U.S. Economy Struggling
Research for Online Investors

by John Dalt

5/26/11

Economic reports this morning are not encouraging.  Gross Domestic Product grew for the first quarter at an anemic 1.8%.  Initial jobless claims for last week were 24 thousand higher than expected (10 thousand more than the previous week).  I can almost hear Bill Clinton intoning “I feel your pain.”  Oh, wait wrong president.  It appears the consumer needs a hug, Consumer Confidence was slightly better than last month at -48.4 on the Bloomberg survey.

Joseph Brusuelas, senior economist at Bloomberg, said “The combination of a difficult labor market, falling housing prices and inflation has given the consumer a case of the blues that will not likely fade any time soon.”  A softening in gasoline prices last week was credited with giving consumers a small break.  This is important, as Bloomberg attributes 70% of U.S. economic activity to consumer spending.  On a regional basis, the South showed the largest fall in consumer confidence.

The GDP numbers at 1.8% growth are prepared by the U.S. Bureau of Economic Analysis.  Today’s release was the Bureau’s ‘second estimate’ for the first quarter.  The market expected an upward revision to 2.2%.  Fourth quarter GDP growth was initially reported at 2.8% in February, but revised in March to 3.1%  There was no such luck of an upward revision this time.

Economists predict the second quarter will follow the low first quarter numbers.  Reuter’s reports that auto production is expected to fall on supply chain disruptions due to the Japanese earthquake.  Motor vehicle production added 1.28% in the first quarter.  Business investment rose in the first quarter at a 3.4% rate compared to 7.7% in the fourth quarter.

The U.S. Treasury sold $29 billion in seven year notes this morning.  Demand was high as investors are looking for the strongest “weak” currency.  Did anyone tell them the U.S. is at our debt ceiling?  The notes sold at a yield of 2.429%, the lowest this year.  Earlier this week two-year and five-year notes sold at the lowest yield since last November.

Moody’s downgraded Bahrain’s government bond ratings today, to Baa1 with a negative outlook.  The ratings agency cited recent political turmoil and weakening banking sector.

As we go to press the market has turned positive.  Does this make sense?  No, but the market can stay irrational longer than you can stay solvent if you are in a bad trade.  Caution is called for in markets that you cannot explain.  You might be the ‘fish’ at the poker table!

The mailbag:
Man, looking at the chart of CSCO---you have to have cajones.  Even the fundamentals don’t favor this company.—Long Term subscriber M.T.

John’s reply:  We will enter at the correct time and price.  Their multiple has contracted.  Buy when there is blood in the streets!

We need to talk about you managing my 401k, Merrill Lynch made 4% last quarter.---subscriber R.A.

John’s reply:  A simple process.  Call at your convenience.  Our managed accounts were up 11.9% at the end of April.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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