What falling mortgage rates, falling oil prices, and falling US Treasury yields are telling us.

We have been pushing the concept of a long term steady market in mega and large cap stocks for some time.  Most of our belief in based in the financial engineering and political economy in which we are currently living.  The big companies, those with a $100 billion capitalization and above, are not hiring employees since there is essentially no growth in the economy.  Yes you are hearing otherwise in the media, but there is NO growth, only some churning of current business over and over. Job creation is going towards part time and low wage sector due to Obamacare and the high regulatory environment.  Small business is sitting still and making almost no new hires as they see too high a risk in hiring and too much government red tape just to expand. 

New hires last month was basically churn in that low wage employees quitting and new ones being hired. Much of that 30 hours or less.  Not noted by the media is there is an ongoing actual LOSS in full time employment as noted by the labor participation rate being at it's lowest in four decades. Most months we actually add part time jobs and lose full time jobs.  Note the recent DECLINE in wage growth for proof.  Also most highly skilled jobs are going vacant since many Americans refuse to retrain and just take government benefits.  We would not be surprised to see the national GDP go negative one quarter next year, but still this only shows a stall in the economy and no recession. 

Government statistics can be massaged and fudged so as to make the economy appear to be something it is not. Most do not know that in the 1990's unemployment reporting was changed by Billl Clinton to help make his tenure look more positive and that change continues today.  Look no further of course than the monthly employment report where if one would consider those figures and those along one would think we are in a boom.  Politicians are saying as such right now too.  If you are one of the 20 million plus unemployed you know better. Private business statistics on the other hand can not be massaged of fudged, except for those breaking the law, so in almost all cases you can take what they report to the bank.  For instance home builders are reporting no growth and that is reflected in the fact that mortgage rates are again below 4%.  Lack of housing sales is reducing loan demand and therefore rates are down to encourage sales.  Also note that oil prices are down as well and again some of this downtrend is due to lack of demand.  Oversupply is pushing down prices and unless demand increases that will continue for some time.  If the economy was growing oil demand would be stronger and oil prices move up some.  Holiday sales from the recent season were not strong either pointing to a weaker economy. This morning it was reported December 2014 retail sales were down right at 1%.  Now much of this weakness is due to young people not buying homes and therefore creating jobs by doing so.  No economy in my lifetime has expanded much without housing growth and until we get that we got a no growth economy. 

Likely the most important barometer of the no growth economy is the tumbling 10 year US Treausury bond now below 2% yield.  Almost no one thought the we would see a rate like that in the last year. Yes, foreign buyers are buying these securities for safety, but there is something else going on here. That something is no demand by banks for borrowing by customers and thus they are buying US Treasuries since under the new financial rules that is about all they can plow unused free cash into. Look at the CD rates and you will see them going nowhere, which tells you that there is no loan demand for banks to go hunt for funds to lend.  In all,falling mortgage rates, falling oil prices, and falling government bond yields tell you what is really happening in the economy and it is not what government supplied statistics are telling you. 

Investing and participating in this economic environment means keeping in the safe stocks and bonds.  The longer we go into this no growth abyss the more we tighten our grip on mega cap stocks and blue chip bonds.  The lack of demand for most services and goods makes us think carefully about which large cap and small cap stocks we are willing to take risks on buying. Only special situations like NEWM and TCAP where we see less risk merit our investment dollars.  In the last week we have added mega cap selections  MSFT and WFC to our list for safety.  

Watch oil prices here for where we might be going.  We would expect a below $40 price in the high $30 per barrel before we see capitulation on oil prices.  At just below $40 there is a whole list of countries and companies where the pain becomes enough they throw in the towel on production. We would expect one day soon there will be a huge several dollar drop in oil prices and that will be a bottom.  Unlike many in the media we do not find ourselves seeing much improvement in the economy from lower gas prices at the pump. Remember nothing much happened when the price went up and nothing much will happen when the price goes down as much of that added and subtracted cost is being borne on credit cards. 

We suggest being careful and being invested in mega cap stocks where the dividends are being increased and buybacks are in full progress and that is holding up stock prices in those companies. Continue to buy large cap mutual funds in your retirement accounts and large cap stocks if picking individually. Even if the economy stalls more this year and the market goes down the big companies will just keep in doing what they have done for some time now returning lots of free cash flow to shareholders.   Individual stocks in the technology field are the safest out there now such as AAPL, MSFT, CSCO, and ORCL.  Mega cap and low PE's all. 

We remain on record that nothing more will change until there is change in Washington DC and we do not expect much there for no less than two years and maybe longer.   Meanwhile the rich get richer and the poor poorer, not exactly what Obama promised.