THE UNNOTICED RALLY IN BONDS
REAL ESTATE GLOOM
Last week’s real estate report was depressing. Home sales declined in all regions (4.1%), and only the South eked out a price rise. GDP is likely to fall under 1.8% as housing-subsidized spending slows. Stocks sold off; the S&P closed the week down 0.55%, Nasdaq 1.09%. The biggest news last week was in bonds. The 10-year Treasury yield dropped again 5.4bp to 4.789%. On an inflation-adjusted basis, we are at Japanese levels. European bond markets had the biggest rally in a year after a report showed inflation slowing in Germany. The yield on the 10-year Bund dropped 11bp to 3.79%. The dollar regained some ground against the yen as speculation grew that the Fed may yet raise rates this year. Crude oil prices rose to $72.51 on fears over hurricane Debby and HedgeStreet listed a binary on the preliminary damage from it. The Hurricane Season 2006 binaries struck at $1bn traded at the ask of the $62/$65 quote. Meanwhile a new tropical storm Ernesto formed in the Caribbean. The last day of trading for Nonfarm Payrolls binaries is Thursday; the 110K strikes traded at 67.30, the 130K strikes traded at 40.40.
ECONOMIC RELEASES THIS WEEK
Tuesday: Consumer Confidence is expected to post a modest decline to 104.0 (April registered a four-year high at 109.8) adding to a downward trend.
Wednesday: Q2 GDP is forecast at 3.0%, deflator at a relatively high 3.3%.
Thursday: Initial Claims expected to be flat at 315K. Personal income is expected at 0.5% (a healthy 6.2% growth year on year), spending expected at 0.8%, core PCE expected at 0.2% (year on year 2.5%, an 11-year high). The savings rate expected at a miserable -1.7%. Chicago PMI is expected at 57.0 underlining strong business investment.
Friday: Nonfarm Payrolls are expected at 125K with private sector adding 95K, many in manufacturing, business/professional and health care; unemployment expected at 4.7%. Auto and truck sales are expected within their recent averages at 5.4m and 7.3m.
ITALY AND FRANCE TO LEAD THE UN FORCE
Italy (3000 troops) and France (2000 troops) will lead the U.N. peacekeeping force in south Lebanon. Each Italian soldier is allowed to bring with him a bottle of Chianti, his mom to cook and wash for him, and up to 3 girlfriends. French soldiers are allowed a bottle of Beaujolais and a deck of cards in case they have to wait for military action, and a pair of running shoes in case there is action.
BUSH DRINKING
Following the 2008 election, Pres. Bush is to reveal that he never became Christian, he just said that to win votes, and that he has been drinking steadily throughout most of his presidency. Ted Kennedy will be upset that he had not thought of the strategy first.
LIEBERMAN TO RUN IN SASKATCHEWAN
After losing the Democratic primary in Connecticut, Sen. Joe Lieberman registered as independent and is running neck in neck with Ned Lamont again. He was crying as he said: “I want to be an important Senator, I will die if I am not important. I registered as an independent in North Dakota and Saskatchewan so that I can stay important.”
CONVICTED FELONS TO VOTE
Sen. Hillary Clinton and John Kerry, among others, are sponsoring a bill that would allow convicted felons to vote. The bill is pushed on the assumption that most of these “new” votes would be Democratic. Felons like to do drugs and to take what is not theirs. But they also like to use guns. I think it is a toss-up.
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Posted by Dr. Bob 
