Offsetting these concerning comments is news that the Eurozone will boost their own bailout fund at a Euro area Finance Minister's meeting on March 30. As expected, the only way the European Monetary Union can contain the crisis in the short-to-intermediate term is to print a lot of money. And they have certainly done that, when you consider the 1Trillion Euros from the Long-Term Refinance Operations, as well as some of the direct ECB Bond buying. More monetary accommodation is coming…and that is one reason why Gold is up near $20 an ounce so far today.
Speaking of "accommodation” …Fed Chairman Ben Bernanke was up early this morning and already gave a speech on the labor markets. He said that while he is encouraged by the Unemployment Rate declining to 8.3%, "continued accommodative monetary policy will be needed to make further progress." Translation: low rates for a long time and maybe even QE3.
If you don't understand why the Unemployment Rate has come down in the face of tepid economic growth, don’t feel stupid, as even Mr. Bernanke admitted he has no clear answer for it, and that the recent decline in the Unemployment Rate is "out of sync" with pace of economic growth, calling it "something of a puzzle". Obviously, the big decline in the size of the labor force – via “discouraged” workers and the like – has played a role in supporting the decline in the unemployment rate.
Mr. Bernanke expressed concern about the high levels of the long-term unemployed, and said if those lofty levels are not brought lower (ie: people getting back to work), a likely result is that worker skills will atrophy further, making it even more difficult for those long-term unemployed people to find jobs.
Finally, our buddy Bill Gross was out over the weekend saying the Fed will hint at QE3 at the April 25 Fed Meeting. Based on the recent housing numbers, which have not been all that great, we agree with Bill on this one and will stick to our belief that the Fed will do a QE3 under the guise of helping housing.
Technically, the Bond remains on a "step" of the Down Escalator. Short-term, clients should lock on any price improvements, as the Bond at best has moved sideways over the past couple weeks. But longer-term, we can try and float, watching to see if the Bond can step off the Down Escalator and move higher. In order for us to be more bullish we must see the Bond break convincingly above resistance at the 100-day Moving Average.
Pay close attention to the potential of more QE3 rumors…that could help push the Bond higher. But when a official announcement is made – Bonds could actually suffer, much like they did when QE2 was rolled out.
Enjoy today's issue of By The Number$, and use a few of these talking points with your clients and referral partners throughout the week.
1. TWELVE - In the last 12 weeks, the S&P 500 has gained +11.6% on a total return basis, i.e., the YTD performance of the stock index from 1/03/12 to the close of trading last Friday 3/23/12. In the previous 12 years (i.e., 2000-11), the S&P 500 gained +6.8% (in aggregate, not per year). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).
2. DROPS HAPPEN - Since the S&P 500 bottomed on 3/09/09, the stock index has gained +106.5% through the close of trading last Friday 3/23/12 (change of the raw index not counting the impact of reinvested dividends). Even though the index has more than doubled there have been 11 different pullbacks of 5% or more since the 3/09/09 bottom. The average depth of the pullbacks has been 8.8% over an average of 18 days. The deepest tumble was a 17.2% drop over the 24 days that ended on 8/10/11 (source: BTN Research).
3. FROM EUROPE - 14% of the revenue produced by companies in the S&P 500 is derived from sales to European customers (source: S&P).
4. PENSION PLANS - 78% of American union workers participate in a defined benefit pension plan. 19% of nonunion American workers participate in a defined benefit pension plan (source: Bureau of Labor Statistics).
5. RETIREMENT - Only 59% of American workers (both union and nonunion) have access to any type of retirement plan, e.g., pension plan or 401(k) plan (source: National Institute on Retirement Security).
6. UP JUST ONE YEAR - The normal retirement age (NRA) in 2012 to be eligible for full Social Security benefits is 66 years. The NRA in 1950 to be eligible for full Social Security benefits was 65 years (source: Social Security Administration).
7. WHAT THEY PAID - The top 1% of US taxpayers paid an average tax rate (i.e., federal income taxes paid as a percentage of adjusted gross income) of 24.0% in 2009 vs. an average tax rate of 1.9% for the bottom 50% of taxpayers (source: Internal Revenue Service).
8. DOWN FOUR IN FOUR - The value of Americans’ equity in their real estate dropped by more than $4 trillion over the last 4 years, falling from $10.3 trillion as of 12/31/07 to $6.1 trillion as of 12/31/11 (source: Federal Reserve).
9. FOREIGN HOLDERS OF DEBT - The total debt of the US government as of 2/29/12 was $15.5 trillion, consisting of $10.7 trillion of “debt held by the public” and another $4.8 trillion of “intergovernmental debt.” 21% of the “debt held by the public” is owned by foreign investors in China and Japan (source: Treasury Department).
10. FEELING GENEROUS? - The total debt of the US government has more than doubled since the end of 2004, rising from $7.6 trillion as of 12/31/04 to $15.5 trillion as of 2/29/12. Taxpayers can make a credit card donation to pay down the national debt at the website www.pay.gov/paygov/forms/formInstance.html?agencyFormId=23779454 (source: Treasury Department).
11. INACTIVE ACTIVITY - Only 1 in 9 investors (11%) made asset allocation changes to their pre-tax 401(k) retirement accounts in calendar year 2011 (source: Fidelity).
12. IT’S ALL MATH - Low interest rates are problematic for pension-accounting calculations, contributing to higher cash contribution requirements. The “discount rate” used to calculate the present value of pension liabilities is oftentimes benchmarked to high-quality corporate bond yields. The largest public pension fund in the United States (the California Public Employees’ Retirement System) voted earlier this month to reduce its discount rate from 7.75% to 7.50%, a move that is projected to force the pension fund to contribute an extra $303 million a year (source: CalPERS).
13. DOUBLE-DIGIT - The average interest rate nationwide on a 30-year fixed rate mortgage was at least 10% for the 12 consecutive years of 1979-1990 (source: Freddie Mac).
14. GONE DIGITAL - US newspaper advertising revenue has fallen from $49 billion in 2000 to just $21 billion in 2011, a drop of 57% (source: Newspaper Association of America).
15. STAR PITCHER - Sandy Koufax was just 36 years old when he was inducted in Baseball’s Hall of Fame in 1972. Koufax, a Los Angeles Dodgers pitcher for 12 years with a 165-87 career record, is the youngest player ever inducted into the Hall of Fame. Koufax, 76 years old today, was an investor with Ponzi schemer Bernie Madoff (source: Baseball Almanac).
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