Key Data Points German 10-year bund yield down 20 bps to record low of 1.1720 percent; Italy 27 bps wider; Spain 42 bps wider; Ireland 26 bps wider; Greece 52 bps wider; Large Eurozone banks down 1-1o percent on the week; Euro currency down 0.61 percent;
1) Gasoline prices fall another .04 on the week to $3.61, according to AAA, the cheapest since Feb. 2) The Fed’s now preferred inflation figure, the PCE price deflator (instead of CPI), rises 1.8% in April, the lowest since Feb ’11. 3) A bright spot within payrolls was the 422k job gain in the Household Employment survey. 4) Ireland votes to hold hands (I'm sure with their eyes closed) with the rest of Europe by passing the fiscal treaty. 5) Another drop in interest rates in the US, UK, Germany and in some others, never a better time to borrow money if you can get it.
Negatives:
1) May Payrolls grow only 69k after just 77k in April, well below expectations of 150k. Likely again some weather give back but US economy clearly slowing. 2) ISM mfr’g at 53.5, slightly below expectations of 53.8 but not as bad as feared and ISM puts positive spin on mfr’g. 3) Initial Jobless Claims total 383k, 13k above estimates and follows 4 weeks around 370k. 4) April Pending Home Sales fall 5.5% vs the est of flat and comes after cumulative 16.3% in unusual Oct thru Mar fall/winter. 5) Refi and purchase apps fall even with another new drop in mortgage rates. 6) Conference Bd Consumer Confidence falls to 4 month low. 7) Number of German unemployed remains flat vs est of down 7k. 8) Spanish and Italian yields again higher, IBEX closes at fresh 9 yr low and MIB just 100+ pts from Mar ’09 low. 9) Euro zone unemployment at 11% in April, unchanged with Mar. 10) China mfr’g PMI falls to 50.4 from 53.3 and PMI’s in India, South Korea and Taiwan fall slightly. 11) India’s Q1 GDP grows only 5.3%, the slowest in 10 yrs. 12) Fallout from China’s slowdown, Hong Kong’s April retail sales rise less than expected. 13) Historically low rates in the US, Germany, UK, etc… are scary to watch especially a negative 2 yr note yield in Germany.
BN news is reporting that the EU is shooting for a July 9th start date for the ESM, the permanent bailout facility. The story said all 17 countries that make up the euro zone will need to ratify the fund prior. Assuming it happens, the next question will be whether the Germans cede to requests to have it directly recap banks instead of first going thru sovereign governments and if the ECB caves to the desire to give the ESM a bank license that would then let it access ECB funding if needed (could be the next back door QE from the ECB) which would then leverage its firepower.
The table above was constructed right before the payroll report. It shows a snapshot of the lowest 10-year yields on the planet. The US has the 11th lowest 10-year yield. The Swiss yield of 0.48% is the lowest 10-year ever recorded anywhere.
As much as the US 10 year is a source of awe — it hit 1.44 this morning after the NFP report — there are numerous 10-year yields lower around the world showing how intense the flight to quality bid has become.
I did a rather lengthy interview with the delightful Wally Forbes last week. It went up on the Forbes site yesterday afternoon, and is worth a read:
Here’s an excerpt
“I may have mentioned this last time we spoke. In a secular bear market, like 1966-1982 bear or the secular bear market that began in March of 2000, our primary goal is to manage risk and protect capital.
It's kind of funny that after the 2008 collapse everybody has been mouthing those words. But, we've been saying that for ten years now. This is a secular bear market and you have to be very much aware of lots of volatility – strong rallies up, strong collapses down. If history is your guide, than you should expect to see five major swings from the bottom to the top and back before this whole mess is over.
Right now we're probably on the third leg. You had the initial crash in 2000-02/03, strong rally, big crash in 2008-09, big rally and if history holds true we should see one more major correction before the secular bear market is over.
History also tells us that, typically speaking, the middle collapse is the worst of all. So the 1973-74 lows, or in our case the March 2009 low is probably the worst of the collapse. Again, understanding the broader historical patterns doesn't change what we do day to day, but it very much colors our longer term thinking. It makes us say, "Hey, there's probably something out there in the latter half of 2012, maybe 2013. That's going to be the next great buying interval. That will be the next time we go 90-100% long equities."
and this:
“Here's the thing to keep in mind, and investors forget about this: There are keys to long-term performance, three major issues that you always have to recognize. One, you can't have giant losses. Two, you have to keep the fee structure as modest as possible. Three, very often the less you do, the better off you are. The last one is really hard, because everybody comes into the office everyday and there's a temptation to do something constantly. The expression, "Don't just do something. Sit there," really is true.”
Source: Buy ConocoPhillips, Keep An Eye On Walmart And EMC Barry Ritholtz, CEO and Director of Equity Research, Fusion IQ Wally Forbes Forbes 5/31/2012 @ 12:00PM http://www.forbes.com/sites/wallaceforbes/2012/05/31/buy-conocophillips-keep-an-eye-on-walmart-and-emc/
The IMF is raising its forecasts for global growth from levels it expected in January, but there is still a “high degree of instability” in the world economy, Managing Director Christine Lagarde says in an interview with the WSJ’s David Wessel.
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