Thoughts From Joe - February 7, 2014February 07, 2014 Posted by: Joe Morgan, CFA
Top EightJanet Yellen to provide first Congressional testimony as Fed Chief. Beginning Tuesday, the new Fed Chair will testify before congress on the state of the economy, the Fed's bond-buying program, and regulatory direction for the Fed. Yellen is looking to get away from QE, using more communication to drive the markets and the economy. The Fed has never been good at communicating with the markets so all we are likely to learn is that, like her predecessors, Janet Yellen is human and will not be bringing a radical recovery with her to the office of Fed Chair.
After hitting the debt ceiling today, Treasury will implement "extraordinary measures" to prevent default. Congress and the President aren't even discussing a potential agreement due to the administration's no-negotiations policy. There will likely be a resolution long before Treasury actually needs to prioritize payments. Higher tax receipts than expected have lessened fiscal pressures while Republicans are unlikely to push this issue given political damage suffered last year. For their part, ratings agencies don't yet seem concerned either.
Investors shifted record amounts into taxable bond funds, throwing water on the idea of a "great rotation." During the seven-day period ending Wednesday, bond funds received $10.7 billion according to Thomson Reuters' Lipper service, while withdrawing $22.4 billion from equity ETFs. The supposed death of the bond market has been greatly exaggerated. On a year-to-date basis, as defined by the Barclay's Aggregate Bond Index, it has returned +1.4 percent while the S&P 500 has fallen nearly 5 percent. This is diversification in action!
Employment data for January disappointed, but showed improvement over December. Nonfarm payrolls grew just 113,000, much lower than the 180,000 expected, while the unemployment rate fell a notch to 6.6 percent. Private sector payrolls rose 142,000 in January while government jobs fell significantly. Employment is Janet Yellen's focus and we should get a good look at her take on these figures during congressional testimony next week.
Productivity growth remained solid for the second consecutive...Read More