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Today's Commentary: 08.08.04
More Fun with Chaos
Hard to imagine a more interesting scenario for all parties concerned. In one corner, the President is stumping a positive - and erroneous - spin on his success with the economy. In the other corner is Mr. Kerry who unveiled a workable plan that, provided the administration doesn't muck the economy even more in these last eighty days, has a long term solution to a short term disaster. And in the other corners stand Mr. Greenspan, a worthy tag-team partner for the President. The Fed chairman has proved himself the tortoise in the race but has yet to prove himself as an economic ally. The ever diminishing strength of the economy and jobs will be providing Mr. Kerry the ammunition he needs to fight on the same level as MR. G. and W.
While the President remains in his corner shouting political barbs at his cross ring opponent, the jobs report unleashed its statistical weaponry that sent the stock markets, bond markets, and not coincidentally investors reeling back on their heels. This past job's report is full of holes, both ambiguous and frightening. While manufacturing gained, although I predicted that it would not, the number was not significant enough to garner so much as a passing nod. Add another revised number from the previous months - downward - and you have the makings of a numbers soup that can be used by Kerry as a whipping stick. The question is whether he can use it effectively enough to make it the sole campaign issue. John Kerry is being forced to explain why he thought invading Iraq was wrong and what he would do about the war on terrorism. Both are financial maelstroms created by the current White House and under closer scrutiny is starting to look as tired and old as Mike Tyson.
While we are on the subject of jobs, there are a few more things worth noting. For one, ignore any and all reference to the household numbers that are likely to be the head count of convenience. In the household survey, the assertion that 600,000 or so jobs were created includes a half of those coming from self-employed claims made by unemployed people and part-time employment. Temporary jobs were once considered the precursor to permanent work status. With the addition of only 5,000 temps last month, this stat is seriously lacking predictable legs. Overall, less than 30,000 folks found full time work n July.
The President has Alan greenspan stepping in for his first appearance in several months with the weight of 25 basis points tugging at his shorts. It doesn't sound like a lot, and he is unlikely to hold back the increase. But he is going to change his wording from measured to watchful - just a guess but the word I would use if I were an honest banker who was concerned about the economy and not about the election. Raising the short term rate again would not help the President either way. Keeping the foot tapping the breaks on an uphill economic journey fueled with loose money and accommodative policies seems counterproductive.
The unfortunate losers in this latest debacle were those that bet on debt even as they believed the stock market would react in a negative fashion. Since the beginning of the year, investors in Ten year Treasuries have shed 60 basis points in yield ending another week with the yield down, this time to 4.21%. The more rate change sensitive Two year note trimmed 26 points (0.26%) last week alone. The question is: can the rally last?
After this week's meeting, which still has good economic variables blowing at its back, all eyes will be on September. Futures traders are already calling a 10-year note below 4% if economic reports show signs of unraveling more than they currently are.
If the rally does last it will be because the September F.O.M.C. meeting is passed by in favor of better indicators in November. It will be because the "carry trade" will be a useful tool for repositioning to allow investors to take full advantages of the lower yields. Carry trade is a fixed income term used to describe borrowing at short term interest rates to buy long term debt. This creates a volatile market place that could help that repositioning I mentioned earlier in saving the fund managers who missed the last one.
So as the month of August heats up, the two combatants in the ring will continue to try and convince you who is the best for the country. How their tag team partners perform will be the turning point in the election. If Greenspan keeps his cool and resists doing what needs to be done to an economy that is still finding its purpose even four years after the bubble, he will surely undermine the President's efforts and compound Kerry's problem come January. If the employment report improves dramatically, then any proof of poor policies helping the Kerry corner will be for naught.
But improvement in those economic variables are beginning to seem less likely even as corporations continue to show profits and creditworthiness. All this and an investing environment where no one seems to care leave the Presidency ripe for the taking.
The Blue Money Report
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