April 29, 2011 : Market Update
Harvard vs. McDonald’s
This week marked the second full week of earnings announcements and with it some mixed news. While the pundits don’t seem to be talking a whole lot about it, my own anecdotal evidence is that we’re seeing more “misses” than in past quarters and more CEOs concerned with rising inflation. Coupled with the fact that the Q1 GDP first estimate came in around 1.8% (down from 3.1% prior), it is clear that earnings and economic statistics aren’t exactly what is driving this market higher. To the contrary, from the looks of things, it appears that all ears are on the Federal Reserve these days.
The Fed Open Market Committee (FOMC) released their latest report which is essentially unchanged from prior reports. They repeated language about near-zero rates for an “extended period” and talk about longer-term inflation expectations being “stable”. And despite the deficit hawks on the committee who have been quite vocal recently about their concerns regarding inflation; it comes as a surprise that the vote on continuing QE2 through June was unanimous. As a result the dollar weakened further, commodity prices hit new highs and the stock market inched higher.
To highlight the doublespeak coming out of the Treasury Department and the Federal Reserve we just need to look at recent comments. Treasury Secretary Geithner said this week, “Our policy has been and will always be, as long as I’m in this job, a strong dollar is in our interest as a country. We will never embrace a strategy of trying to weaken our currency to try to gain economic advantage.” Chairman Bernanke said on Wednesday, “The Federal Reserve believes that a strong and stable dollar is both in American interests and in the interest of the global economy.” And yet, the one-year chart of the U.S. Dollar Index below demonstrates the irony of their statements.
There is a fine line the Federal Reserve and Treasury Department are trying to walk between supporting the fragile economic recovery and having the economy fall back into recession. They’re using their best judgment, but only time will tell whether they made the right policy decisions.
And the story of the week has to go to McDonald’s. A few weeks back they announced they were planning on hiring 50,000 new employees on April 19th. As it turns out, they hired 64,000 minimum-wage employees from an applicant pool of more than 1 million people. Someone did the math and discovered that their acceptance rate of 6.2% is lower than the 7% of applicants accepted into Harvard each year. Now you know.
Follow Us!
