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Interest Rates to Remain Low for Years... Fed Chairman Ben Bernanke stated that the Fed intends to pursue the Zero Interest Rate Policy (ZIRP) through 2014.
What it means - First, the Fed is telling us in clear terms that this recovery is not on track. It is fragile, it is at risk, and it needs life support. Second, the Fed is telling us that there is no recovery for housing in sight. However, one of the biggest outcomes of this policy is not what the Fed wants to happen (recovery, housing boost, etc.), but an unwanted side effect - blowing up savings funds and retirement plans. Individuals, as well as, companies must estimate their future retirement costs and then add funding accordingly. This could be in a personal IRA or a corporate pension. As interest rates go down or remain low, the amount that must be added today soars higher. This news from the Fed means that anyone saving for the future, from the most modest of workers to the largest of pension funds, was just handed a huge funding bill. Without government intervention, interest rates would be much higher, rewarding savers for investing. What is the reward today? At a 3% rate of return (30-year Treasury rates), it will take a quarter of a century to double one's money.
Jobless Claims Bounce Back to 377,000... According to the U.S. Labor Department, Jobless Claims, which had reached 400k two weeks ago and then fell to 352k last week, came in at 377k this week.
What it means - We are kind of back where we started, but not as bad. Keep in mind that the jobless claims rate is below 400k, which is good. The fact that the average is around 380k simply means we are not making much headway.
Apple Earns Zillions... According to Apple's earnings release, Apple's earnings increased by 60% over the previous year, adding $13 billion in profit just in the last quarter.
What it means - Apple has a lot of money...$97 billion in cash and liquid securities to be exact. This is not news. What is news is that Apple is growing its stash by selling consumer products produced elsewhere. Only about 6% of Apple employees are in the US, or roughly 45,000 out of 700,000 worldwide. Want a good case study on the state of the US? Think about how many friends and relatives with dim employment prospects (lack of earnings) used a credit card (increased debt) to purchase an Apple product (consumptive spending) over the holidays, a purchase that grew the company's bottom line and supported employment outside the US. This is not a judgment, it is an observation.
New Home Sales Down... The Commerce Department announced that new home sales fell to an annualized rate of 307,000, the lowest reading recorded, and the median new home price fell almost 13% over the last year to $210,300.
What it means - Home builders have lowered their sights and are squarely focused on entry level homes and just above. These are the mortgages that get underwritten by FNMA and FHLMC. The problem, of course, is that most people did not purchase their home in the last 12 months, so existing homeowners are fighting a battle against falling new home prices. This is deflation in action.
GDP up 2.8%, Less than the 3.1% Expected... The first government estimate of 4th quarter GDP came in lighter than expected, and was mostly supported by companies building inventory versus end client sales.
What it means - This number was telegraphed by the Fed, as they reported their frustration at the slow pace of the recovery a couple of days ago. This low number, along with an expectation of falling inflation in the months to come, sets the state for another round of printing or QE by the Fed. With very low interest rates and potentially more QE, investors are getting squeezed, which is what the Fed wants. Their goal is clear - don't save it, spend it, and spend it soon!
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