Get A Job

The U.S. trade deficit was little changed and not as wide as forecast as continued economic headwinds (high unemployment, higher energy priced, credit standards, etc.) are restraining spending and therefore, imports. The Jobless Claims data offered little encouragement that consumer spending is poised to take off. Initial claims came in at 456K. The was higher than the street consensus of 450K and although it was lower than the prior revised 459K, the prior number was revised to 459K from 453K. Net / net, initial claims were more than expected for the past two weeks. Continuing claims fell to 4,462K from a prior revised 4.717K (which was revised higher from 4,666K). The street consensus called for 4,640K continuing jobless claims. I have not seen data stating how much of the drop was due to workers finding employment and how many dropped off the regular jobless claims rolls and onto extended benefit rolls.



There are some who believe that the paring of jobs is good for the markets as the increased productivity. In a consumer driven economy, relying purely on productivity gains for economic growth is like a pilot dumping fuel to go faster by reducing weight by dumping fuel. He may go faster, but not very far.





Today we had another strong treasury auction. The auction yield was lower than the 4.206 percent street consensus. The bid/cover ratio, came in
at 2.87, indicating stronger demand. The ratio was 2.60 when this treasury was first auctioned last month The yield on the bonds sold today was the lowest since the 4.009 percent at the October auction. At the
previous auction, the bonds yielded 4.49 percent.

Indirect bidders, a group that includes foreign central
banks, bought 36 percent of the amount sold, compared with 32.5
percent in the prior auction.

In spite of the strong auction, prices of long-dates treasuries headed lower (about one point lower for the 10-year and two points lower for the 30-year) due to stronger economic data from China and Australia.



Market pundits are become tedious. With every down day they are all gloom and doom. After today's up day pundits were extolling the virtues of owning equities. Nothing has changed folks. I believe that Mr. Bernanke is correct and the recovery, although sustainable, will moderately paced. To all those who believe that then economy is ready to roar, if not for the pessimists, answer this: Why are corporations holding on to huge cash positions?


According to a Fed report companies are now holding $18.4 trillion in cash. That is up 26% from last year. Cash now makes up 7% of all corporate assets, the most since 1963.


Cash may be king for businesses, but it is not a viable option for most investors. Fixed income investors should be laddering, or at least barbelling. Ladders should be weighted on the belly of the curve (5 to 7 years) using callable agencies and high grade financial corporate bonds. Investors should keep very long-dated investments to a minimum as the curve is not as steep after 10 years.

Have a great weekend.