THE MARKETS
What is the most actively traded security on the planet?
The answer is the two-year Treasury note and its current yield
is sending us a signal, according to Bloomberg, July 17.
Last week, the yield on the two-year note fell for the seventh
straight week and touched its lowest level ever. At just under
0.6%, it is now lower than during the peak of the financial crisis
in the fall of 2008.
What does this signal?
In short, it suggests the economy is slowing down, inflation is
not a threat, deflation is a possibility, and money-market rates
will remain historically low, according to BusinessWeek,
July 15, Barron's, July17, and Bloomberg, July
17. Here's a list of several economic reports released last week
that help support this view:
- U.S. consumer sentiment tanked in early July, according to a
survey by Reuters and the University of Michigan
(MarketWatch, July 16).
- The consumer price index dropped for the third straight month
in June, according to data from the Labor Department (Market
Watch, July 16).
- Industrial production rose a modest 0.1% in June after having
risen 1.2% in May, according to the Federal Reserve, July 15.
- Another report released by the Federal Reserve, June 22, said,
"The economic outlook had softened somewhat and a number of members
saw the risks to the outlook as having shifted to the
downside."
- The dollar has posted significant declines recently against the
euro and yen as traders position themselves for a potential
slowdown in the U.S., according to Bloomberg, July
17.
While the data above points toward economic softness, second
quarter corporate profits are coming in strong. Of the 48 companies
in the S&P 500 index that have reported their earnings, 75%
have topped analysts' estimates, including a blow-out quarter from
Intel, according to Reuters, July 16.
The tug-of-war between soft economic data and strong corporate
profits is helping keep the market stuck in a bouncy trading
range.
|
Data as of 3/12/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
-1.2%
|
-4.5%
|
13.2%
|
-11.8%
|
-2.7%
|
-3.4%
|
|
DJ Global ex US
(Foreign Stocks)
|
0.6
|
-6.6
|
13.7
|
-12.4
|
2.0
|
0.3
|
|
10-year Treasury Note
(Yield Only)
|
2.9
|
N/A
|
3.6
|
5.0
|
4.2
|
6.2
|
|
Gold
(per ounce)
|
-1.6
|
7.7
|
27.2
|
21.3
|
23.1
|
15.5
|
|
DJ-UBS Commodity Index
|
0.5
|
-8.4
|
7.8
|
-9.3
|
-4.2
|
2.3
|
|
DJ Equity All REIT TR Index
|
-1.8
|
6.8
|
53.8
|
-9.2
|
0.0
|
9.9
|
| Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS
Commodity Index returns exclude reinvested dividends (gold does not
pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested
dividends and the three-, five-, and 10-year returns are
annualized; and the 10-year Treasury Note is simply the yield at
the close of the day on each of the historical time
periods.Sources: Yahoo! Finance, Barron's, djindexes.com, London
Bullion Market Association.Past performance is no guarantee of
future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable or not available. |
HOW DO YOU SOLVE A PROBLEM LIKE JOBS? This
question has a double meaning--jobs as in employment and Jobs as in
Steve Jobs of Apple.
Chronically high unemployment in the U.S. is having a
debilitating effect on our economy. We can point to many causes for
this, but one that receives lots of press is the outsourcing of
jobs overseas--and that's where Steve Jobs comes in.
Without getting into a political debate about the pros and cons
of free trade, it turns out that in a little recognized fact, Apple
is one of the biggest beneficiaries of outsourcing jobs overseas.
We can't get enough iPods, iPhones, iPads, and Macs, but relatively
few of the jobs created by our insatiable demand are sprouting on
our shores.
According to Apple and BusinessWeek, as of September
26, 2009, Apple had about 37,000 full-time equivalent employees of
which about 25,000 were based in the U.S. By contrast, Apple has
subcontracted with a Chinese company called Foxconn that
employs roughly 250,000 people who are devoted to building Apple
products. Doing the math, for every one Apple employee working
in the U.S., there are 10 Foxconn employees building Apple products
in China. Knowing that costs are much lower in China (and that
Apple products are in high demand), is it any surprise that Apple
earned $3 billion in profit with a 42% gross margin in the first
three months of this year?
Again, this is not meant to start a political debate about free
trade or protectionism as there are many facets to this issue. It
simply points out the intractable nature of high unemployment in
the U.S., particularly in the manufacturing sector. Some people
argue that free trade and capitalism are the best ways to grow jobs
and profits. Others, notably former Intel chairman and chief
executive officer Andrew Grove (Bloomberg, July 1), argue
for protectionist measures to rebuild our domestic manufacturing
base.
Ultimately, America needs to get its people back to work. The
Apple example shows just how difficult that may be.
For your convenience the sources
have been listed below:
http://www.bloomberg.com/news/2010-07-17/treasury-...
http://www.businessweek.com/news/2010-07-15/treasu...
http://online.barrons.com/article/SB5000142405297020...
http://www.marketwatch.com/story/us-july-consumer-sent...
http://www.marketwatch.com/story/us-consumer-prices-f...
http://federalreserve.gov/releases/g17/Current/default.htm
http://federalreserve.gov/newsevents/press/monetary/fomc...
http://www.bloomberg.com/news/2010-07-17/dollar-weak...
http://www.reuters.com/article/idUSTRE66F5VG20100716
http://phx.corporate-ir.net/phoenix.zhtml?c=107357&p=ir...
http://www.businessweek.com/magazine/content/10_28/...
http://www.businessweek.com/technology/content/jul20...
http://www.apple.com/pr/library/2010/04/20results.html
http://www.brainyquote.com/quotes/authors/s/steve_jo...
