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Thursday, September 11, 2014

Mario Draghi, ECB president, took bold action today on cutting rates and launching QE. It was the power of ten with ten basis points cut from its main refinancing rate to 0.05 percent, its marginal lending facility to 0.30 percent and its deposit rate to -0.20 percent. That’s not all though because he announced his much anticipated but little expected launch of QE, ABS purchase program and covered bond purchase program, to be started almost immediately in October. European and U.S. markets applauded the news and once again U.S. markets hit new highs confounding the bears on Wall Street. Please see "Monetary Policy Outlook" for the ECB’s balance sheet on page 46 of Voya Global Perspectives Book.

Wednesday, September 3, 2014

The European Central Bank (ECB) has the markets on pins and needles, with the Euro falling to a new one year low against the U.S. dollar. “To be, or not to be, that is the question”, no not Hamlet, we are of course talking about whether or not the ECB will undertake a form of quantitative easing (QE) at tomorrow’s ECB governing council meeting in Frankfurt, Germany. There is built in expectation of at least an announcement of QE in addition to a further increase in already announced monetary stimulus. The fear is that the market gets nothing which is a low probability but could be ugly for the markets tomorrow. The other side is that ECB Chair Mario Draghi does “whatever it takes” and astounds the market for an explosive rally. Likely, it will be somewhere in the middle of the road, but better to act sooner with conviction to get the Eurozone economy out of its deflationary funk. Markets are flat while waiting on slightly under consensus July U.S. Factory Orders. Please see page 52 of the Voya Global Perspectives book,"Major Currencies" for the Euro/USD.

Tuesday, September 2, 2014

Today’s Wall Street Journal headline "Strategists Brace for a Swoon, Money Managers Point to Historical September Decline; 'A Little Worried'", is a "buy" signal if I ever heard one but of course we advocate buying a broadly diversified global portfolio. September, apparently, is the only month that shows an average decline in the past 20, 50 and 100 years. Well, let’s look at the past 3 years for the S&P 500. In 2013 it was up 3.2 percent, in 2012 it was up 3.1 percent but in 2011 after the first ever U.S. credit downgrade it was down -7 percent. However, be careful because in October 2011, the very next month, it was up a whopping 10.9 percent. Currently, the U.S economy is beating expectations on a cross-section of data and this week we expect a further surprise in this Friday’s nonfarm payroll report to 300k versus consensus of 220k on recent strength (lower than expected) in initial unemployment claims. Meanwhile, today’s ISM Manufacturing report surged to 59 percent, the highest since March 2011 with component "new orders" jumping to 66.7 percent. Please see ISM Manufacturing on page 9 of Voya Global Perspectives book and Initial Unemployment claims on page 59.

Friday, August 29, 2014

On this Labor Day holiday prices for gasoline will be the cheapest in four years. This will help consumer spending in the all important back to school sales season. Energy prices are not only an economic driver but also a potential strategic weapon and we continue to see this play out in Russia and Ukraine. Germany is placing big bets on renewable energy as reported in the Wall Street Journal on Wednesday. They are phasing out nuclear and fossil fuels and hoping to rely on renewable sources for 40-45 percent of their energy needs by 2025. However, the enormous cost of this is hurting their manufacturing competitiveness. Already energy prices in Germany are twice what they are in the U.S. Global Perspectives warned about the perils of narrowing energy sources our 2012 Whitepaper "A Global Perspective on Tectonic Shifts in Energy and the Current Bull Market:"

Energy Troubles Brewing in Developed Countries Any country that fails to diversify its power sources sets itself up for foreseeable social and economic calamities. Recent reports that exemplify our concerns include:

  • German Chancellor Angela Merkel ordered half of her country’s nuclear plants shut down, pledging to replace them with renewable energy sources over the next decade. Read the Whitepaper.
Thursday, August 28, 2014

The U.S. GDP report hits naysayers much like Roger Federer’s miracle return hit his opponent in the derrière at the U.S. Open. GDP 2nd quarter astounded the market with a positive revision to 4.2 percent and the 1st quarter revised up significantly to -2.1 percent. On top of this report unemployment claims once again were below 300k. The market is down partially because of reports of Russian troops invading the Ukraine but we think the bigger driver is the Fed looking behind the curve on strong economic data. They will be compelled to move up their timetable on raising rates along with their pace of increase. See Voya Global Perspectives view on unwinding the zero interest-rate policy in the August monthly. Also, see Federer’s Shot in the Back.

Wednesday, August 27, 2014

Global economic growth has nearly doubled in the last decade primarily due to the growth in emerging and developing economies. Many investors are clearly worried about global growth but they fail to realize that the global GDP pie is twice the size it was 10 years ago. Would you rather have 5 or even 6 percent growth of a 38 trillion dollar pie or 3.5 percent growth of a 74 trillion dollar pie? Meanwhile, consumer confidence surged to the highest level since 2007 as the market has reached all-time highs and U.S. economic data continues to come in strong. Please follow global GDP growth on page 4 of the Global Perspectives book.

If you missed Karyn Cavanaugh's Aug. 26 appearance on CNBC's "Closing Bell," watch it now.

Tuesday, August 26, 2014

The headline durable-goods orders was a blowout surging 22.6 percent, the sharpest increase since 1992. However, it was primarily due to aircraft orders which are long term projects and will take years to bear economic fruit. Overall the report is in line with a moderate pace of business spending. The housing sector is also holding its own. Home prices increased 1 percent in June according to the Case-Shiller index. Although on a seasonally adjusted basis they were actually down 0.1 percent. On a year-over-year basis home prices are up 8.1 percent, which is lower than the double digit price increases earlier this year. Just to be clear, prices are still on the upswing, it is just the rate of increase that has moderated. Please follow durable-goods orders and its economic cousin capex on pages 63 and 10 of the Global Perspectives book.

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