December 21, 2009 Edition, Volume III
Inside Signature Update
- The Takeaway – Merry Christmas and Happy Holidays!
- The Market – Thankfully Quiet this Week… so far
- The Economy – Animal Spirits and Personal Economy
THE TAKEAWAY – Merry Christmas and Happy Holidays
For most of us the shopping is winding to a close, the Christmas cards have been sent and we’re looking forward to Christmas with our families and loved ones. In this case Christmas may be the spiritually-oriented Christian event or it may simply be a holiday season filled with tradition and gift giving. Regardless, it becomes more important than markets and economics; even if only briefly.
It interests me that Christmas takes on different attributes for different households. Regardless of theology, most would agree that this time of year is one during which people are more open, a little kinder, and more likely to be considerate of others. For families with small children it’s a time of great excitement and fervor and it’s hard not to focus on the build-up and energy of Christmas morning around the gift laden tree. Hopefully for more mature families, couples without children in the home, and single adults the holidays take on a warmer, more comforting tone allowing us to reflect on those for whom we care and the more meaningful aspects of our lives.
From the staff of Signature Management and Signature Update, as well as from the Haskell family, we wish you a Merry Christmas and hope you enjoy a wonderful holiday. May you be surrounded by those you love and find a moment to reflect on that which is important above all else.
THE MARKET – Thankfully Quiet this Week… so far
The markets tend to quiet down before the Christmas holiday as traders take time off and hedge funds prepare to settle positions before the end of the year. Light volume tends to give way to a brief flurry of activity in year-end trades establishing tax losses or gains; otherwise activity is limited. This year this all comes as welcome relief and most of us are pleased to bring 2009 to a close.
When a weekend storm in the Eastern United States is the hottest news story on a Monday morning, you know things are quieting down in the market. Early trading on Monday added to the DOW’s gains by over 100 points as some investors moved into health care related stocks; one of the strongest indicators that the White House will have a unified House and Senate bill ready for the President’s signature by Christmas Eve. The winners in this legislative effort turn out to be insurers, drug makers and to some degree the public. The ‘public option’ that we declared dead-in-the-water some months ago is now nowhere to be seen; thank goodness.
Undoubtedly, there will be various corporate developments and announcements to add a little spice to the next week’s markets. Some of those could be meaningful, but most likely they’ll simply be adding detail to existing reports or laying the ground work for early 2010 deals yet to be announced.
Thankfully, most legislators will have left Washington for their home states by Christmas Eve and won’t return until after the first of the year. There’s little they can do other than host a few parties and offer interviews to hungry news outlets; neither of which tends to move markets and sometimes doesn’t even register with voters.
THE ECONOMY - Animal Spirits and Personal Economy
What we call Economics today, was referred to as Political Economy well into the 20th Century, with a few major universities only recently changing department names: Glasgow University in Scotland being the last of these to change its Department of Political Economy to Department of Economics in 1997-1998. Even today, economists are closely tied to political ideologies and many have a difficult time separating the two. Indeed, macro-economics may be inseparable from politics as it deals with economics beyond the scope of businesses and households and strives to explain regional, national or global issues.
The economic conditions of 2007-2009 tested and broke many widely accepted models and theories, and left many economists questioning their decision making and forecasting tools. Some believe we’re entering into an era in which increased volatility and access to massive amounts of information may give rise to an entirely new set of models and theories. Others suggest we’re simply going through a time period in which a given model’s degree of accuracy may falter, but the model itself will hold.
My expectation is that we may not be able to rely on macro economic modeling in the future as heavily as many have come to depend upon. As the volume of economic transactions has increased and the number of empowered decision makers has expanded (with diverse levels of education, preparation and experience) we likely need to consider behavioral economic factors far more than had previously been thought. Keynes referred to these factors as ‘animal spirits’ in his 1936 work A General Theory of Employment, Interest and Money and untold articles and books have been written in an attempt to define them and articulate the impact of their facets and features. In the end, these animal spirits simply refer to human nature; and attempts to confine, or define them to a predictable model may be wrought with disappointment.
We’ve seen that our economies need wider margins for unpredictability and error. In this case 'economies' is intended to refer to the various economies with which one interfaces: economies of household, businesses and government. Even one’s personal economy, a term you’ll hear more often in the coming weeks and months and one that doesn’t refer to facts and figures as much as it does concepts and ideologies, may need to be challenged and considered in a far more important light than ever before.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Monday, December 21, 2009
Friday, December 11, 2009
Things Are Exactly That Bad... and that's good!
December 11, 2009 Edition, Volume III
Inside Signature Update
- The Market – The Yield Curve: Revisited
- The Economy –Things are exactly that Bad… and that’s good!
- The Takeaway – We told you not to get caught
THE MARKET – The Yield Curve: Revisited
Even though Signature Update has discussed positive-sloping yield curves in the past, it seems appropriate to mention the shape of the current curve. Yield curves, the graphic representation of treasury yields for varying lengths of maturity, most often foretell the general direction of the stock market. A positive slope reflects higher treasury yields for longer maturities – which is exactly what one would expect – and has routinely been a precursor to prolonged equity market gains. A flat or negatively sloped curve, like the one we saw in the later part of 2007 and 2008, is indicative of a disquieted credit market and most often leads to lower stock market values.
Sometimes we misinterpret these forecasting tools and suppose they mean something other than what they’ve so accurately represented for many years. As investors, we often want to look only at the positive side of the markets and may mistake an otherwise obvious sign. This is often the case when a negatively sloping curve is suggestive of declining stock market values. As economists, we tend to be more pragmatic and are most interested in the changing economic landscape; regardless of the direction of change.
The current yield curve not only has a positive slope, but is steeper than at any time since the early 1980’s. It suggests an upward trending equities market for an extended period of time and is difficult to ignore. Recent economic updates reflecting increased consumer spending, manufacturing activity, and improving labor patterns support continued market improvement and paint a compelling picture for a profitable 2010.
One of the more positive signs we’ve seen has been the recent improvement in the US dollar, aligned with stock market gains. Divergent dollar/equities movement had become a concerning trend, and while we may continue to see more uncorrelated dollar/equities moves, it appears the trend is breaking none too soon.
The weak dollar, though good for export activity and ‘gold bugs’ has elicited concern the world over. Even without outward support from the Federal Reserve and US Treasury, the dollar has gained ground in recent weeks and the upward sloping yield curve, also an indicator of future interest rates, supports meaningful currency exchange gains and hope for moderated inflation pressures. Both offer welcome relief to consumers and investors, excepting those gold investors who may have fallen prey to opportunistic pressures in the precious metals and commodities markets.
THE ECONOMY – Things are exactly that Bad… and that’s good!
A reader recently sent me an internet link to an interesting graphic representing the state-by-state change in unemployment from January 2007 to October 2009 (see weblink below). The image the graphic created was one of alarm, and the reader, as might be expected, sought reassurance while asking ‘could things really be this bad?’ The chart steadily became more concerning as it cycled through each month and paints a picture most would find alarming… unless, of course, the observer understood the history of employment cycles.
My answer to the reader’s question: ‘Yes, they’re exactly that bad’. I then went on to remind him that a similar graphic for the mid 1970’s and early 1980’s looked yet worse; as would one for the recessions of the 1830’s, 1850’s, 1860’s, 1880’s, 1890’s, 1907, and 1920’s. Likewise, a graphic for the depressions of the 1870’s, 1890’s and 1930’s would make the current graph look insignificant.
The point is that labor economies cycle through patterns of growth followed by recessive periods. Until the 1930’s these recessive periods were far more frequent than they have been in the last sixty plus years, and worse, they tended to last longer and drive deeper. The accumulated economic impact stifled growth and development throughout the country as individuals and businesses constantly strove to recover from last year’s recession, while endeavoring to prepare for what might come next. Economic stability was an audacious hope at the time.
The implementation of federal and state banking, investment and securities regulations, in addition to the creation of the Federal Reserve and FDIC served to bring relative economic stability to the country and each have served us well. I’m not trying to sound like an apologist for the Federal Reserve, though I’m frequently supportive of various Fed policies, and I’m certainly not a fan of excessive regulation, but the necessity of a strong central bank and active regulatory environment is critical in even the freest of markets.
Which brings us to Friday’s passage of legislation by the US House of Representatives calling for the most significant increase in the regulation of US banks and other corporations since the Great Depression. The bill passed without Republican support and absent the vote of 27 Democrats; passage in the Senate seems unlikely.
The Obama administration issued a statement in support of the legislation; "The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington. We have a responsibility to learn from it, and to put in place reforms that will promote sound investment, encourage real competition and innovation, and prevent such a crisis from ever happening again." Good words, but with unfortunate affect.
This bill offers another layer of inefficient bureaucracy on top of an already highly regulated industry. Certainly, there are new financial products, such as Credit Default Swaps (CDS) and Collateralized Debt Obligations (CDO), that merit regulatory supervision, but too much regulation can be just as damaging as too little. The current populist call for regulating everything from executive salaries to a family’s carbon footprint (not part of the bill in reference) is overreaching and ultimately can produce more harm than good. Thankfully, the Senate version of the bill offers a more reasoned approach and with hope, audacious though it may be, by the time the legislation makes its way through the congressional reconciliation process it may offer more productive solutions than the current House version.
http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
THE TAKEAWAY – We told you not to get caught
Expect higher interest rates to filter through the economy even before the Federal Reserve moves to raise the Fed Funds and other target rates. Though the increased cost of borrowing may be disheartening to some, they will help bankers choose to lend more freely and will help stave off potential inflation pressures.
Look to the Senate to lead the way towards more reasoned regulatory pressures, but be willing to speak out to your House and Senate representatives; it’s your money they’re spending and your nation they seek to govern.
4th Quarter GDP forecasts are likely to be revised upwards in coming weeks as the economy appears to be making a more robust recovery than previously expected. Though it will take many more months for the improvement to provide meaningful relief for the labor markets, the strengthening dollar and moderating commodities markets are welcome signs. Oh… and stock market gains don’t hurt much!
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Inside Signature Update
- The Market – The Yield Curve: Revisited
- The Economy –Things are exactly that Bad… and that’s good!
- The Takeaway – We told you not to get caught
THE MARKET – The Yield Curve: Revisited
Even though Signature Update has discussed positive-sloping yield curves in the past, it seems appropriate to mention the shape of the current curve. Yield curves, the graphic representation of treasury yields for varying lengths of maturity, most often foretell the general direction of the stock market. A positive slope reflects higher treasury yields for longer maturities – which is exactly what one would expect – and has routinely been a precursor to prolonged equity market gains. A flat or negatively sloped curve, like the one we saw in the later part of 2007 and 2008, is indicative of a disquieted credit market and most often leads to lower stock market values.
Sometimes we misinterpret these forecasting tools and suppose they mean something other than what they’ve so accurately represented for many years. As investors, we often want to look only at the positive side of the markets and may mistake an otherwise obvious sign. This is often the case when a negatively sloping curve is suggestive of declining stock market values. As economists, we tend to be more pragmatic and are most interested in the changing economic landscape; regardless of the direction of change.
The current yield curve not only has a positive slope, but is steeper than at any time since the early 1980’s. It suggests an upward trending equities market for an extended period of time and is difficult to ignore. Recent economic updates reflecting increased consumer spending, manufacturing activity, and improving labor patterns support continued market improvement and paint a compelling picture for a profitable 2010.
One of the more positive signs we’ve seen has been the recent improvement in the US dollar, aligned with stock market gains. Divergent dollar/equities movement had become a concerning trend, and while we may continue to see more uncorrelated dollar/equities moves, it appears the trend is breaking none too soon.
The weak dollar, though good for export activity and ‘gold bugs’ has elicited concern the world over. Even without outward support from the Federal Reserve and US Treasury, the dollar has gained ground in recent weeks and the upward sloping yield curve, also an indicator of future interest rates, supports meaningful currency exchange gains and hope for moderated inflation pressures. Both offer welcome relief to consumers and investors, excepting those gold investors who may have fallen prey to opportunistic pressures in the precious metals and commodities markets.
THE ECONOMY – Things are exactly that Bad… and that’s good!
A reader recently sent me an internet link to an interesting graphic representing the state-by-state change in unemployment from January 2007 to October 2009 (see weblink below). The image the graphic created was one of alarm, and the reader, as might be expected, sought reassurance while asking ‘could things really be this bad?’ The chart steadily became more concerning as it cycled through each month and paints a picture most would find alarming… unless, of course, the observer understood the history of employment cycles.
My answer to the reader’s question: ‘Yes, they’re exactly that bad’. I then went on to remind him that a similar graphic for the mid 1970’s and early 1980’s looked yet worse; as would one for the recessions of the 1830’s, 1850’s, 1860’s, 1880’s, 1890’s, 1907, and 1920’s. Likewise, a graphic for the depressions of the 1870’s, 1890’s and 1930’s would make the current graph look insignificant.
The point is that labor economies cycle through patterns of growth followed by recessive periods. Until the 1930’s these recessive periods were far more frequent than they have been in the last sixty plus years, and worse, they tended to last longer and drive deeper. The accumulated economic impact stifled growth and development throughout the country as individuals and businesses constantly strove to recover from last year’s recession, while endeavoring to prepare for what might come next. Economic stability was an audacious hope at the time.
The implementation of federal and state banking, investment and securities regulations, in addition to the creation of the Federal Reserve and FDIC served to bring relative economic stability to the country and each have served us well. I’m not trying to sound like an apologist for the Federal Reserve, though I’m frequently supportive of various Fed policies, and I’m certainly not a fan of excessive regulation, but the necessity of a strong central bank and active regulatory environment is critical in even the freest of markets.
Which brings us to Friday’s passage of legislation by the US House of Representatives calling for the most significant increase in the regulation of US banks and other corporations since the Great Depression. The bill passed without Republican support and absent the vote of 27 Democrats; passage in the Senate seems unlikely.
The Obama administration issued a statement in support of the legislation; "The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington. We have a responsibility to learn from it, and to put in place reforms that will promote sound investment, encourage real competition and innovation, and prevent such a crisis from ever happening again." Good words, but with unfortunate affect.
This bill offers another layer of inefficient bureaucracy on top of an already highly regulated industry. Certainly, there are new financial products, such as Credit Default Swaps (CDS) and Collateralized Debt Obligations (CDO), that merit regulatory supervision, but too much regulation can be just as damaging as too little. The current populist call for regulating everything from executive salaries to a family’s carbon footprint (not part of the bill in reference) is overreaching and ultimately can produce more harm than good. Thankfully, the Senate version of the bill offers a more reasoned approach and with hope, audacious though it may be, by the time the legislation makes its way through the congressional reconciliation process it may offer more productive solutions than the current House version.
http://cohort11.americanobserver.net/latoyaegwuekwe/multimediafinal.html
THE TAKEAWAY – We told you not to get caught
Expect higher interest rates to filter through the economy even before the Federal Reserve moves to raise the Fed Funds and other target rates. Though the increased cost of borrowing may be disheartening to some, they will help bankers choose to lend more freely and will help stave off potential inflation pressures.
Look to the Senate to lead the way towards more reasoned regulatory pressures, but be willing to speak out to your House and Senate representatives; it’s your money they’re spending and your nation they seek to govern.
4th Quarter GDP forecasts are likely to be revised upwards in coming weeks as the economy appears to be making a more robust recovery than previously expected. Though it will take many more months for the improvement to provide meaningful relief for the labor markets, the strengthening dollar and moderating commodities markets are welcome signs. Oh… and stock market gains don’t hurt much!
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Friday, December 4, 2009
It May Not Be Over, But It's Better
December 4, 2009 Edition, Volume III
Inside Signature Update
- The Market – Executive Compensation Returns to the Spotlight
- The Economy – It May Not be Over, But It’s Better!
- The Takeaway – Improving Trends Well Into 2010
THE MARKET – Executive Compensation Returns to the Spotlight
The Obama Administration’s plan to curtail executive compensation at firms taking advantage of TARP resources is well within the purview of policy makers. Without question, compensation plans at many firms presented phenomenal rewards for taking risks now recognized to be excessive. Fed Chairman Bernanke, FDIC head Sheila Bair, Treasury Secretary Geithner and senior Congressional and Administration leaders have each addressed the issue recently with calls for new regulatory oversight. Many have continued to press for compensation limits reaching far beyond reason in a free-market system.
We knew this was coming. Regulatory reform of the financial services industry is an obvious byproduct of the crisis we’ve lived with for almost two years. With the markets stabilizing, policy makers have begun to turn their attention to preventing a similar debacle in the future, and rightly so.
Many will suggest the Administration’s plan to cut 2009 compensation by as much as 50% of 2008 pay levels for the top 25 executives at AIG, Citigroup, Bank of America, GM, Chrysler, and GMAC is overreaching, but we can’t ignore that these firms received $240 billion (more than half) of TARP funds invested so far. Of those firms that have sought to repay their TARP obligations, including recently announced Bank of America, most have sited the need to independently govern their core business operations as one of the most important factors in their decision. The Administration’s move is unprecedented and will bring changes in compensation plans for most levels of corporate pay by a trickle-down effect for years to come.
Truth be known, it’s probably the right thing to do and may go a long way towards decreasing income inequality in the US. High corporate incomes in and of themselves don’t represent a societal imbalance, but the upward creep of executive pay among US business leaders has evidenced more than an increase in their effectiveness and has come to represent an inefficient leadership market. It has also become a focus of shareholder advocacy groups and social reformers from across the globe.
It remains to be seen how closely new compensation agreements will track long-term corporate benefit, or if 2010 executive pay plans will be held to the same levels. The Administration has wisely chosen to avoid direct impact on compensation for executives at firms outside of those most dependant on TARP, but no one expects the impact of recent policy to be contained to only a few firms. This may long be viewed as one of the smarter, though aggressive moves on the part of center/left policy makers to influence an area of corporate activity previously thought only approachable by outright regulatory intervention.
THE ECONOMY – It May Not be Over, But It’s Better!
The US Department of Labor’s announcement Friday morning of a November unemployment rate of 10% surprised many traders, investors and economists. Consensus expectations had been for job losses in the range of 125,000; much higher than the 11,000 figure released. Additionally, downward revisions of prior month losses presented a stronger-than-expected picture for the US labor markets. Not surprisingly, the news sent the equities market higher in early trading, while the dollar gained ground and interest rates edged higher.
The good news here is less obvious than one might suppose. Certainly, we’re pleased to see a better jobs report and we can breathe a collective sigh of relief as a result. The troubles in the labor market may not be over as yet, but they are better - much better than expected. A one month improvement isn’t enough to reverse many months of mounting job losses, and there’s much to be done before the unemployment rate decreases to the 5-6% range, but 10% is better than 10.2% and that’s all there is to it. If nothing else, the shift should give much needed hope to the nation’s jobless.
An important facet of the market’s reaction to the news wasn’t simply that the stock market closed the day higher. Of import are the strengthened US dollar (as can be seen by a 4% decrease in the price of gold) and an increase in interest rates. In recent months the stock market has moved inversely to the dollar – as one gained, the other lost. Historically this hasn’t been the case and Friday’s gain in equity values along side of gains in the dollar may be an indication that the two are once again set to act in concert.
Intuition tells us that a stronger dollar represents a stronger economy and should give rise to improved investment values. Very true, except in times when the dollar has been going through a devaluation process. While this recent move for the dollar and equity values may not be enough to suggest a change in trend, it’s certainly a good sign and sends an important message to the rest of the world.
Chairman Bernanke and the Federal Reserve
Fed Chairman Ben Bernanke’s appearance before the US Senate Thursday, in a round of confirmation hearings, offered a more considerate treatment of the nation’s top monetary policy maker than many had expected. Bernanke is under fire from legislative leaders on both the left and right sides of the aisle and true to form, handled himself with a resolve that bespeaks of the man’s strength and character. Though the senators treated Bernanke far more professionally than they did Treasury Secretary Timothy Geithner only a few weeks ago, but some left little ambiguity of their negative impressions of the Fed’s performance in recent years and Bernanke himself.
Representative’s Ron Paul (R-TX) and Alan Grayson (D-FL) actively sought to delay Bernanke’s Senate confirmation hearings and have gathered a surprising degree of support from fellow congressional representatives. Rejection of the Fed and its leadership isn’t anything new, in fact, the Fed has most often been a source of national contention; even outrage. It’s only been in recent times, while the Fed has enjoyed strong, capable economic leadership that the Fed’s reputation has become one of trust and stability.
Beginning with Fed Chairman Paul Volcker (1979-1987), the central bank entered into an era of economic leadership that went beyond the string of political appointees previously in charge of the nation’s money supply and banking system. Prior to Volcker’s appointment, the Federal Reserve had only twice been lead by a professional economist; Marrinier Eccles (1934-1948) and Arthur Burns (1970-1978). Virtually all other Fed Chairmen have come from business, academia and political circles and many were considered puppets of politicians and the wealthy. Under its recent string of strong economic leadership the Fed became the most powerful and perhaps most highly respected central bank in the world; the recent crisis notwithstanding.
It is this very strength and reputation, coupled with creative leadership and a powerful balance sheet that moved the US and global economy from the brink of disaster in the fall of 2008. Bernanke may not be the only leader capable of guiding the economy through what will undoubtedly be a long and difficult recovery process; he clearly has the mindset and international political capital to get the job done. Years from now, after an intense period of scrutiny we may find facets of Bernanke’s leadership wanting; we may also herald him as the right man for the job during a particularly difficult time in our nation’s history.
THE TAKEAWAY – Improving Trends Well Into 2010
The US equities markets continue to experience volatile swings, sometimes intra-day, but are poised for continued rebounds well into 2010.
Interest rate increases, thought to be as far in the future as next Fall, now may begin to present themselves in the late spring. A strengthening dollar and lower gold prices are sure to prevail.
A move towards more long-term performance based compensation of the nation’s business leaders likely coincides with a return to growth in the labor markets – both will lead to important GDP gains and a strengthening of the US dollar.
10% unemployment can hardly be called good, but it’s better than 10.2% and better still than the November projection of 10.4%. Higher than normal unemployment rates will likely linger throughout 2010, but businesses small and large are finally beginning to return to higher capacity levels and pressure on the nation’s unemployed is slowly beginning to improve… it couldn’t have come at a better time.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Inside Signature Update
- The Market – Executive Compensation Returns to the Spotlight
- The Economy – It May Not be Over, But It’s Better!
- The Takeaway – Improving Trends Well Into 2010
THE MARKET – Executive Compensation Returns to the Spotlight
The Obama Administration’s plan to curtail executive compensation at firms taking advantage of TARP resources is well within the purview of policy makers. Without question, compensation plans at many firms presented phenomenal rewards for taking risks now recognized to be excessive. Fed Chairman Bernanke, FDIC head Sheila Bair, Treasury Secretary Geithner and senior Congressional and Administration leaders have each addressed the issue recently with calls for new regulatory oversight. Many have continued to press for compensation limits reaching far beyond reason in a free-market system.
We knew this was coming. Regulatory reform of the financial services industry is an obvious byproduct of the crisis we’ve lived with for almost two years. With the markets stabilizing, policy makers have begun to turn their attention to preventing a similar debacle in the future, and rightly so.
Many will suggest the Administration’s plan to cut 2009 compensation by as much as 50% of 2008 pay levels for the top 25 executives at AIG, Citigroup, Bank of America, GM, Chrysler, and GMAC is overreaching, but we can’t ignore that these firms received $240 billion (more than half) of TARP funds invested so far. Of those firms that have sought to repay their TARP obligations, including recently announced Bank of America, most have sited the need to independently govern their core business operations as one of the most important factors in their decision. The Administration’s move is unprecedented and will bring changes in compensation plans for most levels of corporate pay by a trickle-down effect for years to come.
Truth be known, it’s probably the right thing to do and may go a long way towards decreasing income inequality in the US. High corporate incomes in and of themselves don’t represent a societal imbalance, but the upward creep of executive pay among US business leaders has evidenced more than an increase in their effectiveness and has come to represent an inefficient leadership market. It has also become a focus of shareholder advocacy groups and social reformers from across the globe.
It remains to be seen how closely new compensation agreements will track long-term corporate benefit, or if 2010 executive pay plans will be held to the same levels. The Administration has wisely chosen to avoid direct impact on compensation for executives at firms outside of those most dependant on TARP, but no one expects the impact of recent policy to be contained to only a few firms. This may long be viewed as one of the smarter, though aggressive moves on the part of center/left policy makers to influence an area of corporate activity previously thought only approachable by outright regulatory intervention.
THE ECONOMY – It May Not be Over, But It’s Better!
The US Department of Labor’s announcement Friday morning of a November unemployment rate of 10% surprised many traders, investors and economists. Consensus expectations had been for job losses in the range of 125,000; much higher than the 11,000 figure released. Additionally, downward revisions of prior month losses presented a stronger-than-expected picture for the US labor markets. Not surprisingly, the news sent the equities market higher in early trading, while the dollar gained ground and interest rates edged higher.
The good news here is less obvious than one might suppose. Certainly, we’re pleased to see a better jobs report and we can breathe a collective sigh of relief as a result. The troubles in the labor market may not be over as yet, but they are better - much better than expected. A one month improvement isn’t enough to reverse many months of mounting job losses, and there’s much to be done before the unemployment rate decreases to the 5-6% range, but 10% is better than 10.2% and that’s all there is to it. If nothing else, the shift should give much needed hope to the nation’s jobless.
An important facet of the market’s reaction to the news wasn’t simply that the stock market closed the day higher. Of import are the strengthened US dollar (as can be seen by a 4% decrease in the price of gold) and an increase in interest rates. In recent months the stock market has moved inversely to the dollar – as one gained, the other lost. Historically this hasn’t been the case and Friday’s gain in equity values along side of gains in the dollar may be an indication that the two are once again set to act in concert.
Intuition tells us that a stronger dollar represents a stronger economy and should give rise to improved investment values. Very true, except in times when the dollar has been going through a devaluation process. While this recent move for the dollar and equity values may not be enough to suggest a change in trend, it’s certainly a good sign and sends an important message to the rest of the world.
Chairman Bernanke and the Federal Reserve
Fed Chairman Ben Bernanke’s appearance before the US Senate Thursday, in a round of confirmation hearings, offered a more considerate treatment of the nation’s top monetary policy maker than many had expected. Bernanke is under fire from legislative leaders on both the left and right sides of the aisle and true to form, handled himself with a resolve that bespeaks of the man’s strength and character. Though the senators treated Bernanke far more professionally than they did Treasury Secretary Timothy Geithner only a few weeks ago, but some left little ambiguity of their negative impressions of the Fed’s performance in recent years and Bernanke himself.
Representative’s Ron Paul (R-TX) and Alan Grayson (D-FL) actively sought to delay Bernanke’s Senate confirmation hearings and have gathered a surprising degree of support from fellow congressional representatives. Rejection of the Fed and its leadership isn’t anything new, in fact, the Fed has most often been a source of national contention; even outrage. It’s only been in recent times, while the Fed has enjoyed strong, capable economic leadership that the Fed’s reputation has become one of trust and stability.
Beginning with Fed Chairman Paul Volcker (1979-1987), the central bank entered into an era of economic leadership that went beyond the string of political appointees previously in charge of the nation’s money supply and banking system. Prior to Volcker’s appointment, the Federal Reserve had only twice been lead by a professional economist; Marrinier Eccles (1934-1948) and Arthur Burns (1970-1978). Virtually all other Fed Chairmen have come from business, academia and political circles and many were considered puppets of politicians and the wealthy. Under its recent string of strong economic leadership the Fed became the most powerful and perhaps most highly respected central bank in the world; the recent crisis notwithstanding.
It is this very strength and reputation, coupled with creative leadership and a powerful balance sheet that moved the US and global economy from the brink of disaster in the fall of 2008. Bernanke may not be the only leader capable of guiding the economy through what will undoubtedly be a long and difficult recovery process; he clearly has the mindset and international political capital to get the job done. Years from now, after an intense period of scrutiny we may find facets of Bernanke’s leadership wanting; we may also herald him as the right man for the job during a particularly difficult time in our nation’s history.
THE TAKEAWAY – Improving Trends Well Into 2010
The US equities markets continue to experience volatile swings, sometimes intra-day, but are poised for continued rebounds well into 2010.
Interest rate increases, thought to be as far in the future as next Fall, now may begin to present themselves in the late spring. A strengthening dollar and lower gold prices are sure to prevail.
A move towards more long-term performance based compensation of the nation’s business leaders likely coincides with a return to growth in the labor markets – both will lead to important GDP gains and a strengthening of the US dollar.
10% unemployment can hardly be called good, but it’s better than 10.2% and better still than the November projection of 10.4%. Higher than normal unemployment rates will likely linger throughout 2010, but businesses small and large are finally beginning to return to higher capacity levels and pressure on the nation’s unemployed is slowly beginning to improve… it couldn’t have come at a better time.
Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management and CEO of Signature Management, LLC
Subscribe to:
Comments (Atom)
Posts
