Thursday, March 31, 2011

QE2 and Trying to Anticipate Investors Anticipation

The Federal Reserve is slated to end their quantitative easing program (QE2) on June 30th. Lately, there have been a few Federal Reserve Governors voicing their views that perhaps we should end QE2 early due to some of the commodity inflation that has raised the eyebrows of the public recently. Despite the squabbling amongst Fed members, it still seems unlikely that Chairman Bernanke will end this program ahead of schedule. Yes, gas and food prices are up but personally I think Bernanke is more focused on the 8.9% unemployment rate, very low capacity utilization, falling real wages, and a struggling velocity of money. And though it is hard for me to envision helicopter Ben bringing QE2 to port earlier than originally planned, I also have a hard time believing that we’ll get a QE3 unless markets experience another devastating shock that threatens to derail the current bull market.

Assuming the window for QE2 is slowly closing, it is time to begin thinking about what will happen to the economy and markets when QE2 ends. One of many aspects to this issue is how it will affect bond yields. I think conventional wisdom says yields should go up (and bond prices down) when QE2 ends since the dominant buyer of freshly minted bonds will be out of the market. Reinforcing that line of thinking would be the argument that the Fed would only end the bond buying program if the economy was improving, and an improving economy should put pressure on inflation and force bond yields higher. But we must always ask the question, what if the consensus is wrong? For example, perhaps the market focuses less on who is going to buy treasuries and more on the withdrawal of liquidity leading to less robust growth several quarters out. I’m not even sure how much of a surprise that should be given that at the start of QE2 conventional wisdom said that yields would go lower, and they did nothing but climb since the program was enacted on November 10th, 2010. Trying to anticipate what investors will be anticipating is one of the things investors must do, and it is one of the activities the investment team at Pinnacle Advisory Group is constantly engaged in. Rest assured that we’ll be thinking about the many aspects of an end to QE2 as we draw closer to June 30.

Wednesday, March 30, 2011

Guest Lecturing at Hofstra University

I have been invited to speak to the finance students at the Zarb School of Business at Hofstra University. The engagement is sponsored by GARP, the Global Association of Risk Managers. I’m very grateful to the Pinnacle client who asked me if I would be interested in speaking as well as Ahmet Karagozoglu, Ph.D., and Associate Professor at the School of Finance, who actually extended the formal invitation to speak to his class. This isn’t the first time I’ve been asked to guest lecture to finance students at the MBA level. Professors Russ Wermers and Sarah Kroncke were kind enough to have me speak to their finance students last year at the Smith School of Business at the University of Maryland. Then as now, I am eager to discuss portfolio construction with such fine young students whose knowledge of the financial markets is for the most part shaped by the text books they have read, whatever “color” their excellent professors have added to the story, and I presume whatever experience they have trading their personal on-line accounts. For the record, Professor Kroncke’s students at Maryland actually get to manage real money in the Mayer and Senbet Funds set up by the University Endowment.

While my topic for the lecture is “Managing Portfolio Risk in Natural Disasters, A Playbook for Black Swan Events,” it seems to me that the additional message that I want to share with these students includes an overview of the basic structure of institutional portfolios and how that is likely to impact their future employment. While we manage close to $1 billion in assets nowadays at Pinnacle, the fact is that the assets belong to our individual clients in accounts that are custodied by third parties. The accounts are transparent and liquid. This structure defines what strategies we utilize to maximize returns and minimize risk for our clients. Many of the Hofstra students that I will meet are likely to be employed by bank proprietary trading desks, hedge funds, mutual funds and private equity firms that don’t have similar constraints for portfolio construction. Risk management in these investment communities is based on a different set of rules about how to manage volatility. They will be working at firms that manage huge amounts of capital in pooled accounts that have long-term lockups that don’t allow investors to withdraw their capital for years, and that are completely opaque in the sense that clients can’t see the securities in the fund until the quarterly or annual report. Thus they will be afforded the opportunity to implement all kinds of strategies without the harsh spotlight of clients seeing every trade.

I think I might share the basic rules that we have learned about risk management at Pinnacle, including the potential pitfalls of quantitative investing. I am convinced that the tactical strategies we employ for our clients are so fundamentally sound that they are worth sharing, even if by Wall Street standards they might seem overly simplistic. Evaluating the business cycle, investor psychology, and intrinsic value to find value opportunities is critical to earning excess returns. Avoiding excess leverage, excess derivative usage, and large concentrated stock positions also is critical to avoiding true “Black Swan” events. It might not be sexy, but I’m looking forward to engaging the finance students at Hofstra in a discussion about how to invest in strategies that don’t blow up and have a high probability of creating long-term value for their clients. I can’t wait.

Tuesday, March 29, 2011

Housing Problems Resurface

There have been several updates on the housing market in the past couple of weeks, and none have been very encouraging. This morning brought the latest reading of the S&P Case/Shiller Home Price Index, and it showed that housing prices are falling anew. The 20-city composite has fallen to its lowest point since May 2009.

It’s certainly not “news” that the housing market is struggling mightily. The stock market has adjusted by punishing home builders and other housing-related stocks. In terms of the economy, housing’s share of GDP has fallen from 6.3% back in 2005 to 2.3% last year, so it has a much smaller impact.

No, the bigger concern is the secondary effects that another leg down in prices may have. Specifically, large financial institutions are still carrying very large inventories of houses, which may create another wave of losses if price declines lead to even more defaults and foreclosures. At the consumer level, a drop in price will increase the ranks of homeowners who owe more on their houses than they’re worth at the same time that gas prices are soaring, potentially creating a big drag on future spending.

The bottom line is that problems in housing aren’t totally yesterday’s news, and we need to keep a close eye on developments there because of potential spillover effects into other important parts of the economy.

Monday, March 28, 2011

Watching Gold Closely

Lately we’ve been watching the price of gold closely. What’s on our mind is that despite extreme havoc in the Middle East, a nuclear disaster in Japan, and a nasty plunge in dollar, the shiny metal has not been able to break convincingly to new highs. Late last week some analysts were noting a key reversal in gold on Thursday when it started up on the day and broke to new highs, but then reversed suddenly intraday and ended the session in the red. That day we did note that there was an increase in margin requirements on silver, which clouded the picture of whether it was showing a very bearish pattern, or just reacting to a short term event.

At the moment we hold 4% gold in our portfolios as a hedge for many things: inflation, banking system risk, geopolitical tensions, terrorism, money printing, potential flight from the dollar, etc. We still believe there are structural risks in the world, and therefore it makes sense not to abandon the asset class completely at this juncture. But we are contemplating bringing down exposure on a tactical basis if it breaks down much further. Why is gold dropping? It could be that the dollar is ready to bounce, it could be that real interest rates are set to rise, or maybe it’s a simple as Warren Buffet saying he doesn’t like it. Any way you slice it, it’s a volatile asset, and we must assess how much of the glittery metal we want to own at any point in time. We’ll be mulling this over and watching the price action closely.

Thursday, March 24, 2011

Portugal Government Collapses and the Euro… Goes Up

Overnight, the Portuguese government collapsed following a vote in parliament against a new austerity package aiming to reduce the country’s deficit. Prime Minister Jose Socrates resigned after the vote, as he vowed he would do if this deficit reduction was not approved. He claimed that raising taxes and implementing severe cuts in spending would lead to substantial debt reduction and allow the country to avoid a European bailout. So in essence, the “no” vote has now guaranteed a bailout will come from the European Union summit taking place today and tomorrow at which leaders are discussing the euro-zone debt crisis. The market has a lot of faith in those leaders to quell debt fears as the Euro, currently trading at $1.42, gained against the dollar today.

Traders were quoted as saying the Portugal bailout had been priced into the market already, and all the selling necessary has occurred. Looking at the chart below there doesn’t seem to be much selling in the last few months as the Euro is flirting with 12 month highs. I will be interested in watching this level to see if the Euro breaks to new highs or finds resistance here.

If you ask me, this seems to be more of a statement regarding the dollar than the Euro. The European Central Bank has expressed interest in raising interest rates to counter inflation problems which supports the Euro, and the Federal Reserve is certainly not at that point. If Bernanke’s ultimate goal is to debase the currency then I certainly think he is winning this race. And you know we will continue to hold gold to hedge currency debasement until he releases the throttle.

Chart: Rydex Euro ETF (FXE)

Wednesday, March 23, 2011

Oil Heats Up as Reactors Cool Down

There’s been a nice rally since the markets appeared to hit a short term selling climax last week on fears of a potential nuclear reactor meltdown in Japan, but we are quickly approaching an important inflection point in this bounce. The S&P 500 has closed in on its 50-day moving average, and many markets have retraced around half of the losses accrued during the panic selloff last week. Markets now appear to be entering the indecision zone that will determine whether the current rally reverses soon or powers forward, leaving the correction in the dust.

While the situation in Japan continues to evolve, recent news has been encouraging as it appears that the nuclear situation is stabilizing. One thing to keep an eye on is the Middle East and energy prices. All the recent focus on Japan has taken some of the focus off the oil markets, and West Texas Intermediate oil has now climbed close to $105 per barrel again in a somewhat stealthy fashion. Whether it’s oil, Japan, commodity price inflation, China raising reserve requirements, or European yields rising, it still seems there are a number of risks circulating around the globe that may keep short term volatility part of our world for just a little while longer. Enjoy the relief while we have it, but don’t get too comfortable since this correction may not be over yet.

Tuesday, March 22, 2011

The Natural Disaster “Playbook”

Last week I found myself discussing the Natural Disaster Playbook with several clients. This “playbook” is followed by institutional investors with little variation and is employed during unexpected or exogenous events like earthquakes, floods, tsunamis, pandemics, etc. It is also often used for non-natural disasters such as terrorist attacks, assassinations, and any other event that is unexpected and not already discounted by the market. The playbook goes like this: When a natural disaster occurs the reaction of the general public is fear and panic. In such a situation the media is often an enabler of emotional reactions to the event as video is played throughout the 24 hour news cycle. “Experts” are interviewed with dire predictions. In such situations, markets attempt to instantly discount the impact of the tragedy and inevitably panic selling ensues. By definition, the selling overshoots the true fundamental impact of the event creating a buying opportunity for steely-eyed institutional dip buyers. As the smoke clears and the panic subside, it becomes clear that the world isn’t coming to an end and although the event is tragic, in almost every case the global economy continues with little pause. In fact, the odds are that subsequent government spending to recover from the disaster causes GDP to grow faster in the future. Does anyone remember the anthrax scare? How about bird flu, swine flue, and hoof and mouth disease? They all are covered in the playbook.

Buying when there is “blood in the streets” is a proven and time honored method of making money. Institutional investors who buy into disasters are considered to be expert value investors who rise above the panic of the crowd in order to do what they are paid to do, which is to exhibit the counterintuitive behavior of buying when everyone else is selling. The “playbook” includes the unwritten rule that buying a disaster is a low risk strategy from the perspective that clients understand that they wouldn’t do it, so even if it turns out that buying the dip was “wrong,” there is little career risk associated with the strategy as long as it is done in moderation.

There is one hitch to following the playbook, which is the notion of a “black swan” event. These events, by definition, happen very rarely, can’t be discounted in advance by the market, and actually do have dire consequences for investors. Because by definition these events are extremely unlikely to happen, it’s hard to know just what to do about them. The nuclear situation in Japan is a perfect example. The playbook says buy the tsunami and the earthquake, and I suppose we should buy the nuclear meltdown as well. However, if nuclear disasters don’t warrant just a little bit (heaven forbid…not panic) of extra concern, then what does? Until the reactors are under control, I will be in favor of cautiously applying the playbook in the context of unleveraged portfolios that are properly diversified and are positioned close to benchmark risk. Playbook or no playbook, sometimes it is wise to be patient.

Monday, March 21, 2011

Growth Remains on Upswing

Investors have grown increasingly skittish in recent weeks, which is understandable given the enormity of recent events in the world. Lost amid all the concern regarding exogenous shocks seems to be that the U.S. economy remains on a solid growth trajectory. The latest evidence of this was found in the updates of two leading economic indicators released last week.

On Thursday, the Conference Board announced that their Leading Economic Index grew by 0.8% in February to a record high. The Diffusion Index, or the percentage of underlying components that are rising, increased to 80 from 55 in January.

On Friday, the Economic Cycle Research Institute’s Weekly Leading Index also showed continuing strength. The index’s annualized growth rate climbed to +7.1%, the highest reading since last May (shown below).

Despite short-term volatility that may linger for a bit, we believe these two measures confirm that the bull market is still well supported by an expanding economy.

Friday, March 18, 2011

Buying a (Big) Dip

The old adage passed from generation to generation in the investment world is to “buy when there’s blood in the streets." This simple sentence perfectly sums up the investment philosophy known as contrarianism, which means doing the exact opposite of the herd. In other words, buy the dip, and the bigger the dip, the bigger the potential opportunity. Well, we found what we think is an intriguing dip to buy for clients in our Ultra Appreciation model, which is the most aggressive strategy that we offer. Uranium stocks plummeted by 30% in just two days, which led us to purchase the Global X Uranium ETF (URA). The terrible tragedy in Japan opened this investment opportunity as panic and uncertainty surrounded the nuclear industry.

An independent analyst that we read daily summed up the opportunity as a short term, technical opportunity as URA bounces to fill the gaps down it made yesterday and today. I have marked the gap with a yellow bracket in the chart below to help quantify the exact move. If the gap completely closed, the price of the ETF would rise 27% from the current $14.70 price (this does not include the 7% price rise today).

To be sure, there is plenty of risk associated with this position. There are already rumblings from politicians and environmentalists to halt nuclear energy expansion, and this will intensify if the situation in Japan deteriorates further. At the very least, this will result in increased regulation and higher costs associated with uranium production. As a result this position is expected to be highly volatile over the next few months and loaded with headline risk, meaning that in our judgment it’s only suitable for investors with a very high risk tolerance.

Wednesday, March 16, 2011

Attempting to Harness the Negative Energy

These are scary days out here in investing land. Between geopolitical concerns in the Middle East and the nuclear scare coming out of Japan, there has been a rapid re-pricing of risk occurring in financial markets. Now I don’t want to downplay the human disaster that is occurring in Japan, and my heart goes out to the people there who are dealing with the aftermath of the earthquake/tsunami/nuclear catastrophes. But as scary as the current news is, we believe that the current selloff in stocks is a very healthy development as it is creating some fear and beginning to shake some of the weak hands out of the market.

Our current plan is to use the recent risk aversion to our advantage by scaling out of some hedges and defensive holdings during this decline and replacing them with areas of the market we think contain the most value. It may take some time for this correction to play out given the duration and magnitude of the strong rally that preceded it, and our view is always subject to change if the fundamentals and technical weight of the evidence dictate we do so. But given our current view that this is a correction rather than the start of the next major market downturn, we are attempting to harness the negative headline energy and turn it into future portfolio outperformance.

Chart: Japan ETF (EWJ)

Tuesday, March 15, 2011

Inside the Investment Committee Rocks

One of the highlights of the year for the Pinnacle Investment Team is the annual Inside the Investment Committee presentation for Pinnacle clients. The objective of the presentation is to give our clients a feel for the kind of presentation that the investment team (our Pinnacle investment analysts) puts on for the investment committee (Pinnacle wealth managers and partners) each month. I have long maintained that the monthly committee presentations are of the highest caliber, and that our wealth managers are subsequently well prepared to discuss Pinnacle’s investment strategy with our clients at a very detailed and sophisticated level. The fact that our wealth managers don’t have to actually do investment research and make investment decisions allows them to focus on the details of our clients’ financial planning needs, and also allows them to maintain a very high level of professional expertise in a complicated world of tax, estate, elder care, education, health care, and other types of planning.

Pinnacle client attendance at Inside the Investment Committee tends to be good, either because we hold the meeting on a Saturday which makes traffic easier to deal with, or because the financial markets tend to always be interesting in their own right, or because Rick, Carl, Sean, and Sauro put on a great show. This year we had more than 100 clients show up at the Sheraton in Columbia, Md. to hear the latest about our investment views. The traffic was easy…I’m told. Between the earthquake and tsunami in Japan and recent events in the Middle East, there was plenty of investment news that was of immediate interest. And yes, the guys put on a fantastic presentation. This is their one chance to get unchained from their office chairs in the Pit and get out and shine in front of a large Pinnacle audience, and they work hard to make the most of it. The charts and graphics were crisp and their presentations were clear and to the point.

This year’s themes included Rick and Carl discussing global macro economic and market concerns, Sean giving everyone an overview of technical analysis, and Sauro explaining our valuation work and pointing out some of the difficulties in using P/E ratios to reach a conclusion about market value. To the credit of our audience, they hung in there for the entire one and one half hour presentation and seemed attentive and appreciative to the end. As usual, they asked some excellent questions and I think that the morning was considered to be productive for all concerned. Of course, for those of you reading this blog, the themes that we addressed weren’t exactly “news” since we write on them in this space all of the time. If you couldn’t be there, keep half an eye on the Pinnacle website for further news since I’m told the meeting was recorded as a webinar.

Monday, March 14, 2011

What to do about the Earthquake and the Tsunami?

I received a call on Friday afternoon from a reporter for Financial Planning magazine. She was on deadline and needed some comments from an active manager about the Japanese earthquake and tsunami by 3PM. Here is what I told her knowing from experience that I have no idea what will actually make it into print.

It is still too soon to come to any conclusions about the impact of this tragedy. However, I think it is important to put the entire event into the context of the current market environment. The broad markets have experienced a strong bull market move since last summer and market volatility has been low. Investors have been cautious about overly bullish sentiment for several months now. The bull market has been built on the case that the global and U.S. economy would not have a double-dip recession. Lately concern about a supply side shock to oil prices based on the news out of the Middle East has raised the risks that slow growth could turn negative. In addition, the U.S. Fed’s QE2 program is due to expire this June so investors are wondering what the impact will be from a significant reduction in Fed-provided liquidity in the near future. In short, there was plenty of angst about the current bull market before the news hit about the earthquake in Japan.

Assuming for a moment that Japanese nuclear reactors are not going to melt down and contaminate the industrial regions of the country with deadly radioactivity (a scenario that can’t be ruled out as yet), then investors might consider that this event may not be as serious as it sounds in the context of global economic growth. The Japanese government is likely to spend billions to repair the damage which will act as a stimulus to a weakened Japanese economy. It is at least possible that the regions of the country that are worst hit are basically rural areas and the cost of the quake will be far less than a similar event in the industrial heart of the country. If so, then perhaps the earthquake might be something similar to Hurricane Katrina here in the U.S….a devastating event that creates eye-popping video for 24 hour news stations but does not have a significant impact on global economic growth.

If that is the case, then investors should look at a sell-off in the most growth-sensitive market sectors as an opportunity to accumulate positions at lower prices. Buy and hold investors should look for opportunities to rebalance. Of course, the risk is that the Japanese quake puts the nail in the coffin of the recent global economic expansion. If so, then market weakness could be the first sign of a global recession on the horizon. For me, until I see more evidence that this is the case, I will remain in the “no double dip” camp. However, if the nuclear reactors melt down then all bets are off and we will all be in “risk management mode.” Either way, our hearts go out to those affected by the terrible loss of life and property in Japan.

Thursday, March 10, 2011

Oil Falls, So Do Stocks

Today was a tough day for anyone holding risk assets. The combination of more rate increases in emerging markets, fears of Chinese growth faltering, Portugal’s debt getting downgraded, and more Middle East tensions had the markets rioting most of the day.

One interesting aspect today was that oil and stocks fell in unison for a change. Since the latest geopolitical tensions started, generally speaking, the trade has been oil up and stocks down, and vice versa. Why has this changed in the last two days? Well, one can only theorize. My guess is it has to do with what Sean wrote yesterday. The decline in copper may just be showing us that the rate hiking campaign along with higher gas prices are now siphoning off world growth. Perceptions change quickly, and overextended markets combined with ebbing global growth expectations might just shake some weak hands out of this market and create some value for those of us looking for a cheaper entry point.

Wednesday, March 9, 2011

Dr. Copper

The commodity with a PhD in economics, Copper, is showing signs of slowing here. It is viewed as a fairly reliable leading economic indicator because so much of it is used in the production of industrial goods. Copper is used specifically in wiring, heating, plumbing, and many electronic goods. When there is less demand in these specific areas, the demand for copper falls and that is reflected in the price of the metal. The industrial metal is currently off almost 10% from its high in the beginning of February, as shown in the chart below. Additionally, it has fallen significantly below its 50-day moving average, and the average is starting to slope downwards.

We spoke with an independent technical analyst this afternoon who echoed our thoughts that there are many warning signs emerging at this time. He specifically mentioned copper, the CAC 40 Index (the benchmark stock index in France), and semiconductor stocks as areas issuing the same warning signals. The S&P 500 is currently at an indecision point reflected by the tight range in which it has traded over the last 2 weeks. We will be watching closely to see whether the bulls or the bears win this battle, but our “weight of the evidence” approach has turned cautious in the short term.

Monday, March 7, 2011

Like Clockwork

When market volatility drops to a very low level it is often difficult to evaluate the efficacy of Pinnacle portfolio construction. We think we are well diversified and that “defensive” investments will act…well….defensively. Unfortunately, when cyclical stocks take the lead as they have over the past 9 months, and when the broad market is well above its historical average length of time without a five percent decline, it presents a problem in evaluating our risk management strategy in real time. The stock market has exhibited signs of making a short-term top of late, and intraday market volatility seems to be picking up. The S&P 500 has only declined by 1.53% from February 18th to last Friday’s close, but it does give us at least some opportunity to see what, if anything, is working in our defensive allocations.

The answer is that the defensives are “doing their thing.” They are performing “as advertised.” They are working “like clockwork.” In other words, so far so good in terms of this particularly short bout of market indigestion. First let’s look at the defensive equity positions we own for the same period. While the broad market is down 1.53%, utilities are up +0.31%, consumer staples are down 0.74%, and health care industries are doing fine on a relative basis as biotech is down 0.79%, medial devices are down 0.17%, and health care providers are actually up +1.79%. Our defensive international funds are also doing relatively well. First Eagle Overseas fund is +0.22%. Our alternative asset classes are performing heroically of late as gold positions (GLD and IAU) are up +2.91% and 2.8% respectively. Diversified commodities (UCI) are up 3.41%. As might be expected, our fixed income positions are doing quite well relative to stocks across the board. The 20-year Treasury Bond ETF (TLT) is +1.35% since February 18th.

Whenever market volatility picks up we take a deep breath and hope that our managed strategies deliver the low volatility we hope for as a diversification to our broad equity exposure. Once again, so far the news is good. The Merger Fund is up +0.06%, TFS Market Neutral is +0.65%, and the Hussman Strategic Growth Fund is +1.09%. We will continue to closely monitor the performance of the hedges in our portfolio as we dance with the possibility of (perish the thought) a market correction. So far it’s all working like clockwork.

Friday, March 4, 2011

Volatility Returning to the Market

As opposed to the blissful drift higher in stocks of the past few months, over the past couple of weeks volatility has been returning to the market. There are a number of reasons why, not least of which being the unrest in the Middle East and resulting spike in oil prices.

It’s been an interesting week for stocks. Last Friday, the S&P 500 closed at 1320. Today, it’s trading at 1315 (as of midday), but that masks the up and down moves of the past week. On Monday, the index was up about a half of a percent. Tuesday, it tumbled by -1.6%. Wednesday was relatively muted, and then yesterday the market popped back up by 1.7%. Today, it’s back down by -1.2%.

Not surprisingly, the VIX Index, which measures implied options volatility and tends to move inversely to stocks, has jumped from a recent low of around 15 to 20 currently (and hit 22 back on 2/23). The current level is far from some of the panic highs reached during the 2008-09 bear market, but is notable nonetheless.

We believe that the market has most likely entered an overdue corrective phase. We certainly don’t think that means it’s time to panic; in fact, it might be a healthy development that allows the bull market to eventually resume its course. However, with geopolitical developments remaining highly fluid, we can’t rule out a more adverse outcome, either. Oil prices are a major wild card. If they soar all the way back to $150/barrel, then all bets are off.

Chart: VIX Index

Wednesday, March 2, 2011

Conflicting Labor Reports

This Friday we’ll get another addition of the monthly employment report produced by the Bureau of Labor Statistics that is heavily scrutinized by investors trying to gauge the pulse of whether the economy is improving or not. But the government’s report isn’t the only jobs barometer that investors watch, and today brought two employment updates from the private sector that issued diverging signals.

First up was the Challenger/Grey Report, which tracks the number of corporate layoffs, and is known to be one of the few employment reports that is free of seasonal biases. Today’s report showed that February’s planned firings increased 20% on a year over year basis, with federal, state and local governments leading the charge. This is not great news, and with all the focus on budgetary problems at the state and federal level, perhaps this is a warning of building pressure in that part of the labor market.

The other report out today was the ADP National Employment Report that is constructed using actual payroll data. The estimate for today was an increase of approximately 180,000 jobs, but the number came in better than expectations at 217,000.

Our view on jobs at Pinnacle has been that jobs are in the middle of a slow structural repair phase, but that the cyclical profile is improving. I don’t think today’s data changes anything to that outlook, but we’ll have to keep a close on the Challenger/Grey data to make sure that one month of data doesn’t develop into a malignant trend.