Skip to comments.Investment & Finance Thread (Apr. 13 edition)
Posted on 04/13/2014 3:35:12 PM PDT by expat_panama
Investment & Finance Thread (Apr. 13 edition)
This is the thread where folks swap ideas on savings and investment --here's a list of popular investing links that freepers have posted here and tomorrow morning we'll go on with our--
Open invitation continues always for idea-input for the thread, this being a joint effort works well. Keywords: financial, WallStreet, stockmarket.
OK, so if April began with "a heck of a week", then it's moving along with another one that's even more so; we're seeing gold'n'silver maintain a rebound and stocks hammering down new lows (from here).
(click to enlarge)
There're many opinions from say, CNNMoney, Investing.com, FTLondon, as to what it all means, but imho Investing Daily (not to be confused w/ IBD) says their take is that this latest shift is money not fleeing the markets but rather 'rotating' from one set of sectors (including 3D printing & exotic meds) to stodgy big caps.
Maybe kind of like what we had at the end of the 'dot.com' bust where the big caps just kept chugging along while the NASDAQ got creamed.
(click to enlarge)
I mean, last Fri. we just saw the NASDAQ crush thru it's longer term support while the big cap Dow/S&P's haven't even got to their support levels yet. My thinking is that this was kind of foretold a week ago when we were watching the techs limping even while the big kids were pegging new highs.
So let's fast-forward to this week's office stock strategy pool. I'm voting for watching for this correction's 'follow-thru-day' and moving back in and enjoying the next run-up.
Sunday new-thread ping!
Anybody buying the dips? I’m watching and waiting myself. Sticking with my cores in PMs mostly.
Gold is up almost 10 in overnight trading.....Ukraine may hit the front burner.
Given that we've just gone into the first big week of earnings season, some companies had better show real good quarters. You'll note, Pete, that numerous of the "mo-mo" darling stocks have already had the snot beat out of them over the past 3 weeks.
Well, 2 of those, GOOG(L) and CMG report this week and, candidly, if I had to have a position (other than arbitrage, naturally) I had much rather be short these two than long, for the near term (at minimum).
This is the time, if ever there was, for the paired vertical call/vertical put trade. However, only put this on on the day before earnings are reported, and ideally with just an hour or so remaining in the day session.
Good trading to all!
Yeah, been following that. Kinda got me a bit confused like I was wondering about the fact that if a stock reverses lower then it (by definition) no longer can be referred to as a 'momentum' stock --but I know what you mean. Sold the last of my CMG three weeks ago; usually I sell when I get a loss of more than 7% but this time I decided not to wait so long.
But yeah, I'm expecting to see a lot of new ones on the darling list; the past couple weeks the IBD 50 has been seeing a lot of turnover.
That's always the ideal, but before buying back in my problem is figuring out when the dip has really for sure finished all the rest of of its 'dipping'...
Is the blood moon tomorrow night a buy or sell signal? ;^)
I don’t see how it could be a “buy” signal.
Seems it will run from 1:58 to 4:25 AM EDT so trades affected will only be those placed where it’s visible (the Americas) and on exchanges that are open (European).
Critiques or comments?
The slumps that shaped modern finance
Happy New Week to All!!! Today we got Retail Sales coming out before opening bell, and our futures traders are putting metals'n'stocks flat right now. More news:
- World stocks decline on dour US earnings outlook Global stock markets fell Monday following two days of U.S. declines and forecasts of lower American corporate profits.
- Chinese GDP data to offer 'hard landing' clues
- Gold Bears Bet Wrong Again as Fed Talk Favors Bulls
- Euro zone's February output suggests gradual recovery strengthening Reuters - 1 hour ago BRUSSELS (Reuters) - Output at the euro zone's factories rose broadly in line with expectations in February, driven by production of intermediate an
- Ukraine tensions land fresh blow on struggling stocks Reuters India - an hour ago LONDON (Reuters) - There was no let-up for bruised share markets on Monday as growing fears of a military conflict in Ukraine followed last week's heavy sell-off on Wall Street, Tokyo and major European exchanges.
- High fees eroding many 401(k) retirement accounts Philly.com - 11:30am And now a new study finds that the typical 401(k) fees - adding up to a modest-sounding 1 percent a year - would erase $70,000 from an average worker's account over a four-decade career compared with lower-cost options.
- Walgreens urged to leave US to gain tax benefit Walgreens has come under pressure from an influential group of its shareholders, who want the US pharmacy chain to consider relocating to Europe, in what would be one of the largest tax inversions ever attempted.
Please note that last one (hat tip to Chgogal) the way it shows not only that taxes have consequeses, but also that the fact that shareholders are owners.
KCG Morning Update:
U.S. stock-index futures fell, following the Standard & Poors 500 Indexs worst week since 2012, as investors awaited earnings and retail-sales data, while violence escalated in Ukraine.
Citigroup Inc. lost 1.9 percent in Germany before it reports first-quarter earnings. Johnson & Johnson retreated 1 percent after Jefferies Group LLC cut its rating on the drugmakers shares.
S&P 500 futures expiring in June declined 0.1 percent to 1,809.5 at 6:10 a.m. in New York. The S&P slid 1 percent on April 11, completing its worst week since 2012, as technology shares dropped on valuation concerns and JPMorgan Chase & Co. tumbled after reporting first-quarter profit that missed
analysts estimates. Dow Jones Industrial Average contracts lost 21 points, or 0.1 percent, to 15,960 today.
Theres some nervousness around the U.S. earnings season and obviously with the added geopolitical worries, thats enough to unsettle some investors, said Henk Potts, who helps oversee about $310 billion as a strategist at Barclays Wealth & Investment Management in London. We had JPMorgan come in below expectations so its clear its been a pretty tough quarter for U.S. financial services. Well get a much better picture of corporate America come this week with some more earnings coming
M&T Bank Corp. also posts earnings today, while Coca-Cola Co., Goldman Sachs Group Inc., Yahoo! Inc., Google Inc. and General Electric Co. are among companies scheduled to report later this week.
A Commerce Department report at 8:30 a.m. in Washington may show that retail sales rose 0.9 percent in March, according to the median forecast of analysts surveyed by Bloomberg. Sales increased 0.3 percent in February.
European stocks fell for a third day, after completing their worst week in a month, as investors
weighed increasing violence in Ukraine. U.S. stock-index futures were little changed, while Asian shares dropped.
PSA Peugeot Citroen slid 4.4 percent after saying it will cut its model lineup by almost half. Kuehne & Nagel International AG lost 3.4 percent after the worlds biggest sea-freight forwarder reported first-quarter sales that missed estimates. Symrise AG dropped 2 percent after offering to buy Diana Group. Glencore Xstrata Plc rose after selling its stake in the Las Bambas copper mine in Peru.
The Stoxx Europe 600 Index fell 0.5 percent to 327.07 at 12:12 p.m. in London, posting its fifth decline in six days. Standard & Poors 500 Index futures gained less than 0.1 percent, while the MSCI Asia Pacific Index lost 0.3 percent.
Support:1808, 1801, 1780
Resistance:1829, 1842, 1863
Projections that earnings will rise much faster than sales at U.S. companies may be too optimistic, according to Andrew Burkly, an Oppenheimer & Co. strategist.
The CHART OF THE DAY displays the projected percentage gaps between profit and revenue growth for companies in the Standard & Poors 500 Index through 2016, according to data compiled by Bloomberg from analysts estimates. Quarterly figures for last year are included for comparison.
Analysts are looking for the S&P 500s first-quarter earnings to increase 1 percent, or 1.9 percentage points less than sales. They see profit leading by 3.6 points in the second quarter, 5.2 points in the third and 6.2 points in the fourth.
Companies will have to increase profit margins to records to meet estimates, Burkly wrote two days ago in a report. The result is a scenario we view with ongoing skepticism, the New York-based portfolio strategist wrote.
The margin for U.S. companies during last years fourth quarter was the highest since 1950, according to data compiled by the Commerce Department. Earnings for the period amounted to 12.7 percent of revenue.
Finding ways to reduce costs and make workers more productive will be an increasing challenge, Burkly wrote, adding that many companies lack the pricing power to bolster revenue. Forecasts for earnings growth will have to be pared to allow companies to satisfy investor expectations, he wrote.
stocks starting out strong...
Seems a lot easier to read after reformatting & turning it into a pdf though. At first glance I saw a few leftwing bias errors but I'll still study it for the rest of the info.
There’s no escaping leftwing bias errors. To be “educated” in the 20th century is to be indoctrinated by communists and other travelers in their caravan.
Ping me with your thoughts when you get the chance, please.
I’ve seen that story about “high 401k fees” in several places lately. Just wondering...
Don’t they mean “mutual fund fees”? They contrast it to index funds, so it seems to me they mean mutual fund fees. Or are there some 401k fees that aren’t related to the funds offered?
From what I’m able to glean from the story it’s looking like the 1% management fees for the 401k plan itself, not the funds that are held by the plan.
This is the part that makes me think they mean mutual fund fees:
“The higher fees often accompany funds that try to beat market indexes by actively buying and selling securities. Index funds, which track benchmarks such as the Standard & Poor’s 500, don’t require active management and typically charge lower fees.”
Here’s another similar story I just happened across:
And it says:
“Most fees more than 80 percent of them are covered by a plan’s ‘expense ratio.’ The expense ratio includes recurring fees you’re charged when you invest in a fund.”
Don’t they mean a “fund’s” expense ratio, rather than the “plan’s” expense ratio?
It’s just bugging me cuz I like accuracy. And these stories floating around lately make it sound like it’s fees related to just being in a 401k, when in fact I think they mean mutual fund fees. It’s like they’re dumbing it down on purpose for the low-information types.
We’re together on the understanding that news stories are too inacurate for money decisions. If you’ve got a 401k then you can get the answer w/ a phonecall/email. If you don’t (like me) then you’re free.
One interesting note, the author seems to favor the idea of abolishing the FDIC. I mean, assuming we can overcome leftist regulatory political momentum (fantasyland), we first need to address the root cause of bank failures. Not holding my breath here...
Food Stamp Recipients Outnumber Women Who Work Full-Time
For each woman who worked full-time, year-round in 2012, there was slightly more than 1 other person collecting food stamps.
Looks like this morning we got metal futures crashing and stock indexes flat. Yesterday's bounce was once again in low volume. While that usually means no interest in higher bidding = more selloff, remember the last rally began with several days of decreasing volume.
- Shares dip on concerns over Ukraine, Chinese growth Risk appetite faded on financial markets on Tuesday, with shares weaker and bonds firmer as investors weighed up tensions between Russia and Ukraine, downbeat sales reports and signs of slowing growth in China. But an upbeat performance on Wall Street the previous day kept losses in check, as did expectations that U.S. and British inflation figures later on Tuesday will be soft enough to keep interest
- Stocks rally, but this bull sees more pain ahead
- Chinese gold demand may rise 20% by 2017: industry body London (AFP) - China's annual demand for gold could jump around 20 percent by 2017 as more of its increasingly wealthy population seek new ways to make money, the World Gold Council predicted on Tuesday. AFP
- How Obama's Justice Department Selectively Blocks Mergers By Republican CEOs The Obama Department of Justice, led by Eric Holder, must review the merger and decide whether to approve or block it. Unfortunately, the Obama Administration and Justice Department have a long track record of pushing the rule of law aside and making decisions based on politics. (more tx to Chgogal)
- George Soros' 5 Largest Buys Amid Bet Against the S&P 500 ...However, Soros may not be so optimistic about the direction of the market in the near future. The seasoned market reader on Friday revealed owning 7,090,000 "puts" on the S&P 500 SPDR ETF - a bet that the market will go down. The position is sized at 11.1% of his portfolio, making it his largest holding. He hedged the position with a further 405,000 "calls" on the S&P, indicating he is overall bullish on the market...(from thread This Chart Shows Us How Bad The Economy Really Is: Flashing Red Warning a post by Aliska)
I took the opportunity to sell some of my oil exploration stock today, as it was way up the last two days. It had been down quite a bit since I bought it and I wanted to put it into something else that might actually go up over time.
Stepping back a bit seems like a good idea to me too, NASDAQ just punched down to a 5 month low, making the trading environment not the kind that’s as workable as times past.
We’ll be a lot better off being patient until prices stabilize into a new solid base for the next uptrend. Good day for to practice my banjo...
I don’t know if interests you or not.
China Property Collapse Has Begun
--and we're up early for another wild ride --yesterday saw NASDAQ poke a five month low only to follow up with a broad surge in increasing volume. "Dip" anyone?
Stumbling S&P 500 reaches worst stretch of election cycle Already hit by concerns valuations are too high just as the Federal Reserve withdraws stimulus, the equity market is entering what has historically been the worst period of the presidential cycle, the stretch before midterm elections.
World shares rise, shrug off slower China growth US stocks higher after wild swings iAfrica.com - 1 hour ago US stocks finished higher on Tuesday after a wild swing lower led by tech stocks that saw the Nasdaq Composite index down nearly two percent at one point.
Stocks slip but then mount a comeback India Morning Call-Global Markets
12 Times Being Cheap Is Totally Worth It Where "frugal" implies a certain cleverness and... Business Insider
Interesting, tx fer the link.
There’ve been a lot of stories out there about the China-collapse coming any minute now, and it never happens. This is typical when big things happen that we get repeated warnings getting ignored followed by a crash w/ a million I-told-u-so’s.
The big question for us is what do we do when over a billion people go broke and suddenly stop buying U.S. assets?
IP and Capacity Utilization beat
Housing Starts/Permits miss
We can trust the Fed to print more money and buy our debt. That will save us. /s
Hit's 'n misses, almost's & maybe's. Kind of describes the way the major indexes are flirting with upper-range resistance levels atm--
--ok, so it's only big cap's for now...
Looking at the trends is making me think that if say the S&P + DJIA both punched decidedly up past current resistance that it’d probably be a good time to buy in a measured step, at least on big caps.
Can you share what you’re seeing on these possibilities?
We can trust the Fed to print more money and buy our debt....
Naw, imho those days are in the rear-view mirror.
Was thinking though that maybe we need to imagine a falling China bringing down Asia and Europe. Then again we all got along fine w/o China for decades so maybe we can take care of ourselves while they get their act together. Something else is that if anyone says China's 'too big to fail', then they'll have to realize China's also too big to be helped.
Did you intend the Star Wars refernce? Well done.
I’m traveling and don’t have my FactSet screen. I can look at some technical charts when I get back in the office
--that was the most awesome part of the whole movie, man...
JANET YELLEN GIVES FIRST SPEECH ON MONETARY POLICY AS FED CHAIR
United States Federal Reserve Chair Janet Yellen.
Janet Yellen is giving her first speech on monetary policy today since assuming office as chairwoman of the Federal Reserve in an event at the Economic Club of New York.
Markets are not moving much on her comments.
Below is the full text of her speech:
Chair Janet L. Yellen
At the Economic Club of New York, New York, New York
April 16, 2014
Monetary Policy and the Economic Recovery
Nearly five years into the expansion that began after the financial crisis and the Great Recession, the recovery has come a long way. More than 8 million jobs have been added to nonfarm payrolls since 2009, almost the same number lost as a result of the recession. Led by a resurgent auto industry, manufacturing output has also nearly returned to its pre-recession peak. While the housing market still has far to go, it seems to have turned a corner.
It is a sign of how far the economy has come that a return to full employment is, for the first time since the crisis, in the medium-term outlooks of many forecasters. It is a reminder of how far we have to go, however, that this long-awaited outcome is projected to be more than two years away.
Today I will discuss how my colleagues on the Federal Open Market Committee (FOMC) and I view the state of the economy and how this view is likely to shape our efforts to promote a return to maximum employment in a context of price stability. I will start with the FOMC’s outlook, which foresees a gradual return over the next two to three years of economic conditions consistent with its mandate.
While monetary policy discussions naturally begin with a baseline outlook, the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take. My primary focus today will be on how the FOMC’s monetary policy framework has evolved to best support the recovery through those twists and turns, and what this framework is likely to imply as the recovery progresses.
The Current Economic Outlook
The FOMC’s current outlook for continued, moderate growth is little changed from last fall. In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.
The continued improvement in labor market conditions has been important in this judgment. The unemployment rate, at 6.7 percent, has fallen three-tenths of 1 percentage point since late last year. Broader measures of unemployment that include workers marginally attached to the labor force and those working part time for economic reasons have fallen a bit more than the headline unemployment rate, and labor force participation, which had been falling, has ticked up this year.
Inflation, as measured by the price index for personal consumption expenditures, has slowed from an annual rate of about 2-1/2 percent in early 2012 to less than 1 percent in February of this year.1 This rate is well below the Committee’s 2 percent longer-run objective. Many advanced economies are observing a similar softness in inflation.
To some extent, the low rate of inflation seems due to influences that are likely to be temporary, including a deceleration in consumer energy prices and outright declines in core import prices in recent quarters. Longer-run inflation expectations have remained remarkably steady, however. We anticipate that, as the effects of transitory factors subside and as labor market gains continue, inflation will gradually move back toward 2 percent.
In sum, the central tendency of FOMC participant projections for the unemployment rate at the end of 2016 is 5.2 to 5.6 percent, and for inflation the central tendency is 1.7 to 2 percent.2 If this forecast was to become reality, the economy would be approaching what my colleagues and I view as maximum employment and price stability for the first time in nearly a decade. I find this baseline outlook quite plausible.
Of course, if the economy obediently followed our forecasts, the job of central bankers would be a lot easier and their speeches would be a lot shorter. Alas, the economy is often not so compliant, so I will ask your indulgence for a few more minutes.
Three Big Questions for the FOMC
Because the course of the economy is uncertain, monetary policymakers need to carefully watch for signs that it is diverging from the baseline outlook and then respond in a systematic way. Let me turn first to monitoring and discuss three questions I believe are likely to loom large in the FOMC’s ongoing assessment of where we are on the path back to maximum employment and price stability.
Is there still significant slack in the labor market?
The first question concerns the extent of slack in the labor market. One of the FOMC’s objectives is to promote a return to maximum employment, but exactly what conditions are consistent with maximum employment can be difficult to assess. Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment, so measurement difficulties were not our focus. But as the attainment of our maximum employment goal draws nearer, it will be necessary for the FOMC to form a more nuanced judgment about when the recovery of the labor market will be materially complete. As the FOMC’s statement on longer-term goals and policy strategy emphasizes, these judgments are inherently uncertain and must be based on a wide range of indicators.3
I will refer to the shortfall in employment relative to its mandate-consistent level as labor market slack, and there are a number of different indicators of this slack. Probably the best single indicator is the unemployment rate. At 6.7 percent, it is now slightly more than 1 percentage point above the 5.2 to 5.6 percent central tendency of the Committee’s projections for the longer-run normal unemployment rate. This shortfall remains significant, and in our baseline outlook, it will take more than two years to close.4
Other data suggest that there may be more slack in labor markets than indicated by the unemployment rate. For example, the share of the workforce that is working part time but would prefer to work full time remains quite high by historical standards. Similarly, while the share of workers in the labor force who are unemployed and have been looking for work for more than six months has fallen from its peak in 2010, it remains as high as any time prior to the Great Recession.5 There is ongoing debate about why long-term unemployment remains so high and the degree to which it might decline in a more robust economy. As I argued more fully in a recent speech, I believe that long-term unemployment might fall appreciably if economic conditions were stronger.6
The low level of labor force participation may also signal additional slack that is not reflected in the headline unemployment rate. Participation would be expected to fall because of the aging of the population, but the decline steepened in the recovery. Although economists differ over what share of those currently outside the labor market might join or rejoin the labor force in a stronger economy, my own view is that some portion of the decline in participation likely represents labor market slack.7
Lastly, economists also look to wage pressures to signal a tightening labor market. At present, wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration. As the extent of slack we see today diminishes, however, the FOMC will need to monitor these and other labor market indicators closely to judge how much slack remains and, therefore, how accommodative monetary policy should be.
Is inflation moving back toward 2 percent?
A second question that is likely to figure heavily in our assessment of the recovery is whether inflation is moving back toward the FOMC’s 2 percent longer-run objective, as envisioned in our baseline outlook. As the most recent FOMC statement emphasizes, inflation persistently below 2 percent could pose risks to economic performance.
The FOMC strives to avoid inflation slipping too far below its 2 percent objective because, at very low inflation rates, adverse economic developments could more easily push the economy into deflation. The limited historical experience with deflation shows that, once it starts, deflation can become entrenched and associated with prolonged periods of very weak economic performance.8
A persistent bout of very low inflation carries other risks as well. With the federal funds rate currently near its lower limit, lower inflation translates into a higher real value for the federal funds rate, limiting the capacity of monetary policy to support the economy.9 Further, with longer-term inflation expectations anchored near 2 percent in recent years, persistent inflation well below this expected value increases the real burden of debt for households and firms, which may put a drag on economic activity.
I will mention two considerations that will be important in assessing whether inflation is likely to move back to 2 percent as the economy recovers. First, we anticipate that, as labor market slack diminishes, it will exert less of a drag on inflation. However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.10 Second, our baseline projection rests on the view that inflation expectations will remain well anchored near 2 percent and provide a natural pull back to that level. But the strength of that pull in the unprecedented conditions we continue to face is something we must continue to assess.
Finally, the FOMC is well aware that inflation could also threaten to rise substantiallyabove 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent, but we must always be prepared to respond to such unexpected outcomes, which leads us to my third question.
What factors may push the recovery off track?
Myriad factors continuously buffet the economy, so the Committee must always be asking, “What factors may be pushing the recovery off track?” For example, over the nearly 5 years of the recovery, the economy has been affected by greater-than-expected fiscal drag in the United States and by spillovers from the sovereign debt and banking problems of some euro-area countries. Further, our baseline outlook has changed as we have learned about the degree of structural damage to the economy wrought by the crisis and the subsequent pace of healing.
Let me offer an example of how these issues shape policy. Four years ago, in April 2010, the outlook appeared fairly bright. The emergency lending programs that the Federal Reserve implemented at the height of the crisis had been largely wound down, and the Fed was soon to complete its first large-scale asset purchase program. Private-sector forecasters polled in the April 2010 Blue Chip survey were predicting that the unemployment rate would fall steadily to 8.6 percent in the final quarter of 2011.11
This forecast proved quite accurate—the unemployment rate averaged 8.6 percent in the fourth quarter of 2011. But this was not the whole story. In April 2010, Blue Chip forecasters not only expected falling unemployment, they also expected the FOMC to soon begin raising the federal funds rate. Indeed, they expected the federal funds rate to reach 1.3 percent by the second quarter of 2011.12 By July 2010, however, with growth disappointing and the FOMC expressing concerns about softening in both growth and inflation, the Blue Chip forecast of the federal funds rate in mid-2011 had fallen to 0.8 percent, and by October the forecasters expected that the rate would remain in the range of 0 to 25 basis points throughout 2011, as turned out to be the case.13 Not only did expectations of policy tightening recede, the FOMC also initiated a new $600 billion asset purchase program in November 2010.
Thus, while the reductions in the unemployment rate through 2011 were roughly as forecast in early 2010, this improvement only came about with the FOMC providing a considerably higher level of accommodation than originally anticipated.
This experience was essentially repeated the following year. In April 2011, Blue Chip forecasters expected the unemployment rate to fall to 7.9 percent by the fourth quarter of 2012, with the FOMC expected to have already raised the federal funds rate to near 1 percent by mid-2012.14
As it turned out, the unemployment rate forecast was once more remarkably accurate, but again this was associated with considerably more accommodation than anticipated. In response to signs of slowing economic activity, in August 2011 the FOMC for the first time expressed its forward guidance in terms of the calendar, stating that conditions would likely warrant exceptionally low levels for the federal funds rate at least through mid-2013. The following month, the Committee added to accommodation by adopting a new balance sheet policy known as the maturity extension program. 15
Thus, in both 2011 and 2012, the unemployment rate actually declined by about as much as had been forecast the previous year, but only after unexpected weakness prompted additional accommodative steps by the Federal Reserve. In both cases, I believe that the FOMC’s decision to respond to signs of weakness with significant additional accommodation played an important role in helping to keep the projected labor market recovery on track.16 These episodes illustrate what I described earlier as a vital aspect of effective monetary policymaking: monitor the economy for signs that events are unfolding in a materially different manner than expected and adjust policy in response in a systematic manner. Now I will turn from the task of monitoring to the policy response.
Policy Challenges in an Unprecedented Recovery
Fundamental to modern thinking on central banking is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions. Specifically, it is important for the central bank to make clear how it will adjust its policy stance in response to unforeseen economic developments in a manner that reduces or blunts potentially harmful consequences. If the public understands and expects policymakers to behave in this systematically stabilizing manner, it will tend to respond less to such developments. Monetary policy will thus have an “automatic stabilizer” effect that operates through private-sector expectations. It is important to note that tying the response of policy to the economy necessarily makes the future course of the federal funds rate uncertain. But by responding to changing circumstances, policy can be most effective at reducing uncertainty about the course of inflation and employment.
Recall how this worked during the couple of decades before the crisis—a period sometimes known as the Great Moderation. The FOMC’s main policy tool, the federal funds rate, was well above zero, leaving ample scope to respond to the modest shocks that buffeted the economy during that period. Many studies confirmed that the appropriate response of policy to those shocks could be described with a fair degree of accuracy by a simple rule linking the federal funds rate to the shortfall or excess of employment and inflation relative to their desired values.17 The famous Taylor rule provides one such formula.18
The idea that monetary policy should react in a systematic manner in order to blunt the effects of shocks has remained central in the FOMC’s policymaking during this recovery. However, the application of this idea has been more challenging. With the federal funds rate pinned near zero, the FOMC has been forced to rely on two less familiar policy tools—the first one being forward guidance regarding the future setting of the federal funds rate and the second being large-scale asset purchases. There are no time-tested guidelines for how these tools should be adjusted in response to changes in the outlook. As the episodes recounted earlier illustrate, the FOMC has continued to try to adjust its policy tools in a systematic manner in response to new information about the economy. But because both the tools and the economic conditions have been unfamiliar, it has also been critical that the FOMC communicate how it expects to deploy its tools in response to material changes in the outlook.
Let me review some important elements in the evolution of the FOMC’s communication framework. When the FOMC initially began using its unconventional tools, policy communication was relatively simple. In December 2008, for example, the FOMC said it expected that conditions would warrant keeping the federal funds rate near zero for “some time.” This period before the “liftoff” in the federal funds rate was described in increasingly specific, and (as it turned out) longer, periods over time—”some time” became “an extended period,” which was later changed to “mid-2013,” then “late 2014,” then “mid-2015.”19 This fixed, calendar-based guidance had the virtue of simplicity, but it lacked the automatic stabilizer property of communication that would signal how and why the stance of policy and forward guidance might change as developments unfolded, and as we learned about the extent of the need for accommodation.
More recently, the Federal Reserve, and I might add, other central banks around the world, have sought to incorporate this automatic stabilizer feature in their communications.20 In December 2012, the Committee reformulated its forward guidance, stating that it anticipated that the federal funds rate would remain near zero at least as long as the unemployment rate remained above 6-1/2 percent, inflation over the period between one and two years ahead was projected to be no more than half a percentage point above the Committee’s objective, and longer-term inflation expectations continued to be well anchored. This guidance emphasized to the public that it could count on a near-zero federal funds rate at least until substantial progress in the recovery had been achieved, however long that might take. When these thresholds were announced, the unemployment rate was reported to be 7.7 percent, and the Committee projected that the 6-1/2 percent threshold would not be reached for another 2-1/2 years—in mid-2015. The Committee emphasized that these numerical criteria were not triggers for raising the federal funds rate, and Chairman Bernanke stated that, ultimately, any decision to begin removing accommodation would be based on a wide range of indicators.21
Our communications about asset purchases have undergone a similar transformation. The initial asset purchase programs had fixed time and quantity limits, although those limits came with a proviso that they might be adjusted. In the fall of 2012, the FOMC launched its current purchase program, this time explicitly tying the course of the program to evolving economic conditions. When the program began, the rate of purchases was $85 billion per month, and the Committee indicated that purchases would continue, providing that inflation remained well behaved, until there was a substantial improvement in the outlook for the labor market.22
Based on the cumulative progress toward maximum employment since the initiation of the program and the improvement in the outlook for the labor market, the FOMC began reducing the pace of asset purchases last December, stating that “[i]f incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-term objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.”23Purchases are currently proceeding at a pace of $55 billion per month. Consistent with my theme today, however, the FOMC statement underscores that purchases are not on a preset course—the FOMC stands ready to adjust the pace of purchases as warranted should the outlook change materially.
Recent Changes to the Forward Guidance
At our most recent meeting in March, the FOMC reformulated its forward guidance for the federal funds rate. While one of the main motivations for this change was that the unemployment rate might soon cross the 6-1/2 percent threshold, the new formulation is also well suited to help the FOMC explain policy adjustments that may arise in response to changes in the outlook. I should note that the change in the forward guidance did not indicate a change in the Committee’s policy intentions, but instead was made to clarify the Committee’s thinking about policy as the economy continues to recover. The new guidance provides a general description of the framework that the FOMC will apply in making decisions about the timing of liftoff. Specifically, in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, “the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation.”24 In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained. This approach underscores the continuing commitment of the FOMC to maintain the appropriate degree of accommodation to support the recovery. The new guidance also reaffirms the FOMC’s view that decisions about liftoff should not be based on any one indicator, but that it will take into account a wide range of information on the labor market, inflation, and financial developments.
Along with this general framework, the FOMC provided an assessment of what that framework implies for the likely path of policy under the baseline outlook. At present, the Committee anticipates that economic and financial conditions will likely warrant maintaining the current range “for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”25
Finally, the Committee began explaining more fully how policy may operate in the period after liftoff, indicating its expectation that economic conditions may, for some time, warrant keeping short-term interest rates below levels the Committee views as likely to prove normal in the longer run. FOMC participants have cited different reasons for this view, but many of the reasons involve persistent effects of the financial crisis and the possibility that the productive capacity of the economy will grow more slowly, at least for a time, than it did, on average, before the crisis. The expectation that the achievement of our economic objectives will likely require low real interest rates for some time is again not confined to the United States but is shared broadly across many advanced economies.26 Of course, this guidance is a forecast and will evolve as we gain further evidence about how the economy is operating in the wake of the crisis and ensuing recession.
In summary, the policy framework I have described reflects the FOMC’s commitment to systematically respond to unforeseen economic developments in order to promote a return to maximum employment in a context of price stability.
It is very welcome news that a return to these conditions has finally appeared in the medium-term outlook of many forecasters. But it will be much better news when this objective is reached. My colleagues on the FOMC and I will stay focused on doing the Federal Reserve’s part to promote this goal.
GOOG, IBM and AMX all miss top line. GOOG on earnings as well.
KCG Closing Summary:
Todays S&P 500 Intra-day Chart:
NYSE Volume: 675 million
End of Day Summary:
Closing Market Summary: Stocks Post Third Day of Consecutive Gains
The stock market finished the Wednesday session on an upbeat note with the Nasdaq (+1.3%) ending in the lead. The S&P 500 settled higher by 1.1% with all ten sectors posting gains.
The benchmark index spent the entire trading day in the green, rallying to new highs during the last hour of action. The tech-heavy Nasdaq, meanwhile, briefly dipped into the red during morning action, but was able to recover swiftly.
Stocks began the trading day with modest gains after the overnight session featured the release of China’s Q1 GDP. Although the report could be classified as better-than-feared, it did not necessarily produce a clear-cut signal as the year-over-year reading of 7.4% beat estimates (7.3%), while the quarter-over-quarter growth of 1.4% was just below expectations (1.5%).
When the opening bell rang at the New York Stock Exchange, the Dow and S&P 500 maintained relatively narrow ranges through the first two hours of action, while the Nasdaq slipped below its flat line due to weakness among chipmakers. The largest industry player, Intel (INTC 26.93, +0.16), reported a slim earnings beat, but other semiconductor names struggled. The broader PHLX Semiconductor Index shed 0.2%.
Even though chipmakers knocked the Nasdaq into the red, the index was able to overcome that weakness due to the relative strength of biotechnology and recently-battered momentum names. The iShares Nasdaq Biotechnology ETF (IBB 222.79, +5.18) jumped 2.4%, ending just above its 200-day moving average (219.97) after struggling with that level for the past week.
Interestingly, the broader health care (+0.6%) sector did not follow biotech’s lead as several large components weighed. UnitedHealth (UNH 78.19, -1.32) contributed to the underperformance, falling 1.7% after receiving a downgrade from Citigroup ahead of its earnings report, which will be released ahead of tomorrow’s opening bell.
Elsewhere among influential sectors, consumer discretionary (+1.4%), energy (+1.2%), and industrials (+1.5%) provided support to the broader market, while financials (+0.9%) lagged. The economically-sensitive sector was pressured by Bank of America (BAC 16.13, -0.26), which lost 1.6% after missing bottom-line estimates. The financial sector will be in focus once again tomorrow with the market digesting quarterly results from American Express (AXP 87.40, +1.36), Goldman Sachs (GS 157.22, +2.30), and Morgan Stanley (MS 29.89, +0.34).
On the countercyclical side, health care (+0.6%) ended at the bottom of the leaderboard, while consumer staples (+0.9%), telecom services (+0.9%), and utilities (+0.8%) had some difficulty keeping up with the broader market.
Treasuries settled modestly lower following a range bound session. The benchmark 10-yr yield ticked up one basis point to 2.64%.
Participation was below average as 661 million shares changed hands at the NYSE.
Reviewing today’s data:
Housing starts increased 2.4% in March to 946,000 from an upwardly revised 920,000 in February. The Briefing.com consensus expected 955,000 new starts. Overall, the residential construction report was encouraging, but did not provide any evidence that the weakness in January and February was weather related. Starts remained well below 1.00 million, which was the average in the fourth quarter. Had weather factored into the weakness, then there should have been a much stronger bounce from delayed starts. Single-family construction, which languished below 600,000 in January and February, rebounded 6.0% to 635,000. That was more in-line with the trends over the last 12 months. Multifamily starts fell 3.1% to 311,000 in March from 321,000 in February. That was a typical decline from a normally volatile sector.
Industrial production increased 0.7% in March after increasing an upwardly revised 1.2% (from 0.6%) in February. The Briefing.com consensus expected industrial production to increase 0.5%. Manufacturing production increased 0.5% in March, down from an upwardly revised 1.4% (from 0.9%) in February. The March gain was in-line with the ISM production index. Despite a 0.8% decline in motor vehicles and parts production, durable goods manufacturing production increased 0.5%. Nondurable goods manufacturing production increased 0.7%, which was mostly the result of a 3.3% increase in petroleum and coal products production.
Tomorrow, weekly initial claims (Briefing.com consensus 312K) will be reported at 8:30 ET and the Philadelphia Fed Survey for April (consensus 8.6) will be released at 10:00 ET.
S&P 500 +0.8% YTD
Dow Jones Industrial Average -0.9% YTD
Nasdaq Composite -2.2% YTD
Russell 2000 -2.6% YTD
Curve Flattest Since October 2009: 10-yr: -03/32..2.637%..USD/JPY: 102.24..EUR/USD: 1.3815
Treasuries finished mixed amid a choppy trade.
The complex held small losses into the U.S. cash open before some light buying emerged in response to the disappointing housing starts (946K actual v. 955K expected) and building permits (990K actual v. 1003K expected) data.
Maturities would slip onto their worst levels of the session following the strong industrial production (0.7% actual v. 0.5% expected) and capacity utilization (79.2% actual v. 78.8% expected) numbers, but failed to see follow through selling.
A choppy trade persisted before Fed Chair Janet Yellen suggested the central bank remains committed to an accommodative policy and that there is greater chance inflation runs below the Fed’s target.
The latest Fed Beige Book indicated “economic activity increased in most regions of the country since the previous report.”
Outperformance at the long end saw the 30y shed -0.6bps to 3.454%. The yield on the long bond closed on session lows, and at a level last seen in June.
The 10y edged up +0.9bps to 2.637%. Traders will continue to monitor the 2.600% level over the coming sessions as that level has held up since early February.
The 5y lagged, finishing +3.7bps @ 1.655%. Selling produced a fourth straight rise in yield, and has action moving towards a test of resistance in the 1.660%/1.700% area.
Today’s mixed trade flattened the yield curve with 5-30-yr spread tightening to 180bps, which was last seen in October 2009.
Precious metals were firm with gold +$2 @ $1302 and silver +0.13 @ $19.62.
Data: Initial and continuing claims (8:30), and Philly Fed (10).
Closing Commodities: Gold Rise 0.3%, Closes Above $1300/Oz, Crude Gains 5 Cents
June gold traded in positive territory for most of today’s pit session. Prices advanced as high as $1307.10 per ounce and dipped to a session low of $1297.90 per ounce in mid-morning action. The yellow metal eventually settled with a 0.3% gain at $1303.40 per ounce.
May silver rose to a session high of $19.81 per ounce shortly after floor trade opened. It then chopped around near the $19.60 per ounce level and settled with a 0.8% gain at $19.64 per ounce.
May crude oil rose to a session high of $104.82 per barrel in early morning floor trade but slipped into negative territory following inventory data that showed a build of 10.0 mln barrels when a smaller build of 1.8-2.3 mln barrels was anticipated.
The energy component managed to inch higher in afternoon action and settled at $103.73 per barrel, or 5 cents above the unchanged line.
May natural gas chopped around in the red today. It touched a session high of $4.57 per MMBtu in early morning action and settled with a 0.9% loss at $4.53 per MMBtu, just above its session low of $4.52 per MMBtu.
NYMEX Energy Closing Prices
May crude oil rose $0.05 to $103.73/barrel
Crude oil rose to a session high of $104.82 in early morning floor trade but slipped into negative territory following inventory data that showed a build of 10.0 mln barrels when a smaller build of 1.8-2.3 mln barrels was anticipated. The energy component managed to inch higher in afternoon action and settled 5 cents above the unchanged line.
May natural gas fell 4 cents to $4.53/MMBtu
Natural gas chopped around in the red today. It touched a session high of $4.57 in early morning action and settled just above its session low of $4.52, booking a loss of 0.9%.
May heating oil rose 2 cents to $3.01/gallon
May RBOB settled unchanged at $3.04/gallon
CBOT Agriculture and Ethanol/ICE Sugar Closing Prices
May corn fell 6 cents to $4.98/bushel
May wheat fell 13 cents to $6.88/bushel
May soybeans rose 17 cents to $15.19/bushel
May ethanol fell 9 cents to $2.17/gallon
July sugar (#16 (U.S.)) rose 0.06 of a penny to 24.40 cents/lbs
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Sources: Commentary adapted from Bloomberg, Wall St. Journal, Briefing.com, FT.com, Reuters, and/or Dow Jones NewsPlus.
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Looks like we're starting out the morning with futures down on metals and more down on stocks, this after finding out yesterday's stock surge was in unusually light trade. True, the last rally began in weaker trade but not this weak --the adventure continues... Meanwhile:
Google, IBM cast shadow on global markets European stocks dipped on Thursday as disappointing earnings from U.S. tech heavyweights Google and IBM dampened the previous session's upbeat tone on Wall Street, and the dollar weakened on dovish remarks from the Federal Reserve.
Yellen Sees Muted Inflation as Unemployment Curbs Wages Businessweek - 3:55am Janet Yellen is eyeballing wages for signs of inflationary pressure. She doesn't see any so far. Wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration, the Federal Reserve chair said ...European Car Sales Rise Sevent Straight Month on Renault Bloomberg - 4 hours ago Registrations in March jumped 10 percent to 1.49 million vehicles, the Brussels-based European Automobile Manufacturer's Association, or ACEA, said today.Japan vice economy minister: Economy remains on firm footing after tax hike Fox Business - 51 minutes ago TOKYO - Japanese Vice Economy Minister Yasutoshi Nishimura said on Thursday that the economy remains on a firm footing after the April 1 sales tax hike and that the impact of the higher consumption tax was within expectations.Asian Stocks Broadly Higher Ahead Of Easter Break RTT News - an hour ago Asian stocks ended mostly higher on Thursday following reassuring comments from the Federal Reserve chief. Gains, however, were modest on growing concerns about military activity in Ukraine and amid caution ahead of a long weekend.
-—Wage gains continue to proceed at a historically slow -—
She’s not paying attention.....The minimum wage has been increased in cities and states 25% or more. That is pretty serious inflation
Inflation is "always and everywhere a monetary event" ~ Milton Friedman
Here is wage growth YOY over the past few years:
Employee wages are just part of the income picture. By including more kinds of incomes we got the average U.S. after tax income at an all time high. The problem is that people aren't seeing these big incomes and real median household incomes have been falling for 15 years. On top of all this is the fact that politics is corrupting the data --those median numbers come from our impuned Census Br. while disposible income stats are from technocrat geeks at the BEA.
I understand the concept of inflation being a monetary process
I omitted the intermediate step. Wage increases become desirable as the $$ value decreases.
To stay even or to get ahead a little, wages and salaries must increase to compensate for the devaluation. There is I believe a political desire on both sides to have some inflation to effectively devalue the debt. An important component is wage inflation. The problem is that with the rate of unemployment high, increases in wages just don’t happen across the board. The hue and cry and in some cases actual increase in the minimum will nudge general wage increases.
And then there is another, definitely non monetary vector. That is Obamacare. The pain of Obamacare cost increases can be masked by everybody getting a raise.
Between the monetary vector and the Obamacare vector, the moonbats have powerful incentive to howl for a vector resolution, for minimum wage and thus across the board wage and salary increases.
That's an important reality to keep in mind when understanding today's economy, and the same can be said for private net worth too--
The problem (imho) is that people seem to have gotten it in their little minds that the Fed controls the economy. Left wingers push it so they can avoid being blamed for all the harm they're doing. Right wingers push it so they can sell their gold for $2k/oz. Economists push it so they'll get named to cushy gov't positions. Fact is that raising GDP by cutting interest rates never really worked that well and is now totally spent:
I go back to Dallas Fed Chairman Fisher’s comment on the destructive impact of fiscal policy. As bert mentioned Obamacare, minimum wage, EPA, and all the other choking regulation is what is killing growth. Business Insider had an article yesterday that this is the worst earnings growth performance in 50+ years. The politicians, ALL OF THEM, are killing the economy.