April 13, 2012
Last modified on 2012-04-14 02:50:22 GMT. 0 comments. Top.Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Fed Flinches First: With the economy now faltering further, the Fed and the ECB once again seem obligated to monetize. The Fed is leading the charge, expanding its purchases of Treasuries by $12 billion by the close of Wednesday’s trade. The ECB has yet to act, and may be hamstrung by laws restricting it. However, most economists agree that an effort to step up bond purchases in Europe (starting with Spain) is of timely and crucial need.
Earlier this week, stocks took it on the chin after reports last week showed lackluster US “jobs created” growth (non-farm payroll) and inflation that had accelerated in China. The slide in stocks was arrested quickly on speculation that the Fed would come to the rescue. As we surmised, the Fed didn’t disappoint, thereby holding stocks to modest losses in what otherwise could have been the beginning of a true dislocation. Metals on the other hand began to detach from previous trading patterns, showing support despite weak stocks and the strong dollar trade – see the box scores.
On the earnings front, Alcoa’s report was considered good news since it beat expectations. However, earnings were down 69% YoY as costs continued to rise faster than finished goods prices. Google matched expectations, and that stock was slammed by 4% in Friday’s trade. On the brighter side, banks JP Morgan and Wells Fargo reported solid numbers stemming from substantial increases in trading revenue and mortgage refinancing. Earnings seem to be “in line” so far, but still may take a back seat to Fed activity in coming weeks.
US debt was downgraded by Eagan Jones to one of the lowest levels among rating agencies (AA+ to AA). Eagan cited debt growth in the US outpacing GDP growth by a significant margin. We would add that debt growth is outpacing wage growth as well. Of course, the Fed is either oblivious or doesn’t care.
US non-farm payrolls for March increased only 120,000 – far short of typical “recovery” levels. Jobless claims also rose to 380,000, working their way back to 400,000. Embedded within the household survey of the NFP report, a record 87.89 million people are considered “not in the labor force.”
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