That, however, hasn’t translated into more hiring decisions. Continuing claims are still rising, up to 6.816 million from 6.757 million recently. The nations unemployment rate is currently at 9.4 percent with another seven percent currently estimated to be underemployed.

So while at least statistically speaking you’re becoming less likely to find yourself out of work, if you’ve already lost your job you’re not likely to find employment quite yet.

Businesses and wholesalers continued to drawdown inventories in April with stronger than expected sales. Business inventories fell for the eighth straight month in April, down 1.1 percent, as companies have limited orders and production in an attempt to drawdown huge stockpiles that had accumulated as demand lagged. Wholesale inventories, stockpiles held for sale to retailers, fell by 1.4 percent as sales dipped at a slower pace than in March.

Those declining inventories bode well for both the employment situation and future GDP readings, as businesses will soon be placing new orders to replenish their supplies as retail sales are improving, up 0.5 percent in May after several months of fairly steady decline. While it’s likely that inventories will remain lean in coming months, at this point an increase of any size will have a positive impact on the overall economic situation.

Despite efforts by the US central bank to hold interest rates at historically low levels, buyers of government debt are saying the rates just aren’t enough to justify holding US Treasury bonds. In a mid-month auction, yields on 10-year Treasury notes rose to four percent for the first time since October as surging national debt and the falling dollar led bond buyers to demand more compensation for holding US debt.

Treasuries have fallen more than 6.5 percent this year, their worst performance since 1978, signaling that the bull market in Treasuries is certainly over. The rising rates are also like to throw a monkey wrench in the governments cheap money answer to resolving the current recession as the rapid clip of US debt issuance is turning off potential buyers. And, in a shot across the bow, Russia and China who are two of the largest buyers of US Treasuries, have said they will begin purchasing more bonds issued by the International Monetary Fund, a hint that the US may need to rethink its monetary policies.

That massive debt the US is taking on through its bond issuance and easy money policy is also a sure fire recipe for inflation when the economy turns the corner. In that vein, below is an interview that recently appeared in Louis Rukeyser’s Wall Street with Jerry Jordan, manager of the Jordon Opportunity Fund (JORDX). He spoke with my colleague Peter Staas about his outlook for the economy and ways to hedge inflation in your portfolio.

Peter Staas: What’s your outlook for the markets?

Jerry Jordon: We believe the stock market is making a bottom right now and that we’re going to have a rally—probably a violent rally—at some point in the second or third quarter.

It’s admittedly dangerous to rely on history as a guide, but over the last 150 years the market has never dropped 50-plus percent without some sort of multi-month, intervening rally. When that rally occurs, investors must ask themselves if this will be a multi-year bear market or just a single-year bear market.

We think that while the deleveraging process has years to go, the markets have already priced a lot of that in. One of the important things to remember about the stock market is that values and trends are driven by people; it’s really not about fundamentals, it’s what you and I think about the fundamentals. Because of that earnings estimates, valuations and other indicators act as guideposts, around which sentiment and prices swing wildly.

When things are bad, there’s a tendency for investors to think that weakness will persist; when conditions are good, the assumption is that they’ll stay that way forever. Rationality is usually somewhere in between.

That phenomenon is related, to some degree, to the wholesale collapse of earnings estimates for this year. Analysts had predicted $60 to $70 dollars in earnings for the S&P 500 in 2009; now the consensus forecasts earnings in the range of $40 to $50—

a pretty darn big haircut. But do these estimates represent sustainable earnings or crisis-induced earnings? Take the airlines after 9-11. Was it fair to extrapolate annual performance from September and October? Of course not, but in a way that’s what’s going on here.

Market participants are emphasizing the disarray in the financial sector and the challenging business environment. However, if companies have done a good job managing inventories—and success in this area is one reason why the economic collapse accelerated in the fourth quarter—then cycle-to-cycle earnings will likely end up above $45. A number of people on Wall Street have based their forecasts on this approach, which points to the S&P 500 hovering between 800 and 1,000 points.

How the market acts from day to day is impossible to predict. Will the market be lower or higher six months from now?  We think it’s going to be higher.

PS: And what about the economy—what are the prospects for and drivers of any recovery?

JJ: The Federal Reserve, along with central banks worldwide, appears committed to flooding the system with sufficient money—whatever level it takes—to foster stability and restart economic growth.

If Western Europe’s economies are a bit of a mess, the Baltic countries and Russia are an enormous mess, which will take a long time to sort out. But I think the US is on the right track, even though multiple years of both corporate and particularly consumer deleveraging remains in the cards.

I’m not trying to sugarcoat this process; much of the recovery efforts amount to transferring a poor consumer balance sheet to a poor government balance sheet. That’s the way the country will work its way out of this.

And there will be repercussions, after all, getting out of one situation often results in another predicament; with the government injecting massive amounts of liquidity into the system, inflation is on the minds of many commentators. We think the bulk of this inflation will occur in raw materials.

PS: That would explain your fund’s positions in oil services stocks. What are the dynamics that attracted you to this industry?

JJ: Our general belief is that the world is running out of oil or has already run out of oil. Easily recoverable oil peaked 10 years ago; hard to recover oil probably peaked last year; and really hard to recover oil will likely peak 10 years from now.

Given this situation, a sustained period of elevated oil prices—and by that I mean $100 a barrel or higher—is a necessity to incentivize companies to continue to drill and replace reserves.

I’ll give you an example of just how tight things are right now. If all of the world’s oil producers turned on their spigots, they’d yield about 86 to 88 million barrels of oil a day. Demand currently hovers around 81 to 82 million barrels a day; spare capacity is roughly 4 to 6 million barrels, or about five to seven percent.

At no time in history have we had spare capacity below 12 percent at the bottom of an economic cycle—in fact, it’s usually much higher than that. If we see any uptick in demand, oil prices will be on the move again.

But there’s an added wrinkle. Most producers, from ExxonMobil (NYSE: XOM) to the state oil companies, aren’t going to rush out and drill like crazy. Because they watched oil go from $145 a barrel to below $40 a barrel, they’re going to be hesitant to boost production too much.

We think that offshore drilling will likely pick up because it’s the only way for most of these companies to replace reserves, but you’re not going to see a huge amount of spending on land drilling because they don’t want to kill the goose.

At the same time, all the money supply being created will increase the bid for hard assets; this influx destroys paper assets by creating more paper, so it helps gold and all sorts of raw materials.

And emerging markets provide another demand catalyst. Not only will the number of cars on the road in Brazil, India and China continue to grow, but energy efficiency isn’t necessarily a priority in developing countries—nations that are early in their lifecycle tend to use much more oil and gas.

Oil prices should slowly work their way higher. Many of our favorite stocks are trading at ridiculous valuations based on any sort of normalized oil price, which I believe will be at least $80 a barrel for the next two years and counting.

PS: What are some of your favorite stocks in this area?

JJ: My favorite continues to be Diamond Offshore Drilling (NYSE: DO). I think it offers investors the best of all worlds: In addition to a top-flight management team and debt-free balance sheet, the company has all of its deepwater rigs leased on long-term contracts. Earnings visibility remains good because the contracts almost never get broken, unless the counterparty enters bankruptcy.

The shares currently pay an $8 annual dividend; I can’t guarantee that this will prove sustainable, but even halved the dividend still provides an impressive yield. And given the long-term fundamentals and growth prospects, the stock is tremendously oversold.

PS: Which other stocks and sectors do you currently rate?

JJ: There’s ample opportunity in stocks issued by coal producers, perhaps not as much as in the oil sector, but their fundamentals are strong and the share prices have taken an unwarranted hit. Peabody Energy (NYSE: BTU) is our favorite in that space.

Iron-ore is another area where we’ve found value; BHP Billiton (NYSE:  BHP), for example, has a less-levered balance sheet than most in the industry, so they actually have room to do some interesting things.

That’s not to suggest that all of our holdings are in raw materials; over the past two years we’ve followed a barbell approach to investing, balancing our commodities exposure with health care stocks. Whereas raw materials producers are prone to cyclicality, healthcare is less economically sensitive and an aging population increases demand for these essential services.

We’ve also added Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) again at attractive valuations. These are companies that dominate market share, boast high margins and have bulletproof balance sheets with no debt. Cisco Systems (NSDQ: CSCO) is another company we like; its growth is somewhat slower, but it continues to gain market share while its competitors struggle.

We’ve also been buying a lot of nonbank financials based on the idea that the selloff in this sector is overly broad. We own two exchanges, CME Group (NSDQ: CME) and IntercontinentalExchange (NYSE: ICE). Both have seen their volumes tail off as commodities went down, but these are fundamentally growth businesses in our mind and the market has taken them apart—they’re incredibly cheap right now. In a reaccelerating commodity and stock market, these volumes will return.

We’ve nibbled on some of the money managers that have been beat up. Our largest position is Franklin Resources (NYSE: BEN), a firm that manages a lot of money outside the US, especially in the emerging markets. We continue to be strong believers in the emerging markets story, but like all stories they get interrupted once in a while. The growth in emerging markets remains sustainable, albeit slower than it was.