It was a light week on the U.S economic side. December international trade data of net imports/exports resulted in a widening of the trade deficit from November’s $47.1 billion to $48.8 billion in December. Trade deficit-oriented news is often looked at negatively in the media, but should be viewed in context. One note likely covered very little is the fact that U.S. exports reached an all-time record high of over $2 trillion in 2011. We remain the world’s engine, and this bodes well for upward revisions of the Q4 GDP figures.
The JOLTs job openings rose from 3.16 million in November to 3.34 million in December, which was good news. Initial jobless claims fell to 358,000 for the week ended Feb. 4, which was down from 373,000 the previous week and was lower than consensus. The four-week moving average (which is looked at more closely, due to its smoothing effect of outliers) is the lowest it’s been since May 2008. On the moving average basis, continuing claims are also down from the past several months.
The University of Michigan Consumer Sentiment index declined unexpectedly from 75.0 to 72.5 for February. This was mostly due to the poorer measurement of ‘current conditions,’ but the overall results were not too far out of the ordinary.
Much of the week’s focus was on Greece. The resolution to the Greek debt issue has been elusive and contentious. There are two opposing camps, as there are in any debt relationship: the lenders holding the debt and the party owing/paying back the debt. The debtholders would like their continued interest payments and eventual principal returned, as promised in the original agreement—while avoiding situations that would prevent this from happening. Of course, if a default should occur, the idea is to obtain ‘recovery’ from as large an amount as possible on the debt held. The debtholders would also like to see a ‘strengthening’ of conditions that would lead to higher probabilities of repayment—that’s what the austerity measures are all about…the less money used for government expenses, the more there is available for Greek bond interest and principal payments. Simple as that.
What that translates to is, in return for a bailout of roughly $170 billion, the nation must agree to further and deeper austerity. (As of early Monday, an agreement by the Greek parliament seems to be in place—despite the riots taking place outside of the building.) Neither choice is optimal, as further austerity requires more government cutbacks and likely job losses, while an outright debt default (on a nearly $20 billion bond payment in March in the near-term) and/or abandonment of the Euro entirely represents another option. Under the latter, which could be accompanied by a return to a separate (and much less valuable) currency, the shock could be severe enough to throw the nation into a deeper recession that it is in now and cause an even deeper hole to climb out of. This is the crux of the Europeans work in trying to keep the Greeks integrated.
The size of the Greek problem is small, in relative terms, but what investors are watching closely is the ability to keep this contained and roadmap, perhaps, for future actions that might be needed in other nations.
Market Notes
| Period ending 2/10/2012 |
1 Week (%) |
YTD (%) |
| DJIA |
-0.38 |
5.06 |
| S&P 500 |
-0.12 |
6.98 |
| Russell 2000 |
-2.12 |
9.87 |
| MSCI-EAFE |
-0.29 |
8.05 |
| MSCI-EM |
-0.59 |
13.72 |
| BarCap U.S. Aggregate |
0.19 |
0.63 |
| U.S. Treasury Yields |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/30/2011 |
0.02 |
0.25 |
0.83 |
1.89 |
2.89 |
| 2/3/2012 |
0.08 |
0.23 |
0.78 |
1.97 |
3.13 |
| 2/10/2012 |
0.09 |
0.27 |
0.81 |
1.96 |
3.11 |
U.S. stocks were down slightly as the Greek debt issues noted above outweighed other news of the week (and there wasn’t as much of that). U.S. large-cap outperformed small cap and there was not much differentiation between domestic and foreign stocks. In the S&P, technology and consumer staples led the way, while materials and financials lagged—so ‘growth’ won out over ‘value.’ On the year so far in 2012, technology has been the best performing group, which has generally helped our portfolios.
U.S. bonds were modestly higher with a small decline in yield. In the portfolios, government agency, investment-grade corporate and high yield debt all performed well on the week.
Commodities had positive results last week, making them the best performing asset class. Returns were led by gains in natural gas and crude oil. Several industrial metals, like nickel and tin, also rose in price.
Enjoy the week.
Karl Schroeder, RFC, CSA, CEP
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611
Sources: FocusPoint Solutions, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Reuters, Standard & Poor’s, U.S. Federal Reserve, Wells Capital Management, Yahoo!. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. Schroeder Financial Services, Inc. is a registered investment advisor.