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Econometrics is the term given to using mathematical methods such as statistics in describing economic systems. We like throwing our physics background into the mix to incorporate many types of cyclic analysis as well. In the field of mathematics, numbers can be real, rational, irrational, prime, integers, and/or a few other categories. In economics we can add surprise and imaginary! In the largest ever ‘miss’ for economists, a record ‘and surprise’ 2.5 million jobs were added in May versus expectations for a 7.5 million loss. How do you miss by 10 million? The Unemployment Rate fell from 14.7% to 13.3% – despite many, including the Bond Market Review, expecting over 19%. The 12– week total for jobless claims just rose to 44.197 million. If we take the initial 6 million unemployed from months ago and add the 44 million newer losses, the jobless rate rises above 31%. Labor force and a few other stats aside, we’d have to add roughly 29 million jobs to get to 13.3% (not 2.5 million). Lately, we’re suspect until we see revisions!

The Bureau of Labor Statistics also said up to 5 million were classified incorrectly as ‘employed but absent from work’ instead of ‘unemployed on temporary layoff.’ Those 5 million would raise the unemployment rate to roughly 16.4% – meaning the 3.1% margin of error was close to the pre–crisis jobless rate. We don’t know if 13.3% is a real number! Is it even rational? It could be wrong or even imaginary, but it sounded good on paper – and equities loved it. However, there were enough bad numbers for the FOMC to leave rates alone and continue asset purchases.

There were few policy changes of note in the FOMC’s June statement released on Wednesday. The vote was again unanimous as they said: “Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” They changed QE plans from April’s “will continue to purchase” to “will increase its holdings” of “Treasury securities and agency residential and commercial mortgage–backed securities” but added “at least at the current pace to sustain smooth market functioning.” The Fed was “committed to using its full range of tools to support the U.S. economy in this challenging time.”

The FOMC finally provided guidance, but it was fairly useless. The ‘Long and Winding Road’ of uncertainty was replaced by a trip through the Midwest on one of those ‘roads to nowhere’ where the lanes converge to a vanishing point ahead in the distance. Their new ‘dot plot’ forecast had rates near zero until mid–2022 – followed by a steep rise to 2.5% by the end of that year. If we’re to have a ‘V’ recovery, they’re projecting a long one with very little right– side slope. Fed Chair Jerome Powell said millions of Americans won’t have jobs to go back to for years – though he suggested that labor may have bottomed. U.S. stocks had been rallying on the promise of a quicker recovery and didn’t like the message of 3 years to regain strength. Powell told reporters: “We’re not even thinking about raising rates.” He said with more than 20 million displaced in the labor market: “We have to be honest that it’s a long road.” President Trump responded that: “The Federal Reserve is wrong so often.” He said it’s his opinion that Q3 will be good, Q4 great, and 2021 will be “one of our best ever years.”

The International Monetary Fund expects new growth forecasts to be much worse than earlier expected. Their chief economist said: “One has to be quite concerned about the path of recovery” citing “significant scarring effects.” In one of many such reports, Germany’s April exports fell the most on records going back 70 years.

Looking Ahead

• Equity cycles show a trend–change low due near June 18th, a high near June 24th, and a low near July 1st.
• Bond cycles show yields remaining low until a greater trend–change window near July 24th/28th. 

Treasuries, Agencies, and MBS

The U.S. Treasury’s Monthly Budget Statement revealed a $398.8 billion deficit in May – nearly double that of May 2019. Unlike previous years, Fiscal 2020 has yet to have a monthly surplus. The best chance is usually April, but filing deadlines were extended to July. 8 months in, fiscal 2020’s budget deficit is running 154.6% ahead of 2019. May has seen deficits in 65 of the past 66 years as there are no major due dates for tax filings during the month. While $17 billion in March 2010 held the record for Department of Labor outlays due to benefits, April 2020 had risen to $46 billion and May jumped to $94 billion – driven by expanded unemployment benefits. It’s rather odd that the large stimulus packages don’t seem to be reflected in the data.

The stimulus does show up in the national debt though, as it just broke $26 trillion – up $2.5 trillion from March 23rd – just before the unlimited Fed QE began. The Fed’s balance sheet expanded to $7.169 trillion – rising by $67.9 billion and $3.7 billion over the past 2 weeks. $1.22 billion was added to ETF holdings last week – bringing that total up to $5.5 billion. The Atlanta Fed’s projections for Q2 GDP rose from –53.8% to –48.5% on better data.

Incoming data is also showing that Americans are not using their stimulus checks for purchases. While Consumer Credit was revised roughly $.5 billion lower to a $11.53 billion reduction in March, April’s numbers showed a record plunge of $68.779 billion (versus a $20 billion contraction expected – and 3 times the high during the financial crisis). Those were records for credit repayment, and it contributed to the personal savings rate surging to a never–before seen 33% of disposable personal income. It’s also a global phenomenon. We saw a story that showed the economy reopening in India, but consumers were only buying absolute necessities. U.S. Bankruptcies jumped 48% in May. That’s the most since the financial crisis. The National Bureau of Economic Research finally admitted the U.S. is in recession – ending the longest advance in U.S. history at 128 months. Commercial Real Estate (CMBS) delinquencies jumped from 2.29% to 7.15% in May.

Bond yields tumbled on the weakness in stocks and on the Fed’s intentions to keep rates near zero until mid–2022. However, yields rose last week – boosted by the June 3rd cycle for higher rates. Yields were higher by a stout 4.5, 16, 24.5, and 26 bps for the 2, 5, 10, and 30–year Treasury sectors. Through today, yields reversed lower by 1, 14, 22.5, and 26.5 bps for those sectors. MBS spreads (FNMA 30–year 2.5%) were unchanged last week.

On Monday (06/08) the U.S. Treasury sold a record $44 billion 3–year notes at .28%. Demand rose slightly versus May and was the best since February. The buying group that includes foreign central banks accounted for 53.3% of the issue versus 54.4% last month. $29 billion 10–year notes were sold Tuesday at .832%. Demand was the lowest since last August in what was deemed a sloppy auction. Foreign buying fell from 66.1% last month to 56.7%. The May 2030 maturity was reopened to add this supply. The May 2050 maturity was also reopened today to add $19 billion 30–year bonds at a 1.45% yield. Foreign buying fell from 65.7% last month to 62.2%. Demand was unchanged to the May auction. Next week, the Treasury will auction $17 billion 20–year notes on Wednesday, June 17th.

Treasury Yield Curve

2-Year: 0.209%

5-Year: 0.465%

10-Year: 0.896%

30-Year: 1.667%

Weekly Yield Change +.046%



Support 0.207/ 0.227/ 0.247/ 0.267

0.362/ 0.392/ 0.422/ 0.452

0.728/ 0.768/ 0.808/ 0.857

1.520/ 1.582/ 1.641/ 1.704%


0.187/ 0.168/ 0.148/ 0.128

0.303/ 0.273/ 0.245/ 0.225

0.649/ 0.609/ 0.569/ 0.549

1.402/ 1.342/ 1.282/ 1.222%


 The markets certainly don’t hold a monopoly on ‘wide swings.’ Some economic data remains very challenged while other numbers have shown some promise. Challenger Job Cuts data said layoffs were up by 577.8% versus May 2019 – but that was down from April’s 1,576.9% year–over–year jump. There was a time when there were more job openings than unemployed Americans. Now there are over 4 unemployed workers for every opening as JOLTS Job Openings fell from 6.011 million in March to 5.046 million in April. The 2–month drop of over 2 million openings is the most on data that began in 2000. The ‘quits’ rate tumbled as few were job hopping given current conditions.

Private payrolls only fell by 2.76 million versus 9 million expected (ADP Employment Change). Those numbers are probably closer to reality. To complicate the issue even further, the 2–month net revision showed 642K more job losses even as Nonfarm Payrolls grew by 2.509 million. Private payrolls increased by 3.094 million – nearly 6 million more than the ADP data, which raises more questions – as maybe another 5 million were counted the wrong way. Manufacturing added 225K. Average Weekly Hours rose from 34.2 to 34.7. Average Hourly Earnings fell by 1.00% and the annual rate fell from an 8% gain to 6.7%. The Labor Force Participation Rate increased from 60.2% to 60.8% and the Underemployment Rate dropped from 22.8% to 21.2%. Initial Jobless Claims fell for a 10th week – dropping from 2,126K to 1,897K into May 30th, and then to 1,542K last week. Continuing Claims fell from 20,838K to 21,268K, and then to 20,929K in data that lags by a week.

Consumer confidence is improving. NFIB Small Business Optimism rose from 90.9 to 94.4. Bloomberg Consumer Comfort rose from 35.5 to 37, and then climbed to a 6–week high of 38.7 – for a 1.7–point gain that was the best since June 2019. The 3–week gain of 4 points was the best since 2015. Finances rose the most since 2011. While still below 50 (contracting), the service sector outlook (ISM Non–Manufacturing) rose from 41.8 to 45.4. Nonfarm Productivity fell .90% in Q1 with Unit Labor Costs rising 5.10%.

Inflationary forces continue at bay as Consumer Prices fell for a 3rd month. CPI dropped .10% with the annual pace declining from .30% to a very tame .10%. Ex food & energy, CPI fell .10% – leaving the annual core CPI pace slowing from 1.40% to 1.20% (the least since 2011). Real Average Hourly Earnings rose 6.50% while Weekly Earnings rose 7.40% (year–over–year). Producer Prices rose .40% with the annual pace rising from –1.20% to –.80% (still decreasing). Core PPI fell .10%, dropping the annual core pace from .60% to .30%. Wholesale Inventories rose .30% in April while Trade Sales tumbled 16.90%.

April Factory Orders fell 13.00% for the worst plunge on record. Ex transportation, orders were 8.5% lower. Orders for Durable Goods dropped 17.70% and were 7.70% lower ex transportation. Orders for Capital Goods dropped 6.10%. The Trade Balance deficit increased from $42.3 billion to $49.4 billion in April. Vehicle Sales saw a rebound from 8.58 million to a 12.21 million annual pace in May (better, but way off recent results nearer 17 million).

Friday is set for Import & Export Prices for May, the University of Michigan sentiment surveys, and Q1 Household Change in net Worth. Monday (06/15) brings Empire Manufacturing and Treasury International Capital (net flows of foreign funds into or out of U.S. assets). Tuesday follows with Retail Sales for May, Industrial Production & Capacity Utilization, April Business Inventories, and the homebuilder outlook (NAHB Housing Market Index). Wednesday provides MBA Mortgage Applications (which fell 3.90% and then rose 9.30% over the last 2 weeks), and Building Permits & Housing Starts for May. Thursday gives us jobless claims data, the Philadelphia Fed Business Outlook, Bloomberg Economic Expectations & Consumer Comfort, and the Leading Index for May.


 Earlier this week, the ‘V’ shaped stock rally was still in place. As of Monday, the S&P stood at a slight gain for 2020 – after having endured a 32.16% loss for the year (and a 35.41% drop from its February 19th top) which was followed by a 47.47% rally. On Friday (06/05), the Nasdaq hit a new high for the year and on Tuesday it broke through 10,000 for the first time. Things changed rapidly as cycles were turning very negative, and on Wednesday the Fed implied it could take 3 years for the economy to ramp back up. For the Dow and S&P, today was the biggest down day since March 16th – and their 4th worse loss of the year. The Dow lost 6.90% and S&P was 5.89% lower. We still expect downtrends into June 18th and July 1st, though stocks were very oversold after today’s tumble. Kroger supermarkets had the only gain in the S&P 500 today.

Last week, the Dow Industrials surged 1,727.87 points or 6.81% higher to 27,110.98. After losing 1,862 points today, the Dow was 7.31% lower for the week. The S&P gained 4.91% but was 6.01% lower through today. The Nasdaq gained 3.42% but lost 3.27% through today. The Dow Transports rallied 10.07% but tumbled 10.47% this week to erase those gains. Bank stocks surged 17.44% last week but lost 14.21% through today.





Resistance: 25,738/ 26,384/ 27,037/ 27,699

9,884/ 10,084/ 10,285/ 10,489

3,092/ 3,148/ 3,204/ 3,260


25,100/ 24,471/ 23,849/ 23,236

9,490/ 9,297/ 9,105/ 8,916

2,982/ 2,927/ 2,874/ 2,820

Other Markets

 Crude Oil rose above $40/barrel last week with an 11.44% rally but was 8.12% lower into today. Stockpiles reached record highs even with production falling to 20–month lows. Commodities gained 5.09% but fell 2.93% this week. Gold dropped 3.49% but then rose 3.33% into today. The U.S. Dollar lost 1.44% and was .19% lower through today. The Japanese Yen dropped 1.63% but surged 2.48% into today. The Euro rallied 1.72% last week and added .06% this week. The European Central Bank’s President Christine Lagarde said that EU “improvement has so far been tepid” as they stepped up with 600 billion Euros ($675 billion) in new QE stimulus. She said “action had to be taken” in response to the an “unprecedented contraction” in the EU. Corn rose 1.69% last week but was .45% lower through today. Cotton jumped 7.29% but has fallen 2.86% this week.

“It is better to have a permanent income than to be fascinating.” Oscar Wilde

“Those who agree with us may not be right, but we admire their astuteness.” Cullen Hightower


Doug Ingram, Financial Economist


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