Nov 8. Payrolls rise, but employment report data mixed

The employment report showed welcome rise of 151k payrolls, but some aspects of the data reflect continued weakness, which I suppose is why ten yr yield rose only 6 bps to 2.54%.  Household survey was weak and the employed-to-population ratio fell to only 58.3 from 58.5. Also, 2 million people are poised to lose unemployment benefits, and the number of Americans on foodstamps hit a new record.  The hand of gov’t has become a huge plug factor in the economy: Gov’t transfer payments as a % of Pers Inc is 20%, vs long term average of 14% (highest before this episode was 16%). Also, while households have delevered by $492 B, bank write-offs since the crisis began are $476B.  (from Brian Pretti, contraryinvestor.com) The implication is that deleveraging has been due to defaults and write-offs, not from more sustainable wage growth and paybacks. It is no wonder businesses are loathe to hire, because the move toward fiscal restraint clearly portends slower short term growth.
–The dollar bounced, which could possibly slow the rise in commodities of all types if $ strength is sustained.  Pressure is building in euro zone with Greek ten yr yield over 11% and Ireland over 7.5%.  Apparently Russia ordered SWF not to hold any Greek or Irish bonds.
–The loss of confidence in and of itself is destructive, and we are seeing erosion in the US, as many analysts have blasted the latest QE attempt by the Fed. Texas is considering plans to pull out of Medicare because of high costs.
 
–Red/green eurodollar pack spread made new low of 53 bps.  This is the lowest the spread has been since Dec 2008, the height (so far) of the crisis.  By comparison, the the beginning of 2010, red/green was around 120-125 bps.

Posted on November 8, 2010 at 4:21 am by alexmanzara · Permalink
In: Eurodollar Options

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