Tag Archives: unemployment

Bonds have been much talked about of late. Given the sharp rise in interest rates in recent weeks (60+ basis points from the low for the 10yr Note in early May), it’s pretty easy to understand why. The question is one of causality. There are a few potential candidates.

The first is the economy. It is natural when things are improving for interest rates to start working higher. There is more demand for money for spending and investment, which drives yields up. There is also the anticipation of higher inflation, which leads fixed income investors to demand higher yields to compensate for the lost purchasing power. We may not be looking forward to the US economy growing at 5% per year any time soon, but even if it grows in the 2%-3% range, which seems the expectation, high yields than what we’ve seen are easily justified.

The second candidate for the push up in rates by the market is the Federal Reserve. That’s obviously tied in with the economy discussed above in that we would naturally expect the Fed to bias toward higher rates with an improving economy. In this case, though, we have to add in the quantitative easing aspect. The Fed has unemployment as its target and as the chart below shows, that’s been steadily moving lower. As a result, the market is already looking forward to the eventual retraction of all that money printed to purchase Treasury securities and other debt instruments.

A combination of a stronger economy driving higher demand for money and Bernanke & Co. ending Q.E. creates the potential for a rapid upside movement in rates. How fast will depend on how the Fed unwinds. First, there is the step of halting continued purchases of Treasury paper ($85bln/mo). That will reduce demand, which in and of itself would impact yields. Then it becomes a question of whether Treasury securities are sold off or just held to maturity.

Much has been made of the potential losses the Fed could suffer on rising interest rates (like this Bloomberg story). Many market participants make a big deal of this because not only would higher rates mean bigger losses given where all the purchases have been made (low rates meaning relatively high prices), but the act of unwinding the portfolio would likely exacerbate things. As the Fed sells off its Treasuries it would tend to accelerate the rise in rates, and worse its losses.

Here’s the thing, though. The central bank need not sell back its holdings into the market, though. All it needs to do is hold them to maturity to avoid taking any losses (except in the case where Bonds and Notes were purchased for higher than par value, though even there interest income would more than offset the loss of principal). And the Fed need not sell Treasuries to shrink the money supply (selling brings money into the Fed, taking it out of the system). It can do repos to accomplish the same effect.

So with that said, what are the prospects for US rates?

Well, the weekly chart of 10yr yields below tells me that more upside is likely.

The widening of the Bollinger Bands indicated by the turn up in the Band Width Indicator line at the bottom (measuring the relative width of the Bands) says we may just be in the early stages of a trend move. The 2.40% rate area is massively important resistance, however. Notice how it was first a support zone when the market dropped in 2010, then became a topside barrier once broken below in 2011. How the market reacts to making a test of 2.40% will tell us a great deal about its strength or weakness.

Rising US rates, by the way, will only tend to make the USD more attractive to capital inflows.

Our Two Cents – Week of 5/7/12

After watching I’ll Have Another race for the crown in the 138th Kentucky Derby last weekend, we’ll have another pass at our biggest headlines in the financial markets.

In the U.S., the economy added 115,000 jobs in April as the unemployment rate dropped to 8.1 percent from 8.2 percent. While the April figures registered less than initially forecast, economists said there wasn’t a reason to panic yet because the warmer winter months could have encouraged employers to start their spring hiring early. The private sector posted a gain of 119,000 jobs, according to ADP.

In the eurozone, France and Greece held their elections. French voters elected Francois Hollande, who is a champion of government stimulus programs, after he campaigned on the need for more growth-generating economic policies and less dependence on austerity. Greece’s election caused more uncertainty in the eurozone as voters leaned toward extremist parties, making it difficult to form another government that would support the country’s rescue package. As a result, the nation may hold another election in the next couple of months. Additionally, Spain announced its decision to help its banks by presenting measures to the banking industry. Officials said they would not rule out lending or introduce public money into the banking sector if necessary. For the eurozone’s jobs, high unemployment continued to rock nations as the 17 euro-using countries faced an unemployment rate of 10.9 percent.

For alternatives investments, hedge funds increased slightly in April, with the HFRX Global Hedge Fund Index reporting a 0.12-percent gain. The UCITS hedge fund assets under management increased in Q1 from 113 million euros to 120 million euros, a jump of 6.2 percent.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 4/23/12

We enjoyed some warm weather in Boston this past weekend before rain pounded the city, but the inclement forecast didn’t dampen our perspectives about the currency markets.

In the U.S., unemployment aid requests remained near a four-month high as weekly jobless claims totaled 386,000. While economists said the March figures were weaker than previous numbers, they downplayed them, saying that the warmer winter may have led to some early hiring in January and February.

In the eurozone, the European Commission said Greece should now have enough money to stick to its economic reform program as the country seeks to improve its financial instabilities. British retail sales increased 1.8 percent, surprising economists because the volume of sales dropped by 0.8 percent last month and were only expected to increase 0.4 percent this time.

For hedge funds, assets rose to new levels as they surged to $2.13 trillion at the end of the first quarter, beating the previous high of $2.04 trillion, set in the middle of last year, according to Hedge Fund Research Inc. The Dow Jones Credit Suisse Hedge Fund Index finished up 0.05 percent in March.

In the foreign exchange space, FXCM reported steady March FX volumes, with retail down 2 percent from February and institutional up 27 percent from February. Retail volume accounted $340 billion, and institutional volume totaled $161 billion.

 

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 4/3/12

Fenway Park is revving for its centennial and the Boston Marathon is preparing for its annual run—two signs of April in Boston. In the currency markets, financial optimism, eurozone developments and alternative investment returns continue to show positive signs.

In the U.S., the economy is once again illustrating that it’s emerging as the main generator for global growth as markets improve, stock prices rise and personal-consumption expenditures increase. The country’s consumer confidence, which posted 70.2 in March, closed to the highest level in a year last month as a growing number of Americans said they planned to buy cars, homes and appliances.

In the eurozone, there are also hopeful indicators for an improving U.K. economy as its unemployment rate is 8.4 percent, less than the eurozone’s unemployment rate at 10.8 percent. While Greece may still face a long path for economic stability, German Chancellor Angela Merkel said Greece’s exit in the euro would be a “catastrophic” mistake to the area’s economic and political arenas. Greece’s eurozone sisters and the International Monetary Fund approved in March the country’s 130-billion euro rescue package to aid the nation until 2014.

Finally, hedge funds upped nearly 2.4 percent as of March 28, according to Bank of America Merrill Lynch Hedge Fund Monitor. In the first couple months of 2012, hedge funds returned 5 percent—the best start to a calendar year since 2000, according to Hedge Fund Research.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

The US economy is on the mend and a self-sustaining expansion appears set to take hold.  At least, that’s the verdict of most Wall Street economists, following the latest slew of economic data, which showed that non-farm payrolls increased by 243,000 last month – the largest number of net additions since last spring and, that the unemployment rate dropped to 8.3 per cent – the lowest reading since February 2009.

Further, the newfound cheer in the labour market has been accompanied by the return of American households’ vociferous appetite for new borrowing.  Indeed, consumer credit advanced at an annual rate of more than nine per cent in December – on top of the eye-popping near-ten per cent jump the previous month – to bring the annual rate of growth in the fourth quarter to 7 ½ per cent, the most rapid rate of increase in more than a decade.

The headline numbers would appear to suggest that the previously beleaguered consumer, the primary engine of economic growth, is back in the driving seat and set to propel the economy forward.  However, first appearances can be deceptive and a more considered analysis of the data reveals that the grounds for optimism may not be as robust as the bullish commentators seem to believe.

The notion that the labour market is in recovery is not in dispute but, the headline numbers almost certainly flatter to deceive.  The unemployment rate has dropped almost two percentage points from its cycle peak of more than ten per cent during the autumn of 2009 but, the improvement is exaggerated by trends in the labour force, where numbers have declined by 2.4 million since the end of the recession more than 30 months ago, and stagnated since the summer of 2007.

Numbers in the labour force have failed to keep pace with the natural growth in the working-age population, which amounts to roughly 125,000 every month, and as a result, the participation rate has dropped to the lowest level since the summer of 1983.

The underlying increase in the working-age population since the economic recovery began two-and-a-half years ago, suggests that the labour force should be near 160 million – more than six million above the documented number – in which case the unemployment rate would be close to 11 ½ per cent and, that sobering statistic is before consideration of the countless Americans that are currently reported as underemployed.

Back-of-the-envelope calculations reveal that the labour market remains oversupplied, but the harsh reality is disguised by the fact that potential workers have been leaving the labour force in their droves due to the general absence of employment opportunities.  Individuals of working-age are not included in the labour force if they retire, return to full-time education and are unavailable for work, simply give up looking for gainful employment, or are institutionalised.

Working-age individuals who have simply given up looking for work capture the largest share of those who have left the labour force by far, but those who have returned to school are a significant component and help to shed some light on the recent trends in consumer credit.

Note that non-revolving credit outstanding jumped $22 billion over the past two months and federal government loans, which include student loans, accounted for almost 70 per cent of the increase.  Further, outstanding federal government loans have surged 2.4 times over the past two years to more than $425 billion, as the demand for student loans leapt exponentially.

Federal and private student-loan debt combined is rapidly approaching $1 trillion and exceeded credit-card debt for the first time in 2010.  The trend is disturbing because the debt burden for individual borrowers is far higher given that there are considerably fewer people with student loans than there are credit card holders.

Student-loan debt has increased for every age group over the past three years according to CreditKarma, the credit score tracking site, but the pace of growth among those aged between 35 and 49 has been staggering at almost 15 per cent a year.  Further, loans to parents for the college education of their children have soared by 75 per cent over the past five years and, the estimated payback figure has jumped to an estimated $50,000 for parents over a standard ten-year period.

Needless to say, signs of stress are beginning to emerge.  Indeed, a survey by the National Association of Consumer Bankruptcy Attorneys (NACA) reveals that more than 80 per cent of bankruptcy attorneys say that the number of their potential clients with student-loan debt has increased ‘significantly’ or ‘somewhat’ over the past three to four years.

The trend is disturbing as almost all of the attorneys surveyed believe that extremely few borrowers will be discharged from their loan obligations as a result of undue hardship.  Indeed, NACA reports that, “For those with federal student loans, the government has collection powers far beyond those of most creditors. The government can garnish a borrower’s wages without a judgment, seize a tax refund … and deny eligibility for new education grants or loans.”

NACA notes that, “There is no discharge in bankruptcy for federal loans except in extremely limited circumstances,” and that, “Unlike any other type of debt, there is no statute of limitations. The government can pursue borrowers to the grave.”

Recent economic data has seen the enthusiastic bulls hail the arrival of a self-sustaining recovery.  Not for the first time, the analysis is decidedly myopic and a closer examination of the facts reveals that the conclusions are premature.

 

Previously posted on www.charliefell.com

 

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 2/13/12

While many of us in the U.S. watched the Grammy Awards this past weekend, Greece made significant next steps in its debt talks and Americans continued to see economic confidence after completing the first month of 2012.

After Greece passed its austerity plan, which sparked strings of riots, the nation’s leaders rushed to identify about 3.25 million euros in budget cuts because they omitted longer-term issues of debt sustainability and growth. On Feb. 12, the country passed its rescue package, which included a 22-percent cut in benchmark wages and 150,000 government layoffs by 2015. Arriving at that agreement—via a vote of 199 in favor and 74 opposed (and 27 absentations or blank ballots)—came after days of intense debates. As officials approved economic reforms in Greece, the U.K. city of Bristol decided to introduce its own currency. Called the Bristol Pound, officials designed the monetary unit to “support independent businesses in and around Bristol, retaining and multiplying the benefit of every pound spent for ordinary people and businesses.” Also in Britain, the British Monetary Policy Committee increased the Asset Purchase Facility by an additional 50 billion pounds, as expected.

In the U.S., economic optimism prevailed. The U.S. federal and state authorities agreed to a $26 billion settlement with five major banks, and The Corporate Executive Board’s Business Barometer report found consumer spending expected to rise. A recent Gallup chart showed that Americans have become less and less worried about the economy for five full months. The year 2012 saw an upbeat start, according to a report by IHS Global Insight. January saw the lowest level of jobless claims (325,000), and the fourth quarter of 2011 posted a nearly 3-percent growth—the strongest quarter of 2011. In the hedge fund world, the investment fund in January added 2.6 percent, according to the HFRI Fund Weighted Composite Index.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 2/06/12

Here in New England we’re trying to gracefully recover from our loss in this weekend’s Super Bowl to the New York Giants. While Madonna and Kelly Clarkson rocked Indianapolis at the big game, the currency markets continued to show signs of optimism in the U.S. and reform in Europe.

In the U.S., the jobless rate fell to 8.3 percent, a three-year low. Employers added 243,000 jobs in January, the second straight month of better-than-expect gains. The falling unemployment rate sparked signs of optimism that the economy continues improving.

Across the Atlantic, the European debt crisis is still center stage as the deadline for agreement on Greece’s second bailout looms, fuelling renewed euro zone anxiety. Earlier last week, Greece’s military received some positive news that it ranked in the top 10 of the world. The country ranks No. 9 out of 149 in the Global Militarization Index, according to Bonn International Center for Conversion. In Belgium, the nation slipped into recession after its economy fell on a quarterly basis for the second straight quarter in the last three months of 2011. Parliament is expected to ratify the 2012 budget bill.

While hedge funds saw a gloomy 2011, so far they have seen a positive 2012. Hedge funds added 1.34 percent to start the year, according to the Credit Suisse Index. The retail foreign exchange market saw a quiet end to 2011, unlike the beginning of the previous year when Japan’s Tsunami rattled the markets. As a result, the most volatility during 20120 resulted in Q1 because of the tsunami and Q3 because of the European debt crisis.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

­­Our Two Cents – Week of 1/9/12

With the first week of 2012 crossed off the calendar and the Iowa caucus in the past, the one word to describe the start of January—especially in the United States and European financial markets—is optimism.

The U.S. economy added 200,000 jobs, and its unemployment rate fell to 8.5 percent in December (from 8.7 percent in November). These figures paint an initially positive scene that the long-awaited economic recovery is finally making some positive strides. This good news comes on the heels of news earlier in the week about weekly jobless claims which have dropped to 372,000. Even though the holidays have passed, retailers and the economy also unwrapped a nice financial present. According to the International Council of Shopping Centers’ tally of 25 retailers, sellers collectively reported a 3.5-percent increase in monthly revenue at stores open at least a year. For November and December, retailers saw holiday sales increase 3.3 percent. While consumers were purchasing, hedge funds were gaining. In November, hedge funds raked in $3.6 billion in new money, according to BarclayHedge and TrimTabs Investment Research. Also, investors are confident about the 2012 hedge fund outlook, especially after they experienced a rough 2011.

In Europe, the markets rallied early last week, showing early signs of optimism after the previous year that saw economic chaos. To start 2012, Germany successfully auctioned its bond issuance by selling its 10-year benchmark bund. The nation sold $5.28 billion of the 2-percent January 2022 bund, its current 10-year benchmark paper, with bids reaching $6.52 billion. Successful bonds also found their way to the United Kingdom. British bond experts say U.K. government bonds—seeing record lows at the end of 2011—will remain as safe-haven assets, especially because the euro zone crisis hasn’t been solved. Experts say investors will continue to turn to U.K. government bonds because the country is able to control its currency and enact a monetary policy stimulus if needed.

 

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Major activities in the euro zone economic crisis, including proposed amendments from European leaders and austerity packages from Italy, topped our transaction of the biggest currency markets headlines.

France and Germany spearheaded negotiations about new fiscal plans for the 17-member euro zone, issuing proposed amendments to Europe’s governing treaties to provide better economic governance to nations. Meeting at Élysée Palace in France, French President Nicolas Sarkozy and German Chancellor Angela Merkel prepared proposals they would deliver to the full European Union Dec. 8. Some proposed amendments include automatic penalties for countries that exceed European deficit limits as well as the creation of a monetary fund for Europe. Sarkozy said he hoped the treaty changes would be ready for ratification as early as March 2012.

On Dec. 4, Italian Prime Minister Mario Monti unveiled for his country a 30-billion euro austerity package, which includes raising taxes and the pension age, in hopes of harnessing the euro zone crisis. He said the package was painful, but important, as he also renounced his own salary as prime minister and economy minister. Late last week, Sarkozy spoke to French voters about the economic slowdown and rising unemployment. His speech came on the heels of remarks from European Commissioner for Economic and Monetary Affairs Olli Rehn about the euro zone entering a “crucial” 10-day period. During this time, nations must focus on building “convincing” financial protections and tightening economic governance, as Sarkozy and Merkel have outlined.

While Italy, France and Germany devised reforms, Greeks returned to simpler ways of life. Because of Greece’s debt, many inhabitants have defaulted to bartering. In the small fishing village of Volos, which is about 200 miles north of Athens, many residents have been buying and selling goods from each other and vowing to neighbors during harsh economic times. In the United Kingdom, the British pound sterling emerged as a safe haven for investing because demands for British government bonds rose. Investors also turned to the pound sterling because it was up 2.1 percent against the euro since early September.

Across the Atlantic, the United States saw some signs of hope for jobs. According to the U.S. Labor Department, unemployment dropped to 8.6 percent. In November, 120,000 jobs were added, up from 100,000 from October. The good news was that the American economy grew, even though conditions abroad waned. But what weren’t waning were the wallets of some Connecticut hedge fund managers who won a $254-million Powerball drawing. The three winners pocketed the state’s biggest lottery ever and have donated some of the money to people in need.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Italian reforms, British backlash, German refusal and French strength made headlines last week. We hedged our bets on the best news in the currency market, and here’s how we made out.

All eyes were on Europe again this past week as Italy’s premier-designate Mario Monti stepped into the spotlight to help right Italy’s fiscal flounders. Monti faced a monumental task of galvanizing the country’s electorate and politicians to accept crucial reforms that would stop Italy’s sinking economy. This sparked some fears for economists because Italy’s economy is the eighth largest in the world and if not rightly handled could cause global reverberations. While Monti pushed reforms, former Prime Minister Silvio Berlusconi hit the recording studio. The once-battled politician is releasing a CD of love songs, where he croons with Mariano Apicella, a Neapolitan ballad singer he has collaborated with for previous albums. In England, Britain saw rising unemployment at 8.3 percent for September, but that didn’t stop Germany from blasting the U.K. to start helping the euro zone. Volker Kauder, parliamentary leader of the Christian Democratic Union and a senior member of Chancellor Angela Merkel’s party, blasted the British government, saying that “Britain also carries responsibility for making Europe a success. Only being after their own benefit and refusing to contribute is not the message we’re letting the British get away with.” Germany said it wasn’t planning to pay for the bulk of spending from other countries because it wants a unified continent. However, more core European nations were starting to feel the heat of the euro zone as AAA nations such as France were under pressure for their financial strength—a characteristic that’s no longer taken for granted. France’s cost of borrowing increased more than a half percentage point, and Austria’s spread between its 10-year bonds and benchmark German Bunds hit euro-era highs. Dutch and Finnish spreads have also seen their highest spreads since 2009, generating thoughts about the direction of a new Europe.

In the U.S., some good news about jobs. The number of unemployment benefits fell last week to its lowest level since early April, showing signs that hiring may be rebounding. The Occupy movements in cities such as Los Angeles, Boston and Las Vegas saw for the most part peaceful protests last week, but throngs of demonstrators in New York City took to the New York Stock Exchange and subways to raise concerns about corporate excess. In the markets themselves, hedge funds posted gains of 2.04 percent in October, marking some optimism after two difficult months. We conclude with a look at spending for Black Friday as shoppers are expected to gobble up purchases Nov. 25. According to the National Retail Federation, the average American spent $365.34 on Black Friday in 2010 with overall sales calculating $45 billion.

 

 

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.