Sunday, June 5, 2011

More economic storm clouds move in

This past week, 1) the U.S. Labor Department reported that unemployment climbed to 9.1 % in May, with payrolls increasing by a weaker than expected 54,000 jobs (165,000 was expected); 2) the U.S. manufacturing index dropped to 53.5 (the slowest pace in 8 months), 3) the Case-Shiller Home Price Index in the U.S. dropped below 2009 levels, down 33% from the 2006 peak (and a larger decline than during the Great Depression), 4) the European Central Bank (ECB) and the International Monetary Fund (IMF) continue to work on the Greek government’s debt mess, 5) the U.S. Congress continues to dance around the debt ceiling, austerity measures and other monetary issues and 6) investment strategists and rating agencies are more cautious/negative on various banks and governments.

MY TAKE: In mid-October of last year, Ben Bernanke said the U.S. Federal Reserve "is prepared to take new action to boost the economy, because inflation has been too low of late and unemployment is poised to come down too slowly" and also noted, "there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools". As the end of QE2 approaches, many economic issues remain under stress and tolerance for additional stimulus efforts among policy makers seems quite low. In this environment, many global markets are likely to adjust to valuations associated with heighted levels of uncertainty. Expect the bumpy ride to continue.

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