Economic Update

[Adam in CO]

The trade deficit for November declined by 1% to $58.2 billion, the lowest level since July 2005, the Commerce Department said January 10. Despite the improvement, the total 2006 trade deficit is on pace to reach $765.4 billion (December's trade numbers must still be tallied), compared to $716.7 billion in 2005.
Led by robust holiday shopping, retail sales increased 0.9% in December, the strongest showing since a 1.4% increase in July. For 2006, retail sales rose by 6%, a solid showing, but down from a 6.9% increase in 2005.
Despite improving retail sales, U.S. wholesale inventories leapt by 1.3% in November, triple the 0.4% rate of increase predicted by analysts. A broad-based accumulation of stockpiles ranging from cars to farm products to petroleum helped fuel the increase.
Following a dip in interest rates for the first time in five weeks, U.S. mortgage applications soared 16.6% in the first week of the new year (through January 5), the Mortgage Bankers Association (MBA) reported January 10. The MBA's survey covers approximately 50% of all U.S. residential loans.
The number of newly laid-off workers filing unemployment claims fell by 26,000 to 299,000 for the week ending January 5, the Labor Department said January 10. It marked the first time jobless claims had fallen below 300,000 since the week of July 22.
This week look for updates on the Producer Price Index on January 17 and the Consumer Price Index on January 18.

[DennisAJC]

That's SUPERDUPER!!!!!


Thanks Adam!

[CO Hummer]

Originally Posted by Adam in CO

The trade deficit for November declined by 1% to $58.2 billion, the lowest level since July 2005, the Commerce Department said January 10. Despite the improvement, the total 2006 trade deficit is on pace to reach $765.4 billion (December's trade numbers must still be tallied), compared to $716.7 billion in 2005.
Led by robust holiday shopping, retail sales increased 0.9% in December, the strongest showing since a 1.4% increase in July. For 2006, retail sales rose by 6%, a solid showing, but down from a 6.9% increase in 2005.
Despite improving retail sales, U.S. wholesale inventories leapt by 1.3% in November, triple the 0.4% rate of increase predicted by analysts. A broad-based accumulation of stockpiles ranging from cars to farm products to petroleum helped fuel the increase.
Following a dip in interest rates for the first time in five weeks, U.S. mortgage applications soared 16.6% in the first week of the new year (through January 5), the Mortgage Bankers Association (MBA) reported January 10. The MBA's survey covers approximately 50% of all U.S. residential loans.
The number of newly laid-off workers filing unemployment claims fell by 26,000 to 299,000 for the week ending January 5, the Labor Department said January 10. It marked the first time jobless claims had fallen below 300,000 since the week of July 22.
This week look for updates on the Producer Price Index on January 17 and the Consumer Price Index on January 18.

Adam,
That's all fine and great. But I think the increasing use of derivative instruments in our capital markets reflects a variety of factors. Technology facilitates the ability to track the payoffs and risk exposures associated with a portfolio of derivative positions. It also has facilitated the market-making function and auto-quoting in derivatives, tightening derivative spreads and shifting price discovery. Clarity in accounting treatment is important for investors to be confident in their use of derivative instruments. The greater use of derivatives also reflects the increasing sophistication of the portfolio risks borne by many investors and the resulting hedging requirements. An important factor in the growth of derivatives markets has been a variety of intellectual advances. The development of economic models for valuing derivative instruments and assessing their riskiness and the increasing sophistication of such models have played a crucial role in the growth of the market. Of course, the valuation of a derivative security depends upon its riskiness and required risk premium, while the risk of a security can be cast as the sensitivity of its value to changes in the relevant economic state variable. There has been tremendous diffusion of valuation and risk assessment techniques through both MBA programs and programs in financial engineering. The greater use of derivative instruments has been caused by and resulted in lower trading costs and greater liquidity. The widespread acceptance of synthetic derivatives has reduced costs and increased liquidity and trading. The increased use of derivative instruments has facilitated the greater integration of our financial markets.