Sunday, February 26, 2012
Given oil’s pervasive use across the global economy, persistently high prices may broadly increase product input costs (affecting corporate profits) and dampen consumer spending (wage growth still remains stagnant) – factors that could stress the fragile economic recovery. Investors have focused on the benefits of reflation (central bankers printing money) which has driven many asset prices higher. A period of elevated oil prices could move the discussion toward the potential for inflation (short term) and deflation (longer term).
In the U.S., consumer sentiment data continues to improve, new home sales seem to be improving (although the data is a bit confusing), and weekly jobless claims remain at the lowest level in almost four years. In the Eurozone, as Germany’s business confidence index increased to a seven-month high, economic data across the region remains mixed. Regarding the Greek mess, its creditors continue to work on restructuring the country’s debt and the process: 1) remains confusing, 2) has fatigued both stakeholders and observers and 3) has not removed concerns of a potential default.
The improving U.S. data is constructive but should be tempered by the oil dynamics mentioned above, as well as potential economic weakness in other geographic regions. While some market pundits suggest the U.S. can decouple itself from other economies, that outcome is rarely the case (although the potential impact may be muted). The reappearance of concerns about other peripheral countries, such as Portugal and Spain, are worth monitoring.
Sunday, February 19, 2012
As the U.S. housing market seeks stability, we are reminded of the lack of integrity in the processing of both mortgage filings and foreclosures.
Note: while the audit focused on foreclosures, the inaccurate MERS data can cause problems in the purchasing and refinancing of existing homes as well.
Within this mix of cross-currents, many markets have moved higher benefiting from monetary intervention (printing money) rather than changes in fiscal policy (addressing government debt issues), but trading volumes have been low. The bulls suggest that the lack of investor conviction is associated with the early stage of an economic recovery. At the same time, recent weakness in the Dow Jones Transportation index (perhaps impacted by increasing oil prices) as well as a decline in the price of copper may suggest that short term market momentum slowing. Investor reaction to Monday’s meeting in Brussels (will they bailout or blowout Greece?) will likely influence the direction of global markets.
Sunday, February 12, 2012
While many participants in this tragedy had hope for a resolution to the Greek mess, the magnitude of the problem, the number of financial moving pieces and the decreasing level of trust among the various players (which was never high to begin with) may be too great to overcome. Note that while there is no shortage of finger-pointing at the moment, this problem started before Greece’s entry into the Eurozone (June 2000); when corrupt Greek politicians, who colluded with investment bankers, misrepresented the country's financial viability and naive Eurozone leaders, eager to expand their franchise, approved Greece’s Eurozone membership.
It is likely that economic cross-currents will continue to test the durability of many investment strategies. In this environment, consistent execution of investment plans is critically important. Notable increases in European and emerging market equity volatility, as well as short-term weakness in the shares of firms such as General Electric Co., may indicate that the strong move up may be losing steam.
Sunday, February 5, 2012
Global markets continue to benefit from strong corporate profits, along with the positive effects of monetary policy by central banks in the U.S. and Europe. Regarding the declining and problematic labor participation rate, a persistently high 23.3% youth unemployment rate and other metrics suggest that a structural change may be underway. Regarding the markets, some participants and strategists, fearing they are “being left behind”, are becoming more bullish - while confronting the usual list of unresolved economic headwinds. Sometimes momentum begets momentum.