As we get the official results of the ‘stress test’ today, a key
assumption used by the Treasury was a stressed scenario of a 10.3%
unemployment rate. With Friday’s report on payrolls, we may be at an
unemployment rate of almost 9% and at the current pace, we’ll be at 10%
by year end. Thus, in order to not have a sequel to the ‘stress test,’
the US economy is going to have to start creating 100-150k jobs per
month by late ’09-early ’10 as that is the level needed to absorb the
monthly increases in the labor force. IMO, that’s highly unlikely and
‘stress test2′ could happen at some point. As expected the BoE left
interest rates unchanged at .5% but increased the size of their asset
purchases to 125b from 50b and the pound is lower. The ECB is expected
to cut rates by 25 bps to 1% and the key question is their stance on QE.
10 yr bond yields continue to break higher in response to the global
rally in equities and mortgage rates are at a 1 month high.