Thoughts From Joe - January 31, 2014January 31, 2014 Posted by: Joe Morgan, CFA
Top Eight Fourth quarter economic growth was solid, driven by consumer spending. Gross Domestic Product grew 3.2 percent in the final quarter of the year as consumer spending rose at its fastest pace in three years. Personal consumption expenditures grew 3.6 percent during 2013 led by nondurables and services. There was some inventory building in both the third and fourth quarters that will have to be worked off early this year, but there's no denying the consumer's resiliency in the face of all the Washington shenanigans of last year. The market has moved firmly into "risk off" territory driven primarily by emerging market capital flows. While equities are down 3-5 percent, bonds are on course for their best monthly performance in 6 quarters. Pension funds and other institutional investors reacted skittishly to currency instability from developing markets, shifting funds from equities into bonds. Interestingly, the typical defensive sectors of the stock market have performed best with healthcare and utilities showing positive returns year-to-date and consumer sectors suffering worst. Funny how market pricing and fundamentals can get so far from a healthy relationship with just a few trillion thrown into the economy! Foxconn is looking to expand into the United States. The long-time maker of Apple's iPhone is in talks with at least six states to build advanced manufacturing facilities. The death of manufacturing in the United States may not be unavoidable after all. In a report by the Information Technology & Innovation Foundation (ITIF), authors Ben Miller and Robert Atkinson argue that increased productivity does not lead to fewer jobs:This view fails to recognize that the savings from new productivity gains must flow back to the economy in one or more of the following three ways: lower prices, higher wages for the fewer remaining employers, or higher profits.
In any of those cases, the increased value is reinvested in the economy creating greater demand for goods and services. It is true that better technology creates disruption, including job destruction. But it is also true that the economic gains get recycled, improving the quality...Read More