The Economy and Bond Market Radar (February 13, 2012)

Saturday, February 11th, 2012

The Economy and Bond Market Radar (February 13, 2012)

Treasury bond yields were modestly higher this week as most of the yield curve shifted higher by 4-5 basis points. Greek bailout discussions dragged on all week without really coming to a clear resolution, which added to the market’s volatility this week.

Economic data was generally benign but we continue to see a positive trend in employment indicators as the weekly initial jobless claim series continues to trend lower, which historically has been a positive indicator for the economy.

Strengths

• Initial jobless claims continue to trend in the right direction indicating the economy continues to improve.
• The Bank of England (BOE) will inject another $80 billion of liquidity as it expands its quantitative easing program.
• Consumer credit grew by more than $19 billion in December and by more than $20 billion in November. This may indicate consumers are more confident in their future and are willing to take on more debt.

Weaknesses

• In December, German industrial production fell 2.9 percent and German exports fell 4.3 percent. The eurozone was obviously weak in the fourth quarter.
• Chinese inflation rose to 4.5 percent in January, which threatens the implementation of economic boosting government policy.
• Japan’s core machinery orders fell 7.1 percent in December.

Opportunities

• The “risk on” trade started to show a few cracks this week and a reversal of sentiment would be good for bonds.

Threats

• With lots of economic data out next week and a trend toward stronger economic data, bond prices could be threatened if this pattern continues.

Tags: Bailout, Bank Of England, Basis Points, Boe, Bond Market, Bond Prices, Consumer Credit, Economic Data, Employment Indicators, Eurozone, German Exports, Government Policy, Initial Jobless Claims, liquidity, Machinery Orders, Market Radar, Right Direction, Treasury Bond Yields, Volatility, Yield Curve
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10 Predictions for 2011: Scorecard So Far (Doll)

Tuesday, April 12th, 2011

by Bob Doll, Chief Equity Strategist, Fundamental Equities, BlackRock

The predictions business is always fraught with uncertainty, but although it is still very early in the year, most of our predictions appear to be on track. The economic environment continues to improve, stocks (particularly US stocks) have been performing well and investor flows into equities have been accelerating.

1. US growth accelerates as US real GDP reaches a new all-time high.
There certainly are some downside risks to economic growth, but we are feeling pretty good about this prediction as of now. We continue to believe that US GDP growth will accelerate and come in at roughly 3.0% to 3.5% for all of 2011. More importantly, we believe the components of growth will be higher quality than last year (with increasing evidence of real final sales rather than inventory accumulation) as the economy exits recovery mode and heads into expansion.

2. The US economy creates 2 million to 3 million jobs in 2011 as unemployment falls to 9%.
Among all the components of the economic recovery, the labor market has remained one of the most stubbornly weak for almost two years now. Leading labor market indicators, including jobless claims, profit trends and lending standards, have been pointing in a positive direction for some time, but these trends are just now starting to translate into actual hiring. The most recent report (for March) showed an increase of more than 200,000 new jobs and the unemployment rate has already fallen below 9%. There is still a great deal of healing to do that will take some time, but we believe the trends are pointing in the right direction.

3. US stocks experience a third year of double-digit percentage returns for the first time in over a decade as corporate earnings reach a new all-time high.
Notwithstanding the mid-quarter correction, markets are off to a strong start for 2011, and are already more than halfway there in terms of reaching double-digit gains. While we expect to see continued volatility and cannot rule out additional corrective action along the way, we remain optimistic about the path of equity markets. Corporate earnings reports continue to be better
than expected and our belief is that they will hit a new all-time high in the third quarter.

4. Stocks outperform bonds and cash.
With cash likely to continue returning little more than zero, any positive returns for equities will mean they beat cash. Additionally, given our forecast for continued improvements in economic growth, we think stocks are likely to continue to outpace bonds as well.

5. The US stock market outperforms the MSCI World Index.
This prediction has certainly come true so far. The S&P 500 Index has returned 5.9% on a year-to-date basis compared to 4.8% for the MSCI World Index. When compared to other regions, the US economic recovery continues to be stronger, and corporate earnings in the United States also have been ahead of the pack. We maintain our conviction that this prediction is likely to come to pass as Europe continues to struggle with some serious debt-related issues and Japan deals with the damage and uncertainties wrought by the earthquake.

6. The US, Germany and Brazil outperform Japan, Spain and China.
Although we have certainly gotten the US and Japan components of this prediction right so far, on an equal-weighted basis, we are slightly behind on this one as of now. Germany has been held back by the region’s sovereign debt issues, although, ironically, Spain has performed well coming out of the doldrums of last year. Brazil has been struggling with the strengthening of its currency, which has hurt exports, while Chinese stocks have (so far) managed to overcome inflation issues. Time will tell as to how this prediction shapes up at year-end.

7. Commodities and emerging market currencies outperform the dollar, euro and yen.
In most cases, commodities are off to a strong start for the year. Oil prices are clearly higher and gold prices ended the quarter at a new record price of $1,439 per ounce. Other commodities, including industrial metals, were mixed for the quarter. From a currency perspective, the value of the US dollar has been pushed lower in recent months and, notwithstanding the post-earthquake spike, the value of the yen also has been falling. While the euro has been showing some strength, emerging markets currencies in general have been outperforming.

8. Strong balance sheets and free cash flow lead to significant increases in dividends, share buybacks, mergers and acquisitions (M&A) and business reinvestment.
So far, signs have been pointing to this prediction coming through as we expected. Corporate cash levels remain high and balance sheets are strong, which have allowed companies the ability to engage in healthy levels of all of these shareholder-friendly activities.

9. Investor flows move from bond funds to equity funds.
Although flows into equities paused somewhat when volatility became elevated during the brief market correction, the overall migration of fund flows from bonds to stocks has remained strong. This is a trend that we expect will continue through the course of 2011.

10. The 2012 presidential campaign sees a plethora of Republican candidates while President Obama continues to move to
the center.
In our opinion, President Obama indeed has been moving toward the center, as evidenced by the extension of the Bush-era tax cuts as well as other concessions he has been willing to make. As of now, it has been surprisingly quiet in terms of announced GOP presidential candidates, but we expect this will change in the months to come.

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Copyright 2011 © BlackRock

Tags: Accumulation, Bob Doll, Brazil, China, Commodities, Corporate Earnings, Downside Risks, Economic Environment, Economic Recovery, Fraught With Uncertainty, GDP Growth, Gold, Jobless Claims, Market Indicators, Mid Quarter, New Jobs, oil, Positive Direction, Real Gdp, Recovery Mode, Right Direction, Scorecard, Strategist, Unemployment Rate, Will Take Some Time
Posted in Brazil, Commodities, Energy & Natural Resources, Gold, Markets, Oil and Gas | Comments Off

What Could Trip Gold Up?

Thursday, November 18th, 2010

Submitted by David Galland of The Casey Report

What Could Trip Gold Up?

Can you visualize a possible scenario that could put a sudden end to the secular rise now underway in gold and silver?

In a recent conference call with the research team of The Casey Report, we once again collectively tried to imagine what situation… what scheme… what government manipulation… might finally put a stake through the heart of gold.

Setting the stage, I think it’s safe to assume that in order for the gold bull to decisively reverse direction, the following general conditions would have to be precedent in the economy:

1. The financial crisis will have to have ended. Which is to say that…

1. Unemployment would have to begin falling by significant numbers – with 300,000 jobs or more being added month after month, instead of being lost.

2. The housing markets will be stabilizing. Foreclosure rates would have to fall to more normal levels (and not because banks are forced to postpone the process for legal reasons, which is the case now), and sales would have to accelerate in the right direction.

3. Government deficits would have to be sharply curtailed and heading lower.

4. All quantitative easing will have ended.

5. GDP will have to be on sound footing and rise based on sustainable, private-sector growth – not based on the activities of government, which loom so large today in the calculation.

2. Real interest rates – the yields you earn over the actual rate of inflation (not the fabricated numbers ginned up by the government) – will have to be solidly positive. Which, of course, is a big problem given the sheer magnitude of the outstanding debt. Rising rates will only beget more debt.

3. The monetary base of the country will have to be contracting, not soaring as it has been in recent years. The following chart from The Casey Report a few months ago tells the story of runaway printing, and of why gold is so strong by comparison.

Inherent in the list just above are other conditions that will have to be precedent for gold’s run to end.

For example, politicians around the world will have to find the uncharacteristic courage to act in ways that are deeply unpopular with the very voters that brought them to office. Namely by slashing the scale and cost of government, with all the many cutbacks in subsidies and services that such a Great Downsizing must entail. And this rare new breed of politician would have to retain their jobs long enough to see through the reduction in government that must occur if stability is to be regained.

Tags: BRIC, BRICs, Casey, Conference Call, Financial Crisis, Foreclosure Rates, Galland, GDP, Gold And Silver, Government Deficits, Heart Of Gold, interest rates, Manipulation, Monetary Base, Private Sector Growth, Rate Of Inflation, Right Direction, Russia, Sheer Magnitude, Significant Numbers, Silver, Sound Footing, Stake, Unemployment
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BlackRock’s Peter Fisher on US Treasuries

Monday, August 2nd, 2010

Despite the rally in Treasuries, Peter Fisher, who oversees $1 trillion in fixed income for Blackrock, says it’s not time just yet to talk of a bubble. In an interview with Henny Sender, FT’s International Financial Correspondent, Fisher also discusses possible defaults in the muni market, the right direction for fiscal policy and the prospects for Europe.

Click here or on the image below to view the clip.

Fisher also played long-short – click here.

Source: Financial Times, August 1, 2010.

Tags: August 1, Blackrock, Correspondent, Europe, Financial Times, Fiscal Policy, Fixed Income, Henny, Image, Peter Fisher, Prospects, Rally, Right Direction, Source Financial, Treasuries, Trillion
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10 Truths I Wish I’d Known Sooner, and more Weekend Reading

Friday, December 11th, 2009

 Here is this weekend’s reading selections. Happy Holiday Shopping. Have a Great Weekend!

10 Truths I Wish I’d Known Sooner

 Occasionally, being better informed leads to better decisions. Mostly, though, I think we make choices based on who we are, not what we know. The lessons here are things that people who knew and loved me tried to tell me. So thank you to my relatives who scolded me in four languages, and to my high school English teacher who watched over me like Cupid with a Ph.D., and to my best friend, who taught me patience. These people did their best to make me smarter in the ways that count. If I had been willing and able to understand them, their words might have tilted me more (and sooner) in the right direction. If I could have, they might have. Or, as my father often said, if your grandmother had balls, she would be your grandfather.

What Does Your Handwriting Say About You?

How you craft letters and words can indicate more than 5,000 different personality traits, according to the science of graphology, also known as handwriting analysis. To introduce students to the field, graphologist Kathi McKnight has them write She sells seashells by the seashore in cursive. Why cursive? Graphologists say it gives them a better read on a person. Try writing the same sentence now in cursive (even if you usually print), then read on to see how graphologists might characterize you. (Note: Each analysis corresponds to the handwriting sample to its right.)

Tara Stiles: 10 Steps To Getting What You Want

Everything we need is already there. The challenge is letting go of all our stuff in the way.

 The Benefits of Assertiveness: Manage Stress, Improve Relationships and More!

What Is Assertiveness?:

Assertiveness is the ability to express one’s feelings and assert one’s rights while respecting the feelings and rights of others. Assertive communication is appropriately direct, open and honest, and clarifies one’s needs to the other person. Assertiveness comes naturally to some, but is a skill that can be learned. People who have mastered the skill of assertiveness are able to greatly reduce the level of interpersonal conflict in their lives, thereby reducing a major source of stress.

Soren Gordhamer: Video Games And Children — What’s The Right Amount?

“Dad, I really want a PSP,” my seven-year-old son Navarre recently said to me.

Eating well boosts immune system

This fall, many of us are looking for ways to keep our immune systems strong and healthy. The good news is that many healthy lifestyle habits — such as good nutrition, stress management, regular physical activity and sleep — nourish our bodies and our immunity. These habits have a powerful effect on our ongoing fight against potentially harmful invaders

Improving on the Latke – NYTimes.com

Take grated potatoes, onions and a little salt and pepper, mold them into perfect little pancakes and fry them in hot oil to a deep, golden brown crisp, and you have the much loved Hanukkah treat: the latke.

“How Hanukkah Works”

Hanukkah is an eight-night celebration. The Hanukkah celebration includes lighting the candles of the Hanukiyah (in English-speaking countries this is often called a Menorah, which is the Hebrew word for a candelabra) on each day of the holiday, playing with the dreidel, eating latkes and exchanging Hanukkah gelt.

Tags: Assertive Communication, Balls, Best Friend, Canadian Market, Choices, Cursive, English Teacher, Feelings, Gold, Grandmother, Handwriting Analysis, Happy Holiday, Holiday Shopping, oil, Patience, Personality Traits, Reading Selections, Relatives, Right Direction, Seashore, Tara Stiles, Weekend Reading, What Is Assertiveness
Posted in Canadian Market, Energy & Natural Resources, Markets | 1 Comment »