Market Analysis

Bonds are up slightly this morning and stocks are down slightly.  In economic news Initial Jobless Claims for the week ended 5/8 were down 4,000 as expected bu the prior week's claims were revised higher by 4,000 so the net effect is that the Jobless Claims number is the same as last week.  Continuing Claims for the week ended 5/1 were up to 4.627 million from an upwardly revised 4.615 million from the week prior.  While the jobs situation and weakness in the housing sector clearly remain drags on the economy, corporate profits continue to exceed expectations.  Yesterday after the market closed, Cisco reported a 27% quarterly sales jump and profits of $2.2 Billion for the quarter ended May 1.  Their CEO called the quarter the best ever.

It is important to note that while there is a possibility that there is room for more improvement in interest rates which would most likely be driven by spin about doom in Europe, there is also a clear possibility that the European debt crisis at least for the short term is over and that we are moving into the next stage of the crisis which will be laying the groundwork for all this debt world wide to be paid off.  What is not clear in that overall equation is how governments in the US and Europe will "pull back" all the money they have printed in their "quantitative easing" measures.  It is also possible, that while no one is talking about it right now, the ugly inflation word will "rear" its head again.  If, due to economic weakness, governments do not rein in their money supply for fear of triggering an economic downturn, then we could see a scenario where all currencies devalue compared to commodities.  This type of scenario is not interest rate friendly.  I am not suggesting that this would happen right away. However, at some point the topic will most likely arise again and the question then becomes whether it brings with it a media frenzy.  It is important to note that much of the improvement in rates has come from short term holders of bonds who are just trying to play it safe while they wait to see if the European Union falters or the stock market plunges.  The long term money that buys US bonds is concerned about medium term inflation.  Also, while the US is currently probably the most secure of the "weak", we are probably not far from the day when the press turns its spotlight back on just how bad our deficit situation is.