In the week since we last connected, we’ve seen the 10 year bond drop to new record lows. In fact it's become so common that it no longer makes headlines. The bond’s new low is 1.44% which occurred Monday. The yield then bounced up to 1.5% and today settled into the 1.47-1.48% range. After months of speculation that our economy isn’t particularly healthy, that Europe is a mess and China might be in trouble, those speculations have become a reality. The worldwide response? US and German bonds – in large numbers. For mortgages it means mid 3% interest rates, housing starts are up and even higher than the estimates, CPI came in at consensus (0%) but Retail Sales were off further than expected, down 0.5% when the consensus was up 0.2%. All this means that we are just struggling along.
Ben Bernanke testified yesterday and is testifying today. He says the Fed is ready and willing to step in but it is becoming more obvious that the Fed has distinct limits to what they can do to stimulate the economy. In other highlights of his testimony, Europe is far away from having long term solutions and our “recovery is at risk of recession due to the pending fiscal cliff-the pending expiration of tax cuts and pending cuts in government spending”. In other words, the government needs to continue its deficit spending to avoid recession. I would certainly love to have an in-depth discussion with my grad school econ professor about this. Seems to be contrary to everything he taught us. I guess we’re all in unchartered territory.
In the latest from the financial wizardry of JP Morgan/Chase:
Although they announced last week that the losses from unsupervised trading would push $9 billion, they only took $5.6 billion this quarter. In addition, their never-ending litany of bad news continued as, they are one of two US banks involved with the price setting of LIBOR rates. While there have been no charges leveled at Chase or Wells, the other US bank, you can be guaranteed that when the lawsuits hit and they will, Chase and Wells will be named with Barclays, RBC and the seven others.
And in one interesting note from my short vacation:
Cape Cod is hot, beautiful, the ocean, the scenery and the fresh sea food are fantastic. But it was surprising the vast number of businesses that were “cash only”. Not just small ticket places either. Boat/fishing tours ($30-40/person), museums, restaurants ($20-60/person), book stores, commuter buses ($25/person to Boston) were often cash only. No ATM cards, checks or credit cards. Very interesting possibilities about what this says about the economy, opinions on income or sales tax, cost of credit card processing or…. And the bank ATMs were charging $5.00/transaction.
We’ll talk Friday.
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