The Financial Market Last Week

"The great thing in the world is not so much where we stand as in what direction we are moving." Last week, the financial markets agreed with Oliver Wendell Holmes' words by looking for some more direction from the Fed after its FOMC Meeting. While the Fed didn't have much to say, they did state that Mortgage Bond holding income and proceeds would be reinvested into Treasuries. This helps the Treasury continue to pump out debt at low rates. But this relationship is a concern to the Stock market, as there is no doubt that this will lead to further problems down the road. In addition to "kicking the can," the Fed did not provide a game plan on how it could handle deflation, a Japanese type economy, or longer-term inflation. This uncertainty is something that the Stock market hates. As a result, investors pushed Stock prices significantly lower in early trading Thursday - and the cash sale proceeds from Stocks found their way into Bonds. Markets Wanted More Direction from the Fed In other news last week, the Labor Department reported that preliminary Productivity for the 2nd Quarter came in at -0.9%, which was below the 0.1% rise expected...and quite a bit lower from the 3.9% reading for the 1st Quarter. The decline in Productivity was actually the first negative reading since the 4th quarter of 2008. The slowdown in productivity is interesting, and a higher productivity does many things. It keeps operating costs lower, lessens the need for hiring, and works to keep prices down. So this unexpectedly weak number, if this trend continues, may work to ease some of the deflation fears and, ironically, could help the labor markets. Speaking of labor, last week’s Initial Jobless Claims report showed 484,000 people signing up for first-time unemployment benefits. That number was worse than expectations of 465,000 and the highest reading since February's 498,000. No matter how you slice it, this is a horrible number... and it highlights that the most important element of any real-life economic recovery is still struggling. According to the report, Continuing Jobless Claims did fall, but that number can be deceiving since the decrease has nothing to do with an improvement in the labor market. In actuality, the decrease in Continuing Claims, which lasts for the first 26 weeks of unemployment, is due to the benefit expiring - and those individuals rolling into the Emergency Unemployment Compensation benefit category. And in that category, due to the recently passed unemployment benefits extension, those collecting Emergency Unemployment Compensation, spiked a whopping, almost incomprehensible, staggering, shocking, (fill in your own favorite descriptor here) 1.2 Million from the prior week to 4.5 Million... and yet the majority of the media overlooked the real facts or were unwilling to report them.

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