This week's releases remained soft in Europe, but were mixed in the U.S. Accordingly, equity markets were mixed. Bond yields were mostly higher, but credit spreads were lower on the week. The U.S. dollar was stronger against the Yen, Pound and Looney, but flat against the Euro. Both energy and metals commodity prices were lower on the week.

Perspective:

ISI's Straszheim reported that, in the president's State of the Union address, the only mention of the second largest economy in the world was the statement that, "As long as China goes all-in on clean energy, so should we." This omission is a reminder to all of us that we often forget the complex international relationships that shape our trade, financial and economic lives. We are well served to keep them in mind and gain a better understanding of those relationships as well as our own economy.

One of the benefits of the Camden Conference is that it provides us with an opportunity to gain an understanding and perspective on geopolitical forces in the world. The 26th annual Camden Conference, "The Middle East -- What Next?" will be held this coming weekend. The Opera House is sold out for the event, but there are three live-streaming satellite venues and there will be Camcasts available for later viewing. Click on the blue hyperlink to visit the Camden Conference's website.

In preparation for the conference, I read (and can recommend) keynote speaker Robin Wright's Rock the Casbah: Rage and Rebellion Across the Islamic World and Vali Nasr's Forces of Fortune: The Rise of the New Muslim Middle Class and What it Will Mean for Our World. Both books provided some depth of understanding of this fast-changing region of vital strategic and economic importance to our country.

Economic Releases:

Data releases in the U.S. were mixed this week, with some on the softer side and some on the firmer side of recovery. Initial Jobless Claims, which dropped to 341,000, were on the firm side. The four-week average (blue in the chart) of claims were a touch higher at 352,500 even though this week's claims were at the lowest level in the recovery. Continuing claims (red in the chart) fell to 3.187 million, also the lowest level since the recovery.

U.S. Retail Sales (blue in the chart) were on the softer side following a strong December; they rose only +0.1% in January. Even without the more volatile automobile component, Retail Sales (less auto's) (red in the chart) rose +0.2%. The chart shows that both series have been muted leading up to the January increase in the Social Security tax.

Other Economic Releases

U.S. Industrial Production fell -0.1% in January; Capacity Utilization fell two ticks to 79.1% following an upward revised December; the Manufacturing component fell -0.4% in January following a strong 1.1% upwardly revised December. On the strong side, the Empire State (NY) Manufacturing Survey of General Business Conditions rose into positive territory in February.

In the EU, Industrial Production rose +0.7% in December, but the flash report for fourth quarter GDP was -0.6%, the third consecutive quarterly decline. Germany's flash report for the fourth quarter was also -0.6%, but it reported a positive third quarter and YOY numbers of +0.2% and +0.4% respectively. France reported a -0.3% decline in its flash report for the fourth quarter. In the U.K., Retail Sales declined -0.6% in January.

Equities Markets:

Equity markets were mixed again this week with the juxtaposition of softer economic data coming on the heels of a better-than-expected earnings season. Nonetheless most equity markets have held onto their YTD gains.

Bond Markets:

Government Bond yields were higher and credit spreads were lower on the week, allowing the more credit-sensitive markets to eek out positive returns. In the new year, long term rates have risen more than short term rates; Central Bankers easing monetary policies have had more direct influence on the short end of the yield curve and evidence of longer-term inflationary concerts has been seen on the long end of the curve.

Currencies & Commodities:

The U.S. dollar rose against the Yen, Pound and Looney. Commodity prices fell on the week in both the energy and metals space.

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Who is John Davidson?

John W. Davidson, CFA, started writing these Comments over a decade ago as a personal discipline when he was promoted to chief investment officer from portfolio manager.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts, and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income, and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he has appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services often quote his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and courses at the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a Naval Officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserves, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is treasurer of the Maine Conference of the United Church of Christ, serving on the executive committee and the coordinating council, the governing board of the conference. He is also on the investment committee of the Pen Bay Health Foundation.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.