Striving for stability

March 7, 2016 09:28 AM

The news this past week seems to have been concentrated on the political arena where the combatants took shots at each other to gain prominence among the electorate. Meanwhile, with less fanfare, the markets managed to react to the various economic and corporate data.

The U.S. Labor Department reported an increase of 242,000 jobs created against the estimates of 198,000 or so. China lowered its estimate of economic growth, but still managed a 6.5% to 7% rate. While that was considered somewhat disappointing, it appeared that the slowing economy was stabilizing. The U.S. picture was less than enthusiastic, where GDP was revised upward from .7% to a full 1%.

A dismal performance, in our opinion, when for two years of the Obama administration, Democrats controlled the White House and both houses of Congress. Now with the split between the Democratic White House and the Republican Senate and House, nothing is being accomplished and we will have to wait to see how November might change the situation going forward in 2017.

For now, we remain convinced of a global recessionary trend exacerbated by the influx in the west of hundreds of thousands immigrants fleeing the war-torn Middle East. Now for some actual information that hopefully will guide our readers through the maze of information.


Interest rates

The U.S. Treasury bond closed Friday at 163 19/32nds, down 1 and 7/32nd as the U.S. Labor Department reported 242,000 new jobs in February against economist predictions of a 198,000 gain. While that took the steam out of bond prices, yields rose on the expectation of the positively construed jobs picture leading to the U.S. Federal Reserve considering another rate increase. That is something we doubt since, while the overall number appeared to be positive, the underlying fact remains.

The under-employment number (which is never reported but plays a significant role in the overall economic structure) is estimated to be around 18% or higher, since workers who took jobs paying less than the ones they lost still factor in to the overall rate of 4.9%. We feel the U.S. administration, while reporting an "improving economy" is all done with the use of "mirrors" and "rose colored glasses." A factor to also consider in my analysis of a recessionary trend is the hours worked number, which is at its lowest level in two years.

U.S. exports declined in January for the fourth month in a row, clearly indicating that the U.S. Administration, in allowing companies to move out of the U.S. in favor of more favorable tax structures, is making a mistake. It shows to me no knowledge of the workings of corporations having to perform for their stockholders. For now we prefer the sidelines in bonds, but with our negative view of the U.S. economy, prices should stabilize and possibly work higher as yields decline.


Stock indices

The Dow Jones closed Friday at 17,006.77, up 62.87 points and its two month high. The S&P 500 closed at 1,999.99, up 6.6 points, and is up 2.7% for the week. The Nasdaq closed at 4,717.02, up 9.6 points. The positively construed job report led to ideas that the Fed is now free to consider another rate increase which would favor the U.S. dollar and U.S. investments.

We totally disagree and feel that once the "true" picture of the U.S. labor situation is revealed, the export disappointment and the strong dollar will weigh heavily on the overall U.S. economy. Equity markets continued to track crude oil with crude gaining 9.6% for the week. We once again suggest holders of large equity positions both in the U.S. and abroad implement strategic hedging programs in order to protect from what we feel is an imminent contraction.

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About the Author

John has over 40 years experience at major U.S. Brokerage firms as Manager and Director of various International Divisions and is the founder of his own trading and brokerage firms. Over the years John has gained a wealth of knowledge and experience in all aspects of investments and trading. He was also a floor trader at the Commodity Exchange in New York. He formed Acuvest in 1999 and can be reached at futures@acuvest.com.