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Friday, November 14, 2014

U.S. retail sales rebounded last month, rising 0.3 percent. Excluding sales of gasoline, which has been plummeting in price, the increase was even better at 0.5 percent. The consumer reaction from lower gas prices has been muted but is gaining momentum. This latest retail reading as well as the latest surging consumer sentiment number of 89.4 (highest since 2007) bodes well for the holiday shopping season. Additionally, Europe reported some unexpected good news on their economy. The Eurozone actually expanded in the third quarter, growing 0.2 percent. Germany, the biggest economy, narrowly dodged recession, growing 0.1 percent. France also surprised on the upside with a 0.3 percent increase and the Greek economy expanded (up 0.7 percent) for the first time in six years. However, Italy continues to struggle and is now back in recession. The good economic news caused U.S. treasury yields to tick up as the strong data reinforces expectations of a Fed interest rate hike next year. Please view treasury bond yields on page 30 of the Global Perspectives book noting that they are still at historically rock bottom levels.

Thursday, November 13, 2014

Hiring in the U.S. hit the highest level in more than six years while oil prices ticked down again. On paper the consumer looks strong for the upcoming holiday season. However, it may take consumers a while to realize and actually act on the trend in oil prices, which points down based on increased supplies and decreased demand. This week big name retailers are reporting earnings and the news has overwhelmingly been positive. But the consumer discretionary sector is still reporting negative year-over-year growth in earnings. This is in stark contrast to the rest of the S&P sectors and the index as a whole, which is aiming for growth of 8 percent, the highest growth in over a year. Please see Sector Total Returns on page 28 of the Global Perspectives book.

Wednesday, November 12, 2014

China is seeking to move their economy to more of a domestic oriented consumption model as their export advantage wanes. Currently only about 45 percent of their economy is driven by domestic consumption while the U.S. economy is 70 percent dependent on the consumer. If yesterday’s Singles Day sales are any indication, China is on the right track. Singles Day is a shopping holiday in China that takes place every 11/11. Yesterday the sales of its largest ecommerce firm alone exceeded $9 billion. Compare this with 2013 U.S. Cyber Monday sales – the sales total for all firms was a mere $2.3 billion. The consumer is the game changer when it comes to Global GDP growth. Please follow the global consumer on page 12 of the Global Perspectives book.

Tuesday, November 11, 2014

Brent crude oil prices are down again today to a four year low. The rapid drop in oil prices was the inevitable result of the transformation of the energy industry. The transformation was so profound we called it a tectonic shift in our 2012 forecast. The U.S. has become the top producer of oil and the OPEC nations now account for only 40 percent of the world’s oil production. Investors may be worried that falling oil prices will derail the shale revolution. However, our second tectonic shift, technology, has become a shield against falling prices. Drilling technology has become far more productive lowering the breakeven price considerably. According to the Energy Department, only 4 percent of shale production in North Dakota, Texas and other states need an oil price above $80 a barrel for producers to see a profit on investments. These tectonic shifts in energy and technology are creating jobs paying higher than those in the service sector, benefitting U.S. economic growth. As companies scramble to find qualified workers in these fields they should note that military service and experience often dovetails nicely with the skills and knowledge required for technology oriented positions. Sincere thanks to all of our veterans for their service and sacrifice.

Friday, November 7, 2014

The unemployment rate ticked down to 5.8 percent, the lowest level since July 2008. In October the number of new jobs added to the economy rose 214,000, and there was a net 31,000 upward revision for the months of August and September. The number of available job openings now stands at a 13 year high. Underemployment also fell to 11.5 percent and the labor participation rate ticked up to 62.8% as more people came back into the workforce. Although wage increases are still lagging, increasing only 2 percent YOY, they should respond as the labor market tightens further. Overall, this was a solid report and a continuation of the positive underlying story regarding the household sector. More importantly for the market, this report falls right in the sweet spot. It is consistent with the Fed’s overall plan for raising rates and will not apply undue pressure to raise rates sooner than expected. Please read the lastest global perspective on the markets.

Thursday, November 6, 2014

The labor market continues to show improving strength. Initial jobless claims came in last week at 278k, the lowest level since the Great Recession and the second lowest level in 35 years. This is good news for the consumer and consumer spending, but it also may signal stronger wage growth which will increase inflation, currently below the Fed's target of 2 percent. Meanwhile, all investor eyes are on Europe and the mounting pressure for the ECB to undertake additional stimulus. Please see Euro Zone Real GDP on page 17 of the Voya Global Perspectives book.

Wednesday, November 5, 2014

The midterm elections favored Republicans going into the election but the sheer magnitude of the sweeping victory astounded the cognoscenti. CNN reports, “A Republican tide ripped the Senate away from Democrats Tuesday, giving the GOP full control of Congress and In the House, CNN projected the GOP will have at least 246 seats, its largest majority since World War II.” CNN also reports “Stunning Republican gubernatorial victories came in reliably Democratic states, including those won overwhelmingly by Obama in 2012. Illinois ousted Democrat Pat Quinn in favor of Republican Bruce Rauner, while Maryland voters opted for Republican Larry Hogan over Democrat Anthony Brown. Republican Charlie Baker won a Massachusetts match-up against Martha Coakley, the state attorney general who lost a special Senate election to Scott Brown in 2010.” Other notable Governorship saves for the GOP were Florida and Georgia. Meanwhile, in the economy the ADP Employment Survey beat expectations on top a strong ISM Manufacturing Employment index. This bodes well for Friday’s Nonfarm-Payroll report. Please see Employment Payrolls on page 56 of the Voya Global Perspectives book.

Tuesday, November 4, 2014

The worrisome global growth story manifested itself in the trade data that was reported today for September. After months of narrowing because of lower petroleum imports, the trade deficit surged to 7.6 percent. Imports were not the story, but rather it was exports or lack of them that are behind the widening deficit. Exports to key trading partners China, Japan and Europe fell 3.2, 14.7 and 6.5 percent respectively and the overall 1.5 percent decline was the sharpest decline since February. This latest report may result in downward pressure on the third quarter GDP second estimate. However, based on the strength of the latest manufacturing PMI, the U.S. economy is running at 3 percent plus going into the fourth quarter. Please follow global trade on page 21 of the Voya Global Perspectives book.

Friday, October 31, 2014

It's no trick; Bank of Japan (BoJ) announced an enormous expansion to their monetary easing policy sending the Nikkei up 4.83 percent. It is spurring a global market rally and we may reach a new 52-week high today in the S&P 500. So much for a spooky October! Meanwhile, third quarter corporate earnings growth is 9.3 perecnt with seventy percent reported. Please see Voya Global Perspectives “Effective Diversification: 2014 Edition” discussing the “Folly of Gaming Diversification” for investors who were spooked in October.

Thursday, October 30, 2014

There should be no question that QE3 initiated in September 2012 and expanded in December 2012 to $85 billion per month was a success. The revisionists who dispute this don’t have the facts on their side. In the third quarter of 2012 a key indicator for future corporate profits, ISM Manufacturing, turned negative. Due to this Global Perspectives initiated concerns warning that 3Q-2012 earnings growth were at risk of being negative for the first time since 3Q-2009. As the third quarter earnings season progressed it looked ominous and then when the final reports came in for the S&P 500, in fact earnings growth was negative. Earnings growth tends to trend in one direction for long periods of time so a single negative reading is a precursor to a profits recession and worse – a bear market. The Fed’s extraordinarily aggressive QE3 came at the right time, lifted investor enthusiasm, bolstered business confidence and consumer spending. Earnings growth rebounded the very next quarter and has continued to be positive since. While QE3 doesn’t get all of the credit it was the right medicine at the right time. QE3 was an unequivocal success. Meanwhile, U.S. GDP handily beat expectations at 3.5 percent. Please see page 45 of the Voya Global Perspectives book, "Monetary Policy," to compare the Federal Reserve’s balance sheet expansion to the ECB’s balance sheet contraction.


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