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Tuesday, November 25, 2014

The U.S. economy was even better than we thought in the third quarter, growing 3.9 percent, revised up from an initial estimate of 3.5 percent. The upward revision was primarily due to consumer spending, which was revised up to 2.2 percent from 1.8 percent, and a robust increase of business investment in equipment, which surged to 10.7 percent from 7.2 percent. The latest six month growth is the strongest stretch since 2003 and underscores the positive momentum in the U.S. despite the low growth and deflationary issues in the Eurozone and Japan. Meanwhile, U.S. home prices were up again but at a slower rate. The S&P Case Shiller home price index reported that home prices increased 4.9 percent at a year-over-year rate, the slowest increase in two years. Please follow GDP on page 62 of the Global Perspectives Book.

Friday, November 21, 2014

Central banks around the world have been making news and moving markets. Today it's China's turn. China's central bank cut its one year lending rate by 0.4 percent and its deposit rate by 0.25 percent in an effort to spur growth which has fallen to 7.3 percent. This surprise cut was the first in two years. Not to be outdone, the ECB's Mario Draghi announced the Eurozone would broaden asset purchases to combat deflationary pressures. Everyone loves a punch bowl. Global markets are surging. Please follow global market returns on page 48 of the Global Perspectives book.

Thursday, November 20, 2014

Investors are concerned that the economic struggles in the world’s largest economies, namely Japan and the Eurozone, cannot help but to spill over into the U.S. However, so far the U.S. economy has been virtually bullet proof. The most recent round of economic data portrays an economy that is strengthening not weakening. The latest leading economic indicators jumped 0.9 percent in October. Sales of existing homes rose 1.5 percent in October to 5.26 million, the highest level since September 2013; and for the 10th straight week the number of initial unemployment claims came in under 300K as fewer workers are facing layoffs. Lastly, the Philly Fed manufacturing index jumped 20 points to the highest level since December 1993. A robust U.S. economy will help support continued corporate profit growth. The market for now is shrugging off the malaise overseas and letting the domestic economic outlook and the strong corporate profits do the talking. Please follow of the Global Perspectives book.

Wednesday, November 19, 2014

The consumer is poised to spend robustly this holiday season based on falling gas prices. But housing is also an important part of the consumer DNA since it is usually the consumers’ biggest asset. Although the rate of advance is slower than it was a year ago, the housing sector continues to improve. The latest home builders confidence numbers released yesterday rose four points reaching its highest level in nearly nine years. Additionally, the housing starts for September rose 7.8 percent year-over-year and remained above the 1 million mark. The monthly change was not as good, declining 2.8 percent, but that was mainly due to the apartment sector which is often volatile. The more stable indicator, single family construction, was up 4.2 percent for the month. New permits, a forward indicator of housing construction rose 4.8 percent, the highest level since 2008.The bottom line is that housing remains a net positive for the U.S. economy. Please follow housing trends on page 59 of the Voya Global Perspectives book

Tuesday, November 18, 2014

Japan, the world’s third largest economy, has officially fallen into recession for the fourth time since 2008. Japan contracted 1.6 percent in the third quarter surprising analysts expecting a 2 percent plus increase. As a result the 2015 additional increase of the consumption tax designed to tackle Japan’s mammoth debt is on hold. Japan is seeking to stimulate growth as well as pay down debt. Just two weeks ago the bank of Japan announced a huge round of QE – the BOJ will pile on more debt - increasing asset purchases at an annual pace of around 80 trillion yen, an increase from the previous 60 to 70 trillion yen target range, in order to kick start the economy. But Japan’s taxes are a killer with the highest corporate tax rate next to the U.S. Additionally, Japan’s payroll tax is incredibly steep with a combined employer/employee rate of almost 30 percent and in April the sales tax was raised from 5 percent to 8 percent. Government stimulus without any structural change (i.e.: tax cuts, free trade agreements) does not seem to be working. Meanwhile, U.S. markets are notching new highs based on solid Q3 corporate earnings, but the struggles for growth throughout the world can’t be ignored. Please follow international economies on page 52 of the Global Perspectives book.

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.


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