Market Update — July 11, 2012

Here are some of the stats / thoughts that I found interesting today…

Key Economic Data / Thoughts

1. The euro is near its two-year low of $1.2225.

2. The National Federation of Independent Business’ optimism index fell to 91.4 from 94.4 in May, the biggest monthly decline in two years. Eight of its 10 components contributed to the slump.

3. The S&P 100 (the largest companies in the S&P 500) has started to outperform the S&P 500.  In the past 12 months, the S&P 100 (the “mega-caps”) has risen 3.7% while the S&P is up .6%.  The small caps (the Russell 2000) are down 5.6%.  Investors seem to be moving toward safer, defensive companies.  For the YTD (since December 31^st), the S&P 100 is up 8.4% and the S&P 500 has risen 7.3%.  (The largest companies are likely to have more foreign exposure and that could have hurt performance over the past few months.)

4. The Bank of America Merrill Lynch global diversified hedge fund composite index returned just 1.3 percent in the first half of 2012, well below the S&P 500’s 8.3 percent gain.  Barclays Treasury bond ETF is up almost 6% YTD.

5. Barclays’s index of corporate bonds hit a record-low yield Monday at 3.16%.  This is 0.20 percentage points under the lowest yield ever recorded before 2012. Data goes back to 1973.

6. Companies have issued nearly $530 billion of high-grade debt so far this year, outpacing the year-to-date 2011 pace of $512 billion.  In other words, companies are taking advantage of low yields.

7.  Banks may be chasing yield.  The Comptroller of the Currency said that the largest national banks have led their industry toward increased holdings of securities that expose them to “inappropriate risk” as interest rates linger at unusually low levels.  Investment portfolios at national banks rose from 13 to 20 percent in the three years since the 2008 financial crisis, centering on growing investments in mortgage instruments.  This may be the reaction of large banks to lower fee income and more regulation (and less trading revenue).

8. Small banks have also increased their investments to make up for weak loan demand and significantly lengthened the maturities in their portfolio.

9. David Einhorn argued that very low interest rates deprive savers of reasonable income (and the ability to forecast a reasonable income) and it cuts down on consumption.  He also said that low rates drive up food and oil prices and lower standards of living.

10. According to the Labor Department, the number of jobs waiting to be filled climbed by 195,000 to 3.64 million, partially countering the 294,000 drop seen in April.

11. The combined rate of unemployment in the OECD’s 34 states stood at 7.9% in May 2012, or around 48 million people, an increase of 15 million from the end of 2007. That is below its peak of 8.5% reached in the final quarter of 2009 and the first quarter of 2010. In May of 2011, the OECD forecast that the unemployment rate at the end of this year would be 7.1%, and it now expects it to be significantly higher at 8.0%.

12. In the U.S., the OECD expects the unemployment rate to fall to 7.4% at the end of 2013 from around 8.1% now.  The OECD also said that the U.S. had experienced a particularly sharp rise in the proportion of unemployed people who had been without a job for more than a year, to 30% in the first quarter of 2012 from 10% in 2007.

13. As of early 2011, 15% of people lived in a household that received food stamps, 26% had someone enrolled in Medicaid and 2% had a member receiving unemployment benefits.

14. Fitch Ratings affirmed its AAA credit rating on the United States and maintained a negative outlook, citing a diversified and wealthy economy that is undermined by the government’s inability to agree on deficit reduction measures.  See…I’m not the only one with a negative outlook.

15. In the United States the aggregate pension deficit of S&P 500 companies grew $59 billion in the first half of the year to $543 billion.  Corporate America’s pensions have total liabilities of $2.09 trillion against total assets of $1.55 trillion.

16. Scranton (PA) cut the pay for about 400 employees to the federal minimum wage of $7.25 per hour.  They face a $16.8 million budge deficit.

17. For the fiscal year that ended in March, wages and salaries grew an average 1.7 percent, according to the Bureau of Labor Statistics (BLS) Employee Cost Index. During the same period, consumer prices rose 2.7 percent.  In other words, real wages declined.

Politics

1. Governor Romney raised $106 million in June and President Obama raised $71 million.  Governor Romney raised about a third of his total in checks under $250.  (The belief is that this may be people who are unhappy with the Affordable Care Act.)  Governor Romney and the Republican Nat’l Committee now have $160 million in cash.

2. Unions spent $1.1 billion from 2005 through 2011 supporting federal candidates through their PACs.  During the same period, they spent an additional $3.3 billion on “political activity.”  This could be polling fees, food for protesters, trying to convince members to vote in a certain way, etc.

3. In 2008, Democrats received 55% of the $2 billion contributed by corporate PACs and company employees. Labor unions were responsible for $75 million in political donations, with 92% going to Democrats.

Random Stat Hotline…

1. The United Nations Population Fund has estimated there could be 5,000 honor murders per year.

2. Only 50% of American track and field athletes who are ranked in the top ten in the nation in their event earn more than $15,000 a year in income from the sport.

3. Americans who win gold medals in London will receive a $25,000 bonus, while silver medals will bring $15,000 and bronze medal winners will net $10,000.

Have a great week.

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