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Monday, January 10, 2011

Good to Know

  • U.S. GDP is projected to rise +2.6% in 2011 (68 forecasts collected by Bloomberg) versus +1.5% Euro region, +1.3% Japan, +2% U.K.  The relative performance is expected to push the dollar higher.  On 11/4 the dollar index stood at 75.631.  Today it is 7.3% higher at 81.17, a welcome development for foreign investors in US. markets.  Rising interest rates and the expected stronger performance of the U.S. markets are expected to push the dollar higher over the first half of 2011.
  • The real yield on the 10-year Treasury has risen to 2.18% from 1.46% at the end of Oct.  The real yield is the difference between the nominal yield and the expected rate of inflation.  An easy way to track it is by taking the difference between the 10-year Treasury note and the 10-year Treasury TIPS (Treasury Inflation Protected Security).  The difference between the two is roughly the rate of inflation that will result in equivalent performance of the two securities.  In other words, if inflation is greater than 2.18%/year  over the next 10 years, an investor will do better in the 10-year TIP.  Both of these yields can be found at Bloomberg (scroll down to get the TIPs yield).
  • There will be 3 Treasury auctions this week.  A 3-year note on Tuesday, 10-year note on Wednesday, and a 30-year bond on Thursday.  The pattern recently has been that the middle auction (the 10-year this week) has had the most problems.  In the background, ongoing problems in Europe should provide demand for the issues; but there is a report this morning that primary dealers have significantly reduced Treasury holdings that should get investors' attention.
  • University of Maryland professor Morici had an op-ed piece in The Washington Post this weekend (I couldn't find a link to it - sorry) arguing that job creation will be anemic until we get our Trade Deficit under control.  He argues that the stimulus increased economic activity but much was in the form of imports from China.  He continued his case for a tariff on Chinese goods if they are going to persist in holding their currency below market levels.
  • The International Trade data will be reported on Thursday and the CPI on Friday.

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