ISM data today suggests that the recovery continues in the service sector. That said employers remain tight fisted with wages and workers continue to “prove” their worth ratcheting up significant gains in productivity.
In an interesting note we see that one of our favourite Fed Governors, Dallas’ Dick Fisher, said that after June he’s out of the bond buying business. We remain unclear why he supported the buying in the first place.
In fact, we remain very confused by the Federal Reserve chief’s latest musings to the National Press Club in which he says the economy is growing and we are no longer in a state of emergency. If this were truly the case – either no emergency or really growing – why is it that interest rates are still pegged at ZERO?
This reckless monetary policy will not foster the hoped for jobs recovery. Nor will it contribute to wage increases. What it will produce is a weak dollar that will raise the ceiling on all production inputs on a global basis. Just this week we saw the prices paid component of manufacturing ISM at its highest level since the earlier part of the decade.
The conclusion has to be that this is not great for stocks. Stocks feed on the relentless momentum of upward consumption. Either prices paid gets passed onto consumers and they can’t consume as much or margins go down and expected earnings are too high.
You choose… But we do not believe that these are prices at which we want to be investing in forward equity earnings.
“What We Are Expecting”
Major revisions to the bench mark indices = lower than expected headline unemployment number
Stocks to trade higher on perceived lower UE in the AM and then fall back to unched on the day
Bonds to trade in a range until late day sell off and then rebound Monday and march back to the 3% level
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