Tuesday, April 30, 2013

Fed Dance Around May Pole

Historians suggest celebrations on the first day of May harken back to Roman fertility rights that were generally celebrated in the first weeks of Spring.  As the centuries rolled by workers took over the day to demonstrate against oppressive landlords and factory owners.  In contemporary times, especially in Europe where May Day has higher visibility than in North America, celebrations have become an odd mix of union members dancing around a pole with colorful ribbons flying in the breeze.
There is not much dancing in Europe this year.  The Euro area unemployment rate in March 2013 was reportedly 12.0% with the worst unemployment in Greece and Spain.  The U.S. had added jobs in March bringing the U.S. unemployment rate fell to 7.6%.  Still that news was really not that comforting for those who cannot find a full time job or even cobble together a string of part-time gigs that pay the bills.

This week First Lady Michelle Obama and Dr. Jill Biden are on the road promoting the administration’s Joining Forces program aimed at boosting veteran employment by business.  Top employers for veterans include Deloitte Consulting, Northrop Grumman (NOC:  NYSE), General Electric (GE:  NYSE) and L-3 Communications (LLL:  NYSE), all of which do are frequent military contractors.  Unemployment among veterans was 7.1% in March 2013, just slightly below the national rate.  However, for the younger veterans who served after the tragedy of 9/11, the unemployment rate is near 9.2%.  Apparently, military service is an interruption rather than a stepping stone in employment, requiring veterans to start from the beginning to get trained and land that first job.

The Federal Reserve is concluding its regular two-day meeting on May 1st.  Most who watch the Fed and get interviewed by the popular financial media suggest the Federal Reserve will keep its expansionary policy in place even as others fret over how the Fed will finally go about NOT buying Treasury and mortgage bonds.  “Tapering” has become the new buzz word.  It does not seem like we really need to worry much about the end-game for some time, given that the Fed has said it is targeting 6.5% unemployment before altering its current policy. 

Most likely we will be able to dance around the May Pole once or twice again before Ben and his gang stop buying bonds.   In the meantime, business will continue to see record low short- and long-term interest rates but will lack the confidence in the economy to take on leverage.  Job creation will remain tepid.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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