antonio bet he burns the jersey, settles the score with the bookie, and goes to bed hoping he’ll do better the next day with his Oklahoma City pick.  Before he wakes up to catch the pre-game, SEAL Team 6 pays him a visit to settle a different score.   Turn out the lights…the party’s over.  It’s probably for the best…the Oklahoma City game would have given him a stroke anyway.

 

When I heard the news I was very well tempted to go out back and engage in a little celebratory gunfire as is so common in the part of the world where bin laden met his end.  The trouble is that I live in Germantown, TN and folks here would have big problems with celebratory gunfire even in the middle of the day…much less at midnight on a Sunday.  If however I were just down the road in my old North Mississippi neighborhood it would be no big deal…in fact the neighbors there would already have a beer or two on me before I managed to join them.

 

On to the market

 

Market activity is mixed this morning after the release of the ISM Manufacturing data.  The survey expected a 59.5 reading and the actual release was 60.4.  The 10-year is up a bit in price to trade at a 3.27%.  Domestic stock indices are slightly higher on the day.  Crude oil is hovering at $114 a barrel.  We get a fair amount of data this week to include Vehicle Sales, ISM Non-Manufacturing, Jobless Claims and Change in Payrolls data. 

 

With the 10 year trading under 3.30% a lot of people are revisiting the idea of selling items from the portfolio.  If you would like a portfolio review to identify sale candidates just shoot us a copy of your most recent portfolio.  We can then discuss what type of strategy you’d like to pursue (i.e. selling high price vol. items, taking gains, etc.).

 

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

 

 

FW: Market Update 4 27 11 _ Over 1 Million Served

Bloomberg ran a story today that said McDonalds just hired 62,000 people after receiving over a million applications.  The thrust of the story was about how McDonalds is seeing nice growth in this environment and how they are attracting customers with new dishes such as Chipotle BBQ Bacon Angus burgers…mmmmmmm.

When I read that story… I see it from a different angle.  I look right past the heart-attack-waiting-to-happen burger, and I start to ponder the real meat of the matter…the numbers they just threw out.  I think the author at Bloomberg missed some very interesting material that was on his plate.

McDonalds…I’ll say that again…MCDONALDS…just received ONE MILLION job applications.  The unemployment rate currently stands at 8.80%.  The size of the US workforce is approximately 150 million people.  8.80% of 150 million means that there are currently 13.2 million people out of work.

McDonalds…MCDONALDS… just turned away one million of those people.  Put another way…a fast food burger joint famous for its unhealthy meals and an institutional inability to properly execute drive-through window orders just turned away 7.50% of the unemployed people in this country.   

They hired roughly 0.50% of the unemployed people…which tells us that 8.00% of the entire universe of unemployed workers in this country came down to the golden arches looking for work.  That is a staggering figure.

It concerns me that almost 10% of the unemployed in this country see their best prospects for a job to be slinging burgers.  I’m starting to think that there might be some merit to all of the stories that say America is falling behind in math and science.  I gotta wrap this up…the fry machine is beeping and I don’t want them to burn.  If I lose this job there are literally a million people willing to take my place.

Steve Scaramastro, SVP

800-311-0707

 

Market Update 4 15 11 _ Signals in the noise

Tough to read the signals when there’s so much noise.

Last night I awoke to a distant clap of thunder at 2:30 AM.  Shortly thereafter a tremendous wind picked up and with it came a violent thunderstorm and the requisite downpour that made so much noise that I couldn’t immediately return to sleep.  As I lay there two thoughts were on my mind…how much damage would this do to the house?…and when will my daughter run from the thunder and show up beside the bed?

Before I could assign probabilities to either scenario my thoughts were interrupted by a distant wailing sound.  The noise came to me in peaks and valleys as the storm’s intensity ebbed and flowed.  This noise concerned me because it could be one of only two things…both very familiar to people in my part of the world.  It’s either a train pushing its way through the storm or it’s a tornado siren…one requires no action and the other requires immediate attention.

Ultimately it turned out to be the wail of a freight train’s horn reaching me through the wind and rain, ultimately it took my daughter about 5 minutes to come looking for momma…and ultimately I lay there a while longer in the darkness comparing my recent train/tornado conundrum to the current state of economic affairs. 

Those who are attempting to determine which way this economy and market are heading are dealing with some of the same issues that I dealt with last night.  There are signals available that may help decipher the appropriate course of action but they are at times inconclusive and seemingly pointing toward different paths…each with a drastically different outcome.

In a recent webinar we discussed the Fed’s outlook on interest rates.  The FOMC committee is increasingly split into two camps.  One says that achieving the Feds dual mandate of full employment and price stability must come first.  The other says that the appropriate action is to reverse course on QE2 and normalize rates before the dual mandate is achieved in order to reduce the risk of unintended consequences.

Who will win? 

Currently there seems to be more support for those who desire to achieve the dual mandate first and keep rates “exceptionally low for an extended period”.  Based on what we’ve heard from the Fed the QE2 program is likely to continue unabated through its scheduled conclusion in June.  From that point it’s reasonable to consider that the Fed will wait and watch the data before taking their next step.  In other words it seems unlikely that we’ll get to the end of QE2 in June and see the Fed immediately begin to tighten.   

So how long will they wait?  As always…they will be data dependent.  I would expect that any move to tighten would be preceded by analyzing several periods of data to ensure that we have a sustainable trend of growth.  Any tightening (whether a reversal of QE2 or an outright increase in the overnight rate) would also be preceded by a great deal of communication from the Fed.  There won’t be any surprise moves from the Fed on this issue.  They’ve gone to great lengths to let us know that communication is a high priority item for them.  They understand that the complexity of their current monetary policy necessitates clear communication of any plan that begins to reverse our current course. 

So after the June 2011 conclusion of QE2 we should expect some period of time where the Fed monitors the data, comes up with a plan for raising rates, and communicates that plan to all interested parties.  One could easily see this process taking months or quarters.  As a reference point the Bloomberg Survey data doesn’t show an expectation for higher Fed Funds levels until 1Q 2012.

What are they waiting for?

Business cycles evolve over long time periods so it’s easy to lose one’s feel for how the course of monetary policy unfolds.  Given our current state of affairs I thought it might be interesting to look back at the last tightening cycle that began in June 2004.  I won’t suggest that this cycle will be like any particular cycle from the past…what I’m more interested in is seeing just how much positive data the Fed had to have piled up in front of them before they decided to begin a tightening.

It is interesting to note that after the last recession we had 12 months between the first mention of “firming of spending and markedly improved financial conditions” and the first rate hike by the Fed.

In the 6/25/03 FOMC statement the Fed saw:

-          Robust growth in productivity

-          Firming in spending

-          Markedly improved financial conditions

-          Labor and product markets stabilizing

Even against that macro-economic backdrop the Fed thought that an accommodative policy was the right one and they left rates low.

Skipping forward 6 months to December of 2003 we get an FOMC statement that sees:

-          Robust growth in productivity

-          Output expanding briskly

-          Labor market improving modestly

-          Low inflation

-          Considerable resource slack

Again the Fed left rates low…they have a lot of things moving in the right direction but it will still be six months before the Fed tightens. 

Now let’s look at our most recent FOMC statement from March 2011:

-          Recovery on firmer footing

-          Conditions in labor market improving gradually

-          Spending continues to expand

-          Housing and non-res. Investment depressed

-          Long term inflation stable

-          Short term inflation subdued

While our last FOMC statement looks somewhat similar to the Dec 2003 statement there are a host of very important distinctions between the two time periods.

Capacity utilization, consumer spending, and inflation expectations are fairly similar when compared between the two periods. In 2004 however the Fed was in a pretty good spot with regard to their dual mandate…unemployment was 5.6% and inflation was running at 2.2%.  Both numbers were manageable if not optimal.  Another major difference is the fact that the housing market wasn’t in shambles in 2004.

These are just a few of the items we could look at when studying this issue but I think it helps to note that in June of 2004 the Fed was starting from a much less perilous position than they are today…by comparison it was easy to raise rates in the summer of 2004.

Today they are failing on both counts of their dual mandate…the unemployment rate is at 8.9%, and inflation is below their 2% comfort level as measured by Personal Core Expenditures (PCE) at 0.9%.  Additionally they are still actively engaged in easing as they are 3 months from completing their most recent monetary easing plan (QE2).

Based on history and our current position it’s easy for me to see how it could be 1Q of 2012 at the earliest before they begin tightening.  As always they will be data dependent and they will continue to telegraph their plans before they take action. 

I wish I could get to the end of this Market Update with a smoking gun in my hand and say “The Fed will raise rates on (insert date here)” but the issue is far too complicated.  The best we can do is listen to the Fed as they debate the issue and keep in mind that their dual mandate of maximum employment and inflation will be their guide. 

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

 

Market Update 4_12_11: From headlights to nukes...it's a global economy

Last night I had to replace a headlight socket in the wife’s car.  This should be an easy 5 minute job…you cut some wires…you splice some wires…a little electrical tape and you’re done.  Well about 30 minutes into my 5 minute job I start to laugh at the absurdity of the whole thing.  A Taiwanese company made a replacement part for a German car, that was subsequently sold to a guy in Tennessee…and everyone involved expected this to work.  It didn’t really go as anyone planned.  After burning 30 minutes, laughing at the intricacies of international commerce that are in play, making some redneck modifications to the parts, and contributing a few dollars to the “swearing jar” I get the job done and shut the hood.  This morning I come in to work and I find that the intricacies of international commerce and a globally linked economy are not done with me.  The 10-year Treasury is up three-quarters of a point this morning on news that Japan has increased the severity level of their nuclear crisis from a 5 to a 7. 

 

A “5” is apparently the way to admit you have a problem but that you have control over it (ie It’s just a drink or four).  A “7” is the end of the line…the worst rating there is (ie you admit you have a problem…but you’re admitting it to the judge at your DUI hearing).  Well Japan is in front of the DUI judge today…and the world doesn’t like it…so they are once again fleeing to the safety of US Treasuries.  The 10-year was trading as high as 3.59% yesterday…today it has lost 11 bps in yield to trade at 3.48%.

 

There isn’t a lot of economic data to discuss today…the market is almost entirely driven by concerns over Japans nuclear crisis.  What this means for the world’s third largest economy (and it’s follow on effect for the global economy) remains to be seen, but it certainly doesn’t imply anything positive for growth.  It should also serve as more cover for the Fed to complete their planned QE2 purchases.

 

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