French critic, journalist and novelist, Jean-Baptiste Alphonse Karr had it right with his catchy epigram, “plus ça change, plus c’est la même chose“, especially as it pertains to todays financial media. With the advent of 2014 those stalwart purveyors of FEAR and GREED are back at it right where they left off.
Headlines From The New Year (1/8/2014)
(Good news is bad news again)
Great ADP December private employment numbers (they even revised up November) equals bad news, as it portends that the life blood of all things equity, Quantitative Easing (QE) will be withdrawn even more rapidly, causing rates to spike thus killing off our fledgling economic recovery. This was a prominent theme last year before ‘the taper’ was announced, and it is still a theme. It is a theme even though the bond market reaction to the Fed announcement that they would begin the process in January of 2014 was miniscule. The 10-year Treasury note yield has remained flat around 2.95% (in a range of 2.88% to 3.03%) since the announcement December 18th.
A reinforcing jolt of angst was injected into the punditry bag of woes when the Fed Open Market Committee meeting minutes for December were published, indicating that certain members of the committee were beginning to doubt the efficacy of continuing QE.
What is a “Treasuries Slide”?
It sure sounds bad given the headline above, but lets examine the facts versus the rhetoric.
For convenience of this illustration, let us assume you own a $1000 face value 10-year U.S. Treasury Note with a 2.94% coupon (the interest rate it bears–$29.40 per year). According to my calculations, when you went to bed Tuesday that note would have been worth $1000. The next morning, with the good news on jobs and Treasuries ‘sliding’, your bond plummeted $3.00 to $997 (a 2.98% yield to maturity). At its worst level during the day (after the Fed minutes) your bond was all the way down to $995.00 (3.00% yield to Maturity). As of 10:45 pm, 1/9/2014, the 10-year stood at a 2.97% (YTM). Hard to believe the headline would term this a ‘slide’.
Over the last 40 years when the first 5 trading days in January were a net positive for the market, you had an 85% chance of the market ending the year higher. This year we closed lower in the first five days. On a longer-term basis, over the past 80 years, if the market closes January on a positive note, the chances for an up year drop a bit, but they still approximate 73%. The whole world is waiting with baited breath. Some are asking ‘is this the end of the run?’
Was Alcoa’s earnings miss a precursor of a weakening economy or refocus away from QE to earnings?
The gang on CNBC’s “The Closing Bell” panel had a field day with this. Unfortunately, the really dumb comments about Alcoa’s $.04 miss being a precursor of a weakening world economy were edited out. But there continues to be this undercurrent from the anchors and their guests questioning the quality of the world economy (a weak China, a Europe that could stumble again). They are trying to shore up the ‘Wall of Worry’. They got some help with Friday, January 10th’s jobs numbers.
U.S. non-farm payroll numbers for December up 74,000 vs. a 200,000 estimate!!!
This is great news because the bond market took off. Our 10-year generic treasury to rose in price by about $9.00, taking the yield down to 2.86%. The talkers began to speculate about a weaker economy and the potential it would slow tapering. The Labor Participation Rate (LPR) declined to 62.8% vs. 63% causing one pundit in the attached clip to opine we are becoming France (55% LPR). Remember, people retiring are treated as ‘giving up the ghost’, vis a vis looking for work. In the U.S. there are 10,000 people (Baby-Boomers) reaching retirement age each day, creating a terrific drag on the LPR. Meanwhile, the S&P and NASDAQ were up on the day. Go figure!
The media has picked up in the new year right where they left off in 2013…”plus ça change, plus c’est la même chose“
What do you think?
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