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The coronavirus is an unseen foe – lingering to inflict damage on global economies and the health of millions. As we fight this invisible force, we are reminded of U.S. soldiers that braved the unknown to win freedom for Europe, Asia, and the Americas in World War II (and other conflicts). In the early stages of WWII submarines and air strikes were hard to detect making surprise attacks more severe. That changed as advances were made in detection, code breaking, and radar. Yet our soldiers braved the task of the great unknown – and Memorial Day is set aside to honor those that gave ‘the last full measure of devotion.’ While we are inconvenienced by skipping a haircut or sporting events, or even dinner at our favorite restaurants, we are not in fox holes or assaulting beaches under fire. I hunker in my bunker – now more so than in previous years, and take in films that pay tribute to those that were on the front lines. WWII is the benchmark as Fed Chair Jerome Powell has been making the case that the severity and speed of the economic downturn “are without modern precedent and are significantly worse than any recession since World War II.”

T–Bills are said to have ‘phantom income’ because they have a 0% coupon and a one–time payment. Negative yields bring a new meaning to that term. There are many unseen forces currently at work. For EU countries and Japan, there aren’t many positive returns to be found for much of the short–to–medium term debt. The United Kingdom just joined the club in selling negative–yielding debt for the first time. Other phantoms include the debt ceiling. There’s little reluctance to throw money at problems and even the relief and stimulus bills are filled with wayward spending. Powell contends there are unlimited tools they can use for stimulus. He said: “We’re not out of ammunition by a long shot!” Powell said they could enlarge existing lending programs or start new ones which makes the size of the Fed’s balance sheet another mirage. There doesn’t appear to be a floor on rates, but there must be a global basement – though the Fed has yet to employ such measures. Don’t expect any FOMC guidance in the near future.

The Bond Market Review thinks that delay is because a few members might pencil in some negative ‘dots’ in their forecasts!

The easy thing to see is the problem. The great unknown is how best to deal with it. There is enough ‘second guessing’ going on out there without our entering the fray. The global challenges continue with record deficits and drops in consumption. Argentina, Japan, South Korea, the U.K. and others have joined the U.S. in setting new record drops in multiple categories. Central Banks are stepping up, but in many cases may just be digging a bigger hole to climb out of in the end game. Though deflation rules the moment, many countries could emerge into rapid inflation given the massive use of monetary stimulus. The Fed’s minutes showed they were very concerned about the longer–term damage to the economy and the financial stress inflicted by the steps taken to fight Covid–19 and the disease itself. Some members saw risks to financial stability. Others saw a “substantial likelihood of additional waves of outbreak.” The 16.4% plunge in April’s Retail Sales led to Fed GDP forecasts of –42% (annualized) for Q2 2020, and that result came over 2 weeks after the last FOMC meeting. The 9–week total for job losses now stands at 38.624 million.

The ugly April data continued with ‘phantom’ mortgage payments. Mortgage delinquencies vaulted 1.6 million higher as the national rate for late payments rose from 3.06% in March to April’s 6.45% in the largest–ever increase for one month. A report said that was 3 times the maximum change for any time during the financial crisis. 

Looking Ahead

• Equity cycles show a general downtrend into June 18th.
• Bond cycles show yields making highs near May 21st/22nd. Lows are due near June 3rd/5th.
• U.S. markets will be closed for Memorial Day on Monday, May 25th.

Treasuries, Agencies, and MBS

 Last week, yields fell 1.5, 2.5, 4, and 5.5 bps for the 2, 5, 10, and 30–year Treasury sectors. Through today, yields for those sectors rose by 2, 3, 3, and 6 bps. As expected, the Fed’s balance sheet rose above $7 trillion for the first time this week (to $7.037 trillion). The Fed bought $103 billion in assets over the past week – including $1.496 billion additional ETFs (nearly $300 million per day). Since this latest round of QE began in March, the Fed has purchased over $1.5 trillion in Treasuries. Members of the Fed continue to say ‘no’ to using negative rates. In March, foreign entities moved $112.6 billion out of longer–term U.S. debt, but purchased (inflows) a net $349.9 billion overall.

The first 20–year Treasury bond auction since 1986 went very well. With no recent offerings for comparison, demand for the $20 billion supply was seen as solid versus other longer issues over the past few months. The yield was 1.22% and the buying group that includes foreign central banks bought 60.7% of the offering. Next week, the U.S. Treasury will offer $44 billion 2–year notes on Tuesday (05/26), $45 billion 5–year notes on Wednesday (05/27), and $38 billion 7–year notes on Thursday (05/28). Last week, MBS spreads (FNMA 30–year 2.5%) widened by 12 bps.


Treasury Yield Curve

2-Year: 0.147%

5-Year: 0.309%

10-Year: 0.644%

30-Year: 1.329%

Weekly Yield Change –.013%



Support 0.189/ 0.209/ 0.229/ 0.249

0.336/ 0.344/ 0.351/ 0.359

0.671/ 0.691/ 0.711/ 0.731

1.375/ 1.390/ 1.405/ 1.420%


0.170/ 0.150/ 0.130/ 0.090

0.330/ 0.322/ 0.315/ 0.307

0.652/ 0.632/ 0.612/ 0.592

1.361/ 1.346/ 1.331/ 1.316%


The 9–week tally for Initial Jobless Claims came out to 38.624 million with this week’s 2.438 million loss. It was the 7th week with smaller numbers and the previous week was revised 294K lower following Connecticut’s overreporting of claims. There should be another downward revision next week after a Massachusetts official said they had also overstated claims this week. While it’s not quite that simple, roughly 24% of the 157 million employed as of February have lost their jobs. Continuing Claims rose from 22.548 million to 25.073 million. JOLTS Job Openings for March reported 6.191 million available positions, down from 7.004 million in February.

The April data should more reflect the current situation. Bloomberg Consumer Comfort fell for a record–matching 9th week, dropping 1.1 points to 34.7 – the least optimistic level since May 2014. While maybe just equally bad, their Expectations survey was unchanged at 29. It had been over 57 in February. University of Michigan Sentiment improved from 71.8 to 73.7. It was 100 a year ago. Current Conditions were far better, rising from 74.3 to 83. However, Expectations ticked down from 70.1 to 67.7. The Philadelphia Fed Business Outlook was improved but still poor, having risen from –56.6 to –43.1. The Leading Index (April LEI) fell 4.4% and March data was revised down from –6.70% to –7.40%.

U.S. Factory Production fell the most in data going back as far as 1919. Factory Output fell 13.7% and Industrial Production dropped 11.20%. Motor Vehicle production fell from an 11 million annualized pace to only 70K! That contributed to Capacity Utilization dropping from 73.20% to only 64.90%. Business Inventories fell .20%. Though well off the 72 level only 2 months ago, homebuilder sentiment improved from 30 to 37 (NAHB Housing Market Index). However, Housing Starts and Building Permits fell to 5–year lows. April Starts fell 30.17% to 891K annual units and Permits dropped 20.80% to 1,074K (annual units). In April, sales of Existing Homes fell 17.84% to 4.33 million annual units – the largest decline since 2010 and to their lowest pace since September 2011.

Friday and Monday are ‘all clear’ for the Memorial Day weekend. Next Tuesday (05/26) is loaded with New Home Sales for April, the Conference Board’s Consumer Confidence surveys, the Q1 House Price Purchase Index, the FHFA House Price Index, metro home prices (S&P Case–Shiller 20–City), the Home Price Index, the Chicago Fed National Activity Index, and Dallas manufacturing. Wednesday gives us MBA Mortgage Applications (which fell 2.60% last week), Richmond Fed Manufacturing, and the Fed’s Beige Book report on the outlook for their 12 districts. Thursday updates Q1 GDP, jobless claims, and Pending Home Sales for April.


Stocks have continued to track nicely with their cyclic forecast. From the low close on the 13th to the highest since early March right on the 20th, the trend changes have worked to the day! Caution is always merited as the ‘best laid cycles often go astray.’ There’s a low due near June 2nd and a high near the 8th, but the cycles are significantly week into June 18th. Therefore, we would remain cautious (and patient) until that potential buy opportunity approaches.

Last week, the Dow Industrials dropped 645.90 points or 2.65% to 23,685.42. The Dow is 3.33% higher this week (with the earlier positive cycle) despite losing 101 points today. The S&P lost 2.26% but is 2.96% higher this week. The Nasdaq lost 1.17% but reversed 3.00% higher through today. The weaker Dow Transports dropped 6.86% but then surged 8.91% through Thursday. Bank stocks lost 9.77% but have recovered 6.87% this week.




Resistance: 24,554/ 24,711/ 24,869/ 25,027

9,335/ 9,383/ 9,432/ 9,481

2,981/ 3,035/ 3,091/ 3,147


24,243/ 24,087/ 23,933/ 23,779

9,288/ 9,240/ 9,192/ 9,144

2,928/ 2,873/ 2,820/ 2,767


Other Markets

 Crude Oil rose nicely into the May 18th trend–change but continued to trade higher into today – though momentum has slowed. Crude surged 18.96% last week and then added 15.26% through today. Commodities rose only .01% though they’ve gained 4.63% this week. Gold gained 2.47% but lost 1.96% this week. The U.S. Dollar gained .67% last week but has since traded 1.03% lower. The Japanese Yen lost .38% and is .51% lower this week. The Euro lost .18% last week but has risen 1.20% this week. Corn rose .08% but has fallen .47% this week. Cotton gained 3.52% but is .33% lower this week.

“O beautiful for heroes proved; In liberating strife; Who more than self their country loved; And mercy more than life!” Katharine Lee Bates


Doug Ingram, Financial Economist


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