Daily Commentary by Larry Baer: The
yield on the U.S.
30-year bond touched 2.51% this morning - the lowest return on this security on
record going back more than two centuries.
The drivers behind this record setting performance by the 30-year bond
included the dismal May nonfarm payroll report, weak Chinese economic news and
the persistent background threat of a major financial catastrophe for one or
more members of the EU looming on the near-term horizon.
The global economic weakness manifested
itself more directly here at home as the Labor Department reported May nonfarm
payrolls grew by a lackluster 69,000 new jobs last month - the smallest
month-over-month gain this year.
Compounding this already weak report, March and April figures were
revised down by a combined 49,000. A
separate survey of U.S.
households showed the national jobless rate ticked higher by .01% to 8.2% --
the first increase in this measure since June 2011.
No matter how one attempts to
"slice-and-dice" today's employment news -- the story remains the
same. Nearly three years after the Great
Recession was declared officially over -- the economy has failed to gain
traction. Uncertainty related to
Europe's debt crisis, the potential for steep U.S.
tax hikes this year and major government spending cuts next year have all
combined to retard job growth. Most
economists estimate it takes the creation of 125,000 jobs per month simply to
keep pace with the number of new workers entering the labor market every
month. To put a meaningful dent in the
number of unemployed Americans requires the creation of a minimum of 250,000
new jobs per month.
The poor state of the labor market will put
renewed focus on the Fed to add more grease to the recovery skids. Fed Chairman Bernanke is scheduled to testify
before the Joint Economic Committee of Congress at 10:00 a.m. ET on Thursday,
June 7th and the Federal Open Market Committee will meet in a
two-day session June 19th and 20th. The pressure will be on the Fed "to do
something" to get the economic engines firing on all cylinders once again.
"Operation Twist" (the $400 billion
Fed bond-buying program designed to reduce to long-term interest rates --
including those for mortgages) is scheduled to expire at the end of this
month. The probabilities have now
dramatically shifted in favor of an extension of this program at the June
Federal Open Market Committee meeting and there may even be serious talk about
the deployment of another round of fiscal stimulus in the form of the
"QE3." The short version of
this otherwise long and multi-chaptered story is that support for steady to
perhaps fractionally lower mortgage interest rates has just grown significantly
stronger.
Looking ahead to the coming week Fed Chairman
Bernanke's appearance on Thursday morning before the Joint Economic Committee
of Congress will easily trump Tuesday's Institute
of Supply Management's
May Manufacturing Index and Thursday's jobless claims report for the week
ending June 2nd as the most dominate event on the calendar.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
