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Friday, January 23, 2015

What is going to be the next boost to the market? Accommodative Central Banks is great for asset prices and has been a vital prop to the markets but does not add to country and global GDP. We applaud the European Central Bank’s bazooka action yesterday but, what now? The pejorative word that we have recycled to describe Europe’s economic malaise is “Eurosclerosis." Europe is a welfare state with France as the poster child and the ECB has bought time for reforming these structural anti-growth policies. How have France’s policies been working for them? Well, France’s unemployment is 10.3 percent, GDP is hovering around zero, taxes for individuals are as high as 75 percent, and structural impediments on labor is legendary. It matters because France is the fifth largest country in the world and second largest in Europe ranked by GDP. Economic growth in France spurred by innovative pro-growth economic policies could spark other European nations, but France must take this gift from the ECB to act now. Please see Voya Global Perspectives 2015 Forecast on TRED: Rates regarding ECB action and Eurosclerosis.

Thursday, January 22, 2015

After starting the engine a countless number of times, ECB President Mario Draghi finally put the car in drive. The ECB launched a huge quantitative easing plan of €60bn a month of bond purchases to begin in March and to continue thru September for a €1.1 trillion total net purchases - but could be open ended if needed. The program was implemented to counter weaker than expected inflation in the euro-zone and heightened risks of a too prolonged period of low growth. While the stimulus bazooka was somewhat bigger than the market expected, investors are only cautiously optimistic because stimulus without structural reform will likely be ineffective. Please follow the ECB balance sheet on page 45 of the Global Perspectives book.

Wednesday, January 21, 2015

The entire U.S. market is down for the year and the bears are having a feast. Each passing year the bears look more and more like Charlie Brown, with Lucy and her football. The bears renewed expectation of a down market is likely to lead to disappointment once again. Is Charlie Brown…I mean the bears… going to fall for kicking that football again? Sure, it looks dangerous in the markets and there are plenty of things to worry about, but have the bruised bears seen the astounding resilience in the markets supported by tectonic shifts in energy, accommodative Central Banks and record levels of corporate earnings? Investors are being rewarded like never before for accepting normal risk and now dividends for the S&P 500 at 1.95 percent exceed the yield available from 10-year U.S. treasuries. For those grappling with the question of do I get into the market now, instead invest in a broadly globally diversified portfolio of stocks and bonds to both build wealth and manage downside risk. Please TRED with a Global Perspective using our 2015 Forecast.

Friday, January 16, 2015

Gasoline prices do matter. Today’s University of Michigan Consumer Sentiment Index was the best since January 2004 coming in at 98.2, far exceeding expectations of 94.4. Consumers are upbeat on what essentially has been a huge tax cut for them. Plunging oil prices also resulted in a steep drop in inflation. U.S. consumer prices fell 0.4 percent in December, the largest drop since the end of 2008. The market turned up on today’s economic data. Presumably because the fear of below target inflation may give the Fed pause in their quest to raise rates in 2015. Please follow oil prices on page 66 of the Global Perspectives book.

Thursday, January 15, 2015

The market opened on a down note again. Today’s thorn in the market’s side is the spate of disappointing earnings from some of the big financial companies and a huge surprise from the Swiss central bank. The Swiss National Bank eliminated its cap on the EURO/CHS exchange rate sending the Swiss franc soaring. Is this a confirmation that markets will indeed see a huge round of ECB quantitative easing on January 22 (which will undoubtedly send the euro lower making it almost impossible for the Swiss to hold on to the peg)? Perhaps, but investors would be better served to concentrate on the Q4 earnings season which will heat up in the next couple weeks. Expected earnings growth for Q4 is now slightly negative. Compare this to the beginning of Q4 when expectations were for 9 percent growth. It remains to be seen if this severe slashing is warranted. If earnings come in better than expected the markets should settle down. In the meantime diversification is the defense that helps investors ride the wave of volatility. Please see an example of how diversification can reduce risk on page 72 of the Global Perspectives book.

Wednesday, January 14, 2015

It got ugly when Retail Sales reported, sending equity futures reeling. Why shouldn’t the market sell off? Especially since the expectation was for a slight gain of 0.1 percent but, instead was not only a negative 0.9 percent but, November’s strong number was revised substantially down. What the statistics don’t tell you is that retail sales were at an all-time record high last month of $447 billion for the month, December’s $443 billion was the third highest in history, and total sales for 2014 were up 4 percent from 2013. But, with low oil causing earnings to be slashed across the board and even in sectors that should benefit, like Consumer Discretionary, any bad data is causing investors to flee first and ask questions later. Please see the Retail Sales chart on page 13 of the Global Perspectives book for further insight into today’s numbers.

Tuesday, January 13, 2015

The year 2014 was lackluster for the real estate market. Prices, that were climbing at double digits in 2013, fizzled and the latest year-over-year price increase according to the Case Shiller Index was 4.5 percent. Additionally, the latest existing home sales figures tumbled 6.1 percent to a six-month low in November, the lowest level since May, after two straight months of strong increases. This is poised to change. Strong economic growth, the best job market in 15 years and the latest Washington FHA plan will boost the real estate market in 2015. The annual fees the FHA charges to guarantee mortgages will be cut by 0.5 percentage points, to 0.85 percent of the loan balance. Under this new premium structure, FHA estimates that 2 million borrowers will be able to save an average of $900 annually over the next three years if they purchase or refinance homes. First time home purchases and refinancing activity are expected to increase sharply after this plan takes effect at the end of January. Speaking of real estate, REITs were the best performing asset equity class last year. Global REITS returned 15.9 percent and US REITS returned 25.3 percent. Please follow a diversified portfolio of stocks and bonds on page 5 of the Global Perspectives book.

Friday, January 9, 2015

First the good news. The U.S. added 252K jobs in December, the 11th straight month of plus 200K job growth - the longest streak in almost 20 years. Additionally, November’s stellar report was revised up to 353K and October was also revised up to 261K.As a result, the U.S. unemployment rate fell to 5.6 percent, the lowest level since June 2008. In 2014 a total of 2.95 million jobs were created, the most since 1999. However, there was some bad news in today’s non-farm payroll report. The labor participation rate ticked down slightly and average hourly wages actually fell. The overall wage gain in the last year has only been 1.7 percent and since 2010 has only averaged 2 percent. Without wage gains, inflation is likely to remain below the Fed’s target and may temper the Fed’s plans to raise interest rates mid-year.Please follow job creation on page 56 of the Global Perspectives book.

Thursday, January 8, 2015

Deflation fears significantly raised the prospect for the European Central Bank (ECB) to announce or initiate quantitative easing (QE) at their January 22nd meeting. This initiated a global market rally as expectations increased for a massive bazooka-style monetary stimulus injection. The catalyst was Wednesday’s announcement by the European statistics office of deflation in December for the 18-country Eurozone. Headline prices were 0.2 percent lower than a year ago, the first deflation reading since October 2009. In 2015 Central Bank actions on rates continue to be an important driver to markets. Please see Global Perspectives 2015 Forecast on rates.

Wednesday, January 7, 2015

The labor market is the center of the economy. If consumers have jobs the rest falls into place, so the December ADP private payroll report was welcome good news this morning. Private-sector employment gains accelerated in December. Non-government employers added 241,000 jobs and November’s prior estimate of 208,000 jobs was revised up to 227,000 jobs. We know that one out of four jobs added since the recession has been related to energy, but so far the drop in oil prices and projected pull back in that sector has not yet translated into slower jobs growth. This positive ADP report bodes well for the more encompassing nonfarm payroll report due on Friday and may help settle recent volatility in markets. Please follow market volatility as measured by the VIX on page 35 of the Global Perspectives book.


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