Overview and Observation:
I listened intently to Fed Chairman Bernanke’s farewell speech for some indication of any 11th hour stimulus policy "adjustments." With no such indication forthcoming, the expectation is for the new Chairperson, Janet Yellen, to continue the current Federal Reserve policies. The only "words" of consolation from Mr. Bernanke was his statement the reduction of asset purchases at the December meeting did not indicate any "diminution of its commitment to maintain a highly accommodative monetary policy for as long as needed." Whether or not the new Fed Chair agrees remains to be seen going forward.
The only new situation is the expiration of unemployment benefits for the million or more who have not yet found employment after two years of benefits. Senator Paul Rand suggests extending the benefits for another three months but add job creation functions to the proposal. The biggest employer is the Federal Government and if they create even menial government jobs such as road maintenance, Federal building maintenance or anything that will put people to work to offset the unemployment benefits, I see that as an "improvement." It remains to be seen if the current "unknown" ramifications of the "Affordable health care act" to small business owners can be mitigated to give those employers confidence in their business to allow for additional hirings.
The other problem is the movement to increase the minimum wage by 50%. I believe that to be detrimental to the labor situation as employers will make the necessary "payroll" and "hourly" adjustments to offset that financial burden. I see it as a mistake because workers hired at the current minimum can advance and receive performance raises to allow them to earn more than that minimum. However, to establish an "acceptable" minimum wage could deter employer hiring and also deter the incentive necessary for employees to advance in their respective positions. Now for some actual information….
The March Treasury bond (CBOT:ZBH14) closed at 128 18/32nds, down 2 ticks on Friday as talk persists among U.S. Federal Reserve officials of an ongoing movement to reduce the accommodative monetary policy. That could mean they view the economic growth meets its requirements before allowing for rate increases. We see no such economic improvement and expect the current policy to be maintained. That would prompt our ideas of a stable and consistent Treasury market remaining in its recently established price range.
The Dow Jones Industrials (CBOT:DJH14) closed Friday at 16,470, up 28.64 points after retiring Federal Reserve Chairman Ben Bernanke suggested in his final speech that the measures undertaken by the Fed helped the economy to recover from the extended recession. The S&P 500 (CME:SPH14) closed at 1,831.37, down .61 and the Nasdaq lost 11.16 points to close at 4,131.91. For the week the Dow managed a slight loss, but the S&P 500 lost 0.5% and the Nasdaq lost 0.6%. Light holiday volume was also impacted by the severe weather conditions in the Midwest and North Eastern U.S., which make travel dangerous and kept many investors trying to cope with the zero temperatures. We are now in January and the prospects for economic growth appear to have stagnated. We see an extremely overbought condition for equities against our expectation of reduced corporate earnings and the impact of such criteria as the effect of Obamacare and unemployment benefits expiration on the economy. We once again, almost ad nauseum, implore holders of large equity positions to avail themselves of strategic hedging programs.