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Friday, December 19, 2014

“U.S. Will Restore Full Relations With Cuba, Erasing Last Trace of Cold War Hostility,” headlines today’s New York Times. Well, it’s about time! President Obama rightly pointed out other countries with which we formerly had issues, such as Vietnam and China, and we now have normalized relations. Why not Cuba too? They are practically our next door neighbors. In fact, a friend from Cuba who now lives in the good ole U.S.A graduated from the Air Force Academy and just returned from flying missions over Afghanistan to defend our country. Protectionist politicians will find themselves on the wrong side of history in this matter. Conventional wisdom would expect the Republicans to favor free and open trade and to welcome normalization of relations with Cuba in their new position of control over Congress. On the other hand, Marco Rubio, Republican Senator from Florida, expressed an outdated view on the why the U.S. should continue the Cuban Trade Embargo. Perhaps influencing his opinion, it appears the Florida sugar lobby is not happy about the prospect of cheap Cuban sugar cane reaching our shores, a potential threat to its monopoly. Please see Global Perspectives view on Global Trade in our 2015 Forecast: Sustainable Global Expansion Driven by Tectonic Shifts.

Wednesday, December 17, 2014

U.S. inflation dropped more than the consensus expectation last month, down to 1.3 percent year-over-year.Whether the Fed focuses more on PCE inflation or core inflation at tonight’s FOMC meeting, these inflation figures suggest no change is likely in Fed outlook for monetary policy.But it is still a close call. For our part, we believe any rate change is unlikely until third quarter 2015 at the earliest.Turmoil over the Russian ruble as well as other currency relationships, growth trajectories, safe haven investments and the drop in oil prices will assuredly keep market volatility at the forefront of U.S. investors’ minds. In any event, maintaining effectively diversified portfolios is always fraught with challenges that are best overcome by an unshakeable investment philosophy. Follow U.S. monetary policy trends on page 45 of the Global Perspectives book.

Tuesday, December 16, 2014

Oil, a risk factor, is in a severe correction. A risk factor’s influence is pervasive to the markets such as interest rates. Oil’s pervasive influence is its dual role in the real economy and the financial markets. In the real economy, sustained high oil prices has created extraordinary incentive to undertake mammoth oil projects along with being a significant contribution to global trade. In the financial markets, oil is an alternative currency for oil producing nations. That means a barrel of oil is readily converted to cash, which is essential to servicing the debt of these nations. The markets are perplexed with the rapidity of the oil free fall and are hoping this might be temporary until OPEC acts in a reasonable way to come in to once again support prices. Don’t bet on it. "High Oil" is now "Low Oil" and the impacts have not been discounted but the signs are there. The Financial Times headlines “Plunging crude prices threaten the axe for $1 TN of energy projects" and "Rout in Russian markets triggers rouble’s biggest decline since 1998." This would be a good time to seek broad global diversification in equity and fixed income. Please see page 5 of the Voya Global Perspectives book; "Effective Diversification."

Also, if you missed Karyn Cavanaugh's Dec. 16 appearance on CNBC's Squawk Box, watch it here:

Friday, December 12, 2014

Retail sales soared in November, up 0.7 percent, significantly higher than expected. All retail sectors showed positive increases with the exception of gas of course - oil prices have plummeted 40 percent since June. It’s estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods. Consumer sentiment also surprised on the upside rising in December to mark the highest reading since January 2007 with a reading of 93.8. Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1 percent of U.S. growth, while consumer spending makes up 70 percent. Please follow U.S. GDP and its components on page 62 of the Global Perspectives book.

Friday, December 12, 2014

{slide:Real GDP (Q/Q):latest:left}Retail sales soared in November, up 0.7 percent, significantly higher than expected. All retail sectors showed positive increases with the exception of gas of course - oil prices have plummeted 40 percent since June. It’s estimated that these lower gas prices translate into an average tax cut of $1,100 per family, which will drive disposable spending on other retail goods. Consumer sentiment also surprised on the upside rising in December to mark the highest reading since January 2007 with a reading of 93.8. Worries that the low energy prices will derail the energy sector and the U.S. economy are exaggerated as energy investment accounts for only about 1 percent of U.S. growth, while consumer spending makes up 70 percent. Please follow of the Global Perspectives book.

Thursday, December 11, 2014

Anxious investors, spooked by falling oil prices, uncertain global growth and robust stock valuations, abandoned risky assets in favor of government bonds in a “back to the future” move reminiscent of previous flights to quality. The Dow dropped over 1.5 percent, and U.S. oil prices fell below $61/barrel, a five-year low, as the year-to-date decline approached 40 percent. Nevertheless, we see the move from “high oil” to “low oil” as a secular trend that has been building for years. Investors should recognize that resilient markets have shaken off other destabilizing events from time to time and not forsake an effectively diversified portfolio that balances return and risk. Please follow Oil Price and Intensity on page 66 of the Global Perspectives book.

Wednesday, December 10, 2014

Chinese stocks recorded their biggest loss since 2009 — down 5.4 percent — after the government took steps to rein in lending policies, part of a plan expected to reduce growth to 7 percent (from 7.5 percent). Yet U.S. stocks held their ground for the day yesterday after early losses. Domestic growth remains robust, and even the U.S. Congress seems determined to avoid any unwelcome budget histrionics as lawmakers appear close to agreement on a $1.1 trillion spending level for the remainder of the fiscal year. Follow global risks such as China’s Hard Landing on page 19 of the Global Perspectives book.

Tuesday, December 9, 2014

Too much of a good thing is disruptive to global markets. A surging dollar on top of an oil glut has sent oil prices crashing — down over 40 percent since June — along with emerging market currencies, which plunged to a new low against the US dollar on Monday. While this would appear to be great news for consumers, it is anathema to oil producing nations, the global energy sector —and the prices of energy stocks — and the nascent capital expenditure cycle driven by mammoth oil and gas projects around the world. The market is adjusting to a more balanced view of the stronger dollar and its impact. Follow Major Currency trends on page 51 of the Global Perspectives book.

Friday, December 5, 2014

Payroll report surge stuns the street. The U.S. Bureau of Labor Statistics reported today, “Total nonfarm payroll employment increased by 321,000 in November, and the unemployment rate was unchanged at 5.8 percent. Job gains were widespread.” September payroll was revised from +256,000 to +271,000, and the change for October was revised from +214,000 to +243,000. With these revisions, employment gains in September and October combined were 44,000 more than previously reported. The consumer, 70 percent of the economy, seems to be riding a virtuous wave on this employment report; oil has dropped by 40 percent since June; hourly earnings doubled expectations with a 0.4 percent today; and housing news continues to be good as mortgage rates stay low. So, yes I think Santa Clause is coming to town. Please see Employment Payroll report on page 56 of the Global Perspectives book.

Thursday, December 4, 2014

In Europe, despite no action at today’s European Central Bank (ECB) meeting, president Draghi sent hints that Quantitative Easing will start next year. The ECB’s macro-economic outlook has turned ugly. The view on growth has declined in the last three months from 1.6 percent for 2015 (in September) to only 1.0 percent today, a huge downward revision. Draghi repeatedly used lower inflation forecasts and falling energy prices as the main reasons for concern. Meanwhile, in the U.S. the good news keeps coming: Business surveys point to robust economic activity, and any labor market weakness is likely to be temporary and possibly due to bad weather. Follow Global Monetary Policy trends on page 45 of the Global Perspectives book.

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