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Will stocks decline further? Answer: Watch the Economy

We continue to focus on economic activity to monitor the outlook for earnings, which ultimately drives stock prices.  Masked by the media yesterday was some good reports on the consumer, which still drives the US economy making up almost 70% of GDP. Personal consumption expenditures (PCE) rose 0.4% in August. Additionally, the previous month was revised up to 0.4% from 0.3%. Real PCE also rose 0.4%, the most in three months. At the current sales pace, real PCE is tracking at a 3.5% annual rate in Q3, nearly matching the 3.6% annual growth rate in Q2. Spending growth was supported by continued steady gains in personal income, up 0.3% for…

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Federal Govt Status

The Congressional Budget Office (CBO) reported a June budget surplus for the federal government, which is typically a positive month.  Here are a few points from the release: Federal receipts rose 8.8% y/y led by a pickup in individual income tax receipts. Federal outlays rose a smaller 4.4% y/y.  Spending on national defense and income security continue to contract. Additionally, net interest payments declined 1.2% y/y, partly because low inflation reduced the principal of TIPS. Fiscal year-to-date, the deficit totaled $313.4 billion, down 14.3% from the same period a year ago. The CBO projects a deficit of $468 billion this fiscal year. A couple of key takeaways: Tax increases have been a big…

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Brace For The Media Barrage

“The biggest big business in America is not steel, automobiles, or television.  It is the manufacture, refinement and distribution of anxiety.” Eric Sevareid, CBS, 1974 It has been some time since our last blog post, and we thought it appropriate to touch on a few items with the impending outcome of the Federal Reserve meeting release tomorrow.  The above quote is very timely and relevant four decades later.  We would also add that injecting the internet, mobile and social media has only amplified the media’s distribution of anxiety.  Here are some of the headlines just today: “At stake in a financial meltdown: $26 Trillion?” “55% chance of a Greek “accident”…

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In Retirement, Money Isn’t Everything

Financial matters are only one part of the retirement readiness equation. Have you considered the non-financial challenges you may face at retirement? All too often, couples who are financially set end up unhappy post-retirement. They may be ready for retirement money-wise, but many are unprepared in other areas, such as: General attitude toward retirement and aging Finding satisfying work or activities to replace their former career Interpersonal relationships, especially with their spouse Overall health and wellness These non-financial issues will only become more significant as retirements grow longer. In the past, people might plan for 10 years of retirement. Today, we may be retired for as long as we’re employed. One predictor of…

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Happy (almost) New Year!

Wishing all a prosperous and blessed start to 2015.  The following is a timely poem by Art Cashin: ‘Tis the day before New Year’s and despite what you’re hopin’ The folks in the Boardroom say “the full day we’re open” So we’ll buy and we’ll sell as the tape crawls along And though “Bubbly’s” verboten we may still sing a song Two Thousand Fourteen was okay, not really a wow Till a Santa Claus rally took us through Eighteen Thou We lost special people as we seem to each year It just makes us treasure each one that’s still here Robin Williams, so manic snuffed out his own light Mickey…

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Give Me A Raise

We continue to get inquires on our opinion of when interest rates will rise.  A post today by Ed Yardeni hits on the key metric to watch in our opinion.  Until we see wage pressures building we think rates will remain low for some time. Wage inflation remains abnormally low although the labor market has clearly tightened. The short-term unemployment rate fell to 3.9% during October, the lowest reading since November 2007. Back then, wage inflation was 3.3%. Today, it is only 2.0%. Fed Chair Janet Yellen has said that she believes that wage inflation is too low. She would prefer to see it rise to 3%-4% before starting to normalize…

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Manufacturing in the Good Ole US of A

You say what?  Not in our country… it has all moved overseas, right?  Well, we have opined on this subject several times that cheap energy and the advancements in technologies (Robotics… The Next Big Thing) would cause a swell in companies to return to our country. Here are some thoughts from Ed Yardeni today that echoes our thoughts and points to this secular change: Labor is still cheaper overseas, but it isn’t as expensive as it once was in the US. Besides, the IT revolution has increased factory productivity with more automation, including robots and the “Internet of Things.”  For now, the evidence is finally mounting that the highly anticipated new age…

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Obsession Over “Considerable Time”

The Fed concluded their two day meeting yesterday, and it held no real surprises.  The expansion of the balance sheet (almost $4Trillion in money printed since 2007) will finally come to an end next month. They did raise their median estimate for the federal funds rate (currently 0.25%) at the end of 2015 from 1.125% (as of June) to 1.375% (as of September). The median estimate for the end of 2016 is now 2.9%, up from 2.5%; and they believe the rate will be 3.75% by the end of 2017; this is the first time they have published a 2017 estimate. (Source: Charles Schwab) As a reminder, the Fed members…

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The Seasons

We have compared investing to farming multiple times over the years.  We believe there is a time for planting and a time to harvest.  We actually saw a negative return in equities last month, which may be a surprise to many as the two year rapid ascent has caused many investors to get complacent in regards to their expectations of returns. The economic cycle has followed this pattern in the past and will continue the same dance into the future.  Stay focused on balancing risk and don’t forget to harvest profits occasionally.

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Rising Interest Rates in Your Future?

This week will be a busy one with Wednesday a key day as the release of the initial estimate of second-quarter gross domestic product and a statement from the Federal Open Market Committee at the close of its monetary policy meeting on July 29–30. On Thursday, the Employment Cost Index for the first quarter comes out. A number of reports will be released on Friday, including personal income, construction spending, the ISM Manufacturing Index, and the closely watched monthly employment situation. This begs the question of when the Fed will raise interest rates, which we break down into three decision points: Economic Strength – Estimates for advance Q2 GDP is only…

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