CIO Vantage Point;
Economic Outlook
November 09, 2012 Posted by:
Joe Morgan, CFA
Top Eight
- The re-election of Barack Obama removes one uncertainty weighing on the markets. But rhetoric from both camps this week has not been encouraging with regard to potential cooperation and decision-making that is needed to significantly reduce uncertainty in the long run. I will be watching closely for signs of a spirit of compromise developing inside the Beltway. So far, only crickets - and other creatures. But rhetoric from both camps this week has not been encouraging with regard to potential cooperation and decision-making that is needed to significantly reduce uncertainty in the long run.
- The "fiscal cliff" is extremely important - and often misunderstood. In the simplest of terms, tax increases and spending cutbacks are scheduled to occur beginning January 1st to the tune of 5 percent of GDP, ensuring a deep recession in 2013. This is why democrats and republicans should be scrambling to "agree" instead of stepping ever-closer to the edge of the abyss. Look for significant agreements within the next three months.
- Chinese leaders expect income per capita to double by 2020. Included in the announced targets: doubling rural and urban incomes through a continued dominant role played by the Chinese state. In order to continue the Chinese growth miracle, the global consumer base must remain healthy. Given nearly 15 percent of global consumption occurs in America, Chinese success is very much tied to the pace of a U.S. economic recovery.
- The European Commission issued a gloomy report on the region's near-term growth outlook. Included in the report was a projection that growth would shrink 0.3 percent for the 27 nation union that includes 17 countries sharing the euro. In typical "economist" fashion, growth is expected to return to acceptable levels at some unspecified point in the future. Also unspecified: what needs to be done to make this occur.
- The Fed's Williams all but admits QE doesn't work - though he supports it. In the linked Bloomberg article, San Francisco Fed President admitted the Fed may continue QE3 for at least a year. By saying "It's going to take a long time for unemployment to come down and growth to really pick up" he is all but admitting the Fed's plan is not affecting the economy. Why does he endorse a policy he does not believe will work? Because the Fed has no other tools and while many realize the solution lies in fiscal policy, the Fed is left only with their ineffective monetary tools.
- Greece remains in the news - ever-borrowing, ever-protesting. The linked article does an excellent job of laying out the best way to save Greece - by cutting its lifeline. As any parent knows, the more leeway you give a wayward ward, the more slack is taken up in the opposite, unwanted direction. Unfortunately, our leaders globally are reluctant to allow pain and suffering that comes naturally through the ups and downs of free market activity. Instead, by spreading around the wealth they are risking the drivers that promote economic growth overall. In other words - why should a German perform factory work only to send the fruits of their labor to the Greek isles?
- The ratings agencies are not off the hook yet. An Australian court has ruled Standard & Poor's misled investors by providing a AAA rating to a derivative product that subsequently defaulted. Two thoughts: 1) Determining what a ratings agency "thought" about a credit after the fact is far too reminiscent of George Orwell's thought police 2) Ratings agencies are not the holy gospel - investors must rely on the analytical work of their chosen experts. Given ratings agencies are paid by debt issuers and not by investors, the phrase "you get what you pay for" comes to mind.
- Consumer confidence rises more than expected. The University of Michigan confidence indicator rose to its highest level since 2007.
But rhetoric from both camps this week has not been encouraging with regard to potential cooperation and decision-making that is needed to significantly reduce uncertainty in the long run.
Key Indices
Key Indices
| |
Return |
|
|
| |
11/9/2012 |
1 week |
YTD |
Treasury |
11/9/2012 |
11/2/2012 |
Change |
| Dow |
12,815 |
-2.1% |
4.9% |
30yr |
2.74% |
2.91% |
-0.17% |
| S&P 500 |
1,380 |
-2.4% |
9.7% |
10yr |
1.61% |
1.72% |
-0.11% |
| Nasdaq |
2,905 |
-2.6% |
11.5% |
5yr |
0.64% |
0.72% |
0.08% |
| Euro Stoxx |
2,480 |
-2.6% |
7.1% |
2yr |
0.26% |
0.28% |
0.02% |
| Nikkei |
8,758 |
-3.2% |
3.6% |
1yr |
0.18% |
0.18% |
0.00% |
| Hang Seng |
21,384 |
-3.3% |
16.0% |
3mo |
0.09% |
0.09% |
0.00% |
Source: Bloomberg
Looking Ahead
- We will get a lot of economic data from October next week, however much of it was compiled prior to Sandy's landfall. Data on retail sales, inflation, industrial production and other activity will be tainted by this fact, leaving economy-watchers further room for downside speculation.
- Earnings releases include:
- Tuesday: Cisco
- Wednesday: NetApp, Vringo
- Thursday: Dell, Aruba Networks
- Upcoming innovation sector IPOs include:
- Ruckus Wireless - Thursday
- GlobeImmune - "day-to-day"
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
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Thoughts From Joe - November 9, 2012November 09, 2012 Posted by: Joe Morgan, CFATop Eight
The re-election of Barack Obama removes one uncertainty weighing on the markets. But rhetoric from both camps this week has not been encouraging with regard to potential cooperation and decision-making that is needed to significantly reduce uncertainty in the long run. I will be watching closely for signs of a spirit of compromise developing inside the Beltway. So far, only crickets - and other creatures. But rhetoric from both camps this week has not been encouraging with regard to potential cooperation and decision-making that is needed to significantly reduce uncertainty in the long run. The "fiscal cliff" is extremely important - and often misunderstood. In the simplest of terms, tax increases and spending cutbacks are scheduled to occur beginning January 1st to the tune of 5 percent of GDP, ensuring a deep recession in 2013. This is why democrats and republicans should be scrambling to "agree" instead of stepping ever-closer to the edge of the abyss. Look for significant agreements within the next three months.Chinese leaders expect income per capita to double by 2020. Included in the announced targets: doubling rural and urban incomes through a...
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