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Economic Update for the Week of 7/13/2012

Jobless claims fee 20,000 to 350,000 which is a positive data point however this needs to be seen in a trend over time.

Consumer credit increased by $17 billion last month, with $8 billion from credit cards. Generally when consumer credit is increasing, it is a sign that the consumer is optimistic about their future however in this current environment of high unemployment and low consumer confidence, this seems to be a strange development. Could it be that consumer have less income and they are forced to use credit, or perhaps every so often, consumers give in to those purchases they have been putting off.

The ECB (European Central Bank) cut their interest rate they pay private banks on their deposits to zero. The effect of such policy is that many money market funds have no positive investments and are forced to close. Without interest, the money market funds cannot pay investors otherwise they would "break the buck” so the only option is to close the fund to new investors. The question then remains where do investors place large deposits if the money market funds are not accepting new deposits? This is a clear sign that banking in Europe is getting worse.

And there it is; JPMorgan admitted to deliberately mismarking the price of securities to hide losses. This is basically fraud that for most would result in fines and jail time. Because JPMorgan is such a large bank and in cahoots with The Fed, they are likely to get nothing more than a slap on the wrist.

S&P 500 is not too far from recent tops however the volume has been low. In fact 2012 is on track to have the lowest trading volume in years. When markets rise on declining volume, this means the prices are being set by fewer people and often precedes a decline. Investors should use these rallies as opportunities to continue to sell appreciated positions and pare back risk until better opportunities arise.

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