Are markets looking at the recovery through rose-colored glasses?

Overview and Observation;

The rhetoric from Washington continues to run rampant. The "glee" associated with the monthly jobs "created" figure ignoring the weekly first time unemployment number is a painfully obvious "exclusion" of reality. The jobs created number completely ignores the quality of those jobs. The "household survey" shows that "731,000 of the 953,000 jobs created in the U.S. so far in 2013 are part time." That survey is the basis for the national unemployment, which was reported Friday as having “declined” to 7.4% in July from 7.6% for June. The jobs created figure was 162,000, which was sharply lower than the "analyst" prediction of 195,000-200,000. The downward revision of the prior months jobs "created" is also of concern to us. The economic "strength" is misguiding the American public as the number of part time workers increased during the recession and is holding just under 20% after the "recovery" started in 2009 and continues at that level. The "exclusion" of the correlation between the weekly unemployed figure of over 320,000 against the monthly jobs created figure of under 200,000 makes the "labor and economic recovery" suspect. We will continue to report on economic "progress" in "either direction." Now for some information we hope will assist our readers in the determination of their investment analysis…

Interest Rates:

The September 30-Year Treasury bond (CBOT:ZBU13) closed Friday at 133 20/32nds, up 1 19/32nds and continues to be "directed" by the U.S. Federal Reserves "indications" of changes in the bond buying program expected later this year. The disappointing July non-farm payrolls number added to the wild price swings in the Treasury instrument prices and subsequent yields. The 30-year bond yield declined 7 basis points back to 3.687% after rising to over 3.7% during the week. We have been on either side of this market but with a positive bias toward prices. Our continued belief is that the U.S. economic recovery is being view through "rose colored glasses," and interest rates remain the concern for investors trying to assess their positions in bonds and equities. The question also of who will take the "helm" of the Federal Reserve once Chairman Bernanke leaves is also of concern. The question of whether Summers or Yellen will be appointed by the President leaves us with the problem of two different philosophical attitudes. Summers was instrumental with the repeal of Glass-Steagal which kept the banking and brokerage operations separate. The repeal prompted banks to package good and bad mortgage products, securitize them and market them through their brokerage entities globally. Our opinion has been that this was the basic cause of the global financial "meltdown" and recession in the U.S. and internationally. Obviously, for the sake of the country, we prefer Yellen but Summers is a staunch supporter of this President and he likes to "pay his bills"….. stay out for now but our preference is the long side of the 30-year bond.

Stock Indexes:

The Dow Jones industrials closed Friday at 15,658.36, up 30.34 and for the week rose 0.64% to another all-time high as did the S&P 500 which closed at 1,709.67, up 2.80. For the week the S&P 500 (CME:SPU13) gained 1.07%. The tech heavy Nasdaq closed Friday at 3,689.59, up 13.84 and for the week rose by 2.12% still off the all-time high over 5,000. The weaker than expected non-farm payrolls data failed to diminish the enthusiasm that has prompted the bullish sentiment among investors. Earnings to some extent, have supported the "exuberance" toward equities but our view of increased net earnings on reduced overall sales is suspect. It leads us to believe that "improved" productivity, the practice of having a worker do the job of two or more laid off workers as well as the cost reductions tied to the hiring of part time workers to avoid the eventual implementation of "Obamacare" costs could be a contributing factor. We expect results to adjust themselves as our ongoing admonition that "an unemployed consumer does not consume and the producers of those products will be next to lay off workers. Another assumption of ours is that any reduction in the first time unemployment benefits applications will merely be a result of few workers available for lay off with a company "shutting its doors." The resulting reduction, while greeted with investor enthusiasm, will not be conducive to an improved labor and economic condition. We have been "joined" by other analysts as to the possibility of a severe equity market "correction." A stockbroker once told me that the "markets always come back" and I asked him when will Enron come back….No response but I do recognize through history markets have "eventually" recovered and moved higher. The question is why investors should "ride" the decline without some risk hedging strategy?

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