The Econ­omy and Bond Mar­ket Radar (Decem­ber 19, 2011)

Long-term Trea­sury yields ended the week sharply lower as the reprieve from the euro cri­sis was short lived. Ten-year Trea­sury yields fell decid­edly below 2 per­cent and are at the low­est lev­els since early October.

Recent eco­nomic data has been mixed and global eco­nomic news flow has gen­er­ally been weak. One pos­i­tive out­lier worth men­tion­ing is ini­tial job­less claims which have declined to the low­est level since 2008. His­tor­i­cally, ini­tial job­less claims have been a good indi­ca­tor on the over­all econ­omy, so the econ­omy may be in bet­ter shape than many cur­rently believe.

Strengths

• Ini­tial job­less claims fell to the low­est level since May 2008.
• Sev­eral infla­tion mea­sures were reported this week for Novem­ber (Con­sumer Price Index, Pro­ducer Price Index and import prices) and all sig­naled flat to declin­ing infla­tion trends.
• The National Fed­er­a­tion of Inde­pen­dent Busi­ness’ Novem­ber small busi­ness opti­mism index hit a 9-month high as strength was seen in many areas.

Weak­nesses

• Novem­ber Indus­trial pro­duc­tion fell 0.2 percent.
• Novem­ber retail sales were dis­ap­point­ing, ris­ing a mod­est 0.2 percent.
• The excite­ment over the Euro­pean Union (EU) accord that was reached last Fri­day barely lasted the week­end and sen­ti­ment turned sour this week.

Oppor­tu­ni­ties

• There is quite a bit of eco­nomic data due out next week with numer­ous hous­ing mea­sures, durable goods orders and lead­ing indicators.

Threats

• The sit­u­a­tion in Europe remains extremely fluid and neg­a­tive news is almost expected at this point. Unfor­tu­nately it is polit­i­cally dri­ven and dif­fi­cult to pre­dict out­comes and ramifications.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

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