Archive for January, 2013

Weekly (sorta) Recap & Outlook – 01.24.13

Thursday, January 24th, 2013

Tower Private Advisors


Capital Markets Recap


Stock markets certainly seem invincible of late, shrugging off all challenges. That’s reflected by a low Fear Index, another name for the VIX index, the 30-day forward volatility implied by option prices. Historically, a low VIX has been associated with a top in stocks…but not always, as the chart on display, below, shows. Low VIX readings in the last few years–more importantly, reversals from them–have marked short-term tops in stock prices, and the current reading is the lowest since…[cue Jaws music]…2007, but there was almost a three-year period when the VIX was lower than it is now. There other signs of some danger for stocks, the current rally is the longest since one in 2007 where we’ve gone without a 10% or more correction. Sentiment, as measured by various polls of different groups of investors, however, isn’t yet all steamed up. For now, enjoy the ride.


Top Stories

  • House suspends national debt limit – the irrelevancy of Congress continues…until the chickens come home to roost
  • Germany is repatriating gold from the U.S., as it intends to store 50% of its gold reserves within its borders. A survey of CFA Smartbrief readers indicated that most (36.25%) see it as a move by Germany to prepare for a systemic crisis. Gold bugs are atwittter.
  • A financial transaction tax is moving forward in Europe; getting some air time in the U.S. In addition to punishing those nasty banks and hedge funds–i.e. the 1%–a financial transaction tax would slow down High Frequency Traders (HFT), who get blamed for everything from flash crashes to global warming (kidding). I’m unclear how it works, but one or both parties to a financial transaction (i.e. trade) would pay a tax, raising the cost of those transactions. Increased costs lower activity; thus, trading slows down. According to our friends at Strategas Research Partners, Treasury Secretary Timmy Geithner has opposed the tax, but his “more left of center” replacement might be supportive of it, especially since he’s NOT from Goldman Sachs.
  • If you haven’t heard, U.S. shale oil and gas have the potential to make the U.S. energy independent in some years. The Algerian oil field terrorist attack and subsequent bloody attack by the Algerian government forces might encourage some foreign operators in Algeria to shift to the U.S., where we have a tendency to not take over things other than, like, city parks.
  • In the category of, are you kidding, Joe Biden might be gearing up for a 2016 run at the White House.


  • Apple shares fell by 10% on disappointing iPhone sales. That monstrous Samsung Galaxy screen seems to be winning fans.


  • The General Accounting Office–does that sound British, or what–says that the Dodd-Frank Act is “less than half implemented.”

Investment products

  • Oaktree and Rivernorth are launching a high-yield bond mutual fund. The RiverNorth/Oaktree High Income fund will invest in closed-end funds and high-yield bonds and bank loans. Only a little bit late to the party.
  • First Trust will launch two of the more popular flavors of ETFs these days: an Enhanced (oooo…) High Income Fund and, naturally, an Enhanced Low Beta Income ETF. The time for high-income funds is not when income is low, nor is the time for low-volatility funds after the high volatility has already been visited upon markets.
  • John Hancock–no, not him; the company–is looking to use derivatives in an actively-managed ETF. Of course, it will only use derivatives to reduce risk.

This Week

There hasn’t been much in the way of economic releases with one day left in the week. There are starting to be some troubling developments in the regional surveys conducted every month by several of the Federal Reserve districts. This week, the Richmond Fed Manufacturing Index was released, and instead of the expected +5 reading (i.e. expansion in the sector) it came in at -12. Now, this sucker clocked in at -42 back in early ’09, so there’s no need to make a recession call, but other than a lower July 2012 reading (-17) this is the lowest it’s been since 2009. It doesn’t take a sophisticated data analysis package to determine that the direction for the major Fed surveys is decidedly downward. Where that ends up is anyone’s guess. reg fed

Have you noticed that mortgage rates are sorta low? Here’s the current sign in our lobby, which advertises the 15-year mortgage rate.


The weekly Mortage Applications index was out this week, as usual. The index jumped by 7%, following a 15% jump last week. It’s hard to imagine that there’s anyone who hasn’t refinanced yet, but in fact, the average 30-year national mortgage rate is a percent lower than it was at the end of July 2011. Roughly speaking, anyone who refinanced prior to July 2011 can save at least 1% on his or her mortgage rate. Shameless plug: click here to send an e-mail to Tower mortgage ace, Nathan Willis, to find out current rates. So, there’s plenty of room for the refi boom to continue. And, at long last, the Purchase Index–mortgage applications are divided amongst refinances and purchases–is perking up. It’s making 3-year highs, as there seems to be something to this housing recovery thing.

Next Week

Key indicators to watch

  • Durable Goods Orders
  • Q4 GDP – our first look
  • FOMC Rate Decision
  • Personal Income, Spending, and Saving
  • Initial Jobless Claims


  • Pending Home Sales
  • Case-Shiller Home Price Index


  • Purchasing Managers Index – Milwaukee
  • Chicago Purchasing Manager index

1.14.13 speech by Philly Fed President Charles Plosser

Tuesday, January 15th, 2013

He’s one of the non-voting members (will vote in 2014), and he’s generally considered to be one of the more hawkish (i.e. less accommodative; typically worried about inflation consequences) Fed Presidents. Yet in this speech he didn’t mention “inflation,” per se, much at all, as its size relative to other terms–take “growth,” for example–is pretty small. That seems odd for a Fed hawk. (Word cloud courtesy of


Click for ginormous version

Click for ginormous version


Weekly Recap & Outlook 01.04.13

Friday, January 4th, 2013

Tower Private Advisors

  • Fiscal cliff relief…for now
  • Another cartoon
  • A mediocre jobs report

Capital Markets Recap

Apparently, there was some relief that the worst part of the fiscal cliff (i.e. income taxes) was averted. The spending components are kicked down the road until March 1, at which point they’ll coincide with next debt ceiling debate. Republicans seem to have caved on taxes, but you can bet they’ll be invigorated for this upcoming fight.


‘See which market did the best–other than being short Treasuries or volatility? Whodathunk?


Top Stories

Here is a collection of stories from this week’s collection of CFA Smartbrief highlights, sort of the highlights of the highlights.

  • Japan’s debt is a financial time bomb, experts say. This is starting to pop in more places, along with the related trades of shorting the Yen–it’ll be devalued–and going long Japanese exporters; their stuff is going to relatively cheaper.

The continuing ____ Cliff saga…

  • Boehner is re-elected U.S. House speaker by slender margin
  • Many Americans will pay higher taxes in 2013 despite deal. The 2% Payroll Tax hikes goes away, socking all classes with a tax hike. According to CBS News, the “average household will pay an extra $1,000 this year.”
  • Advisers applaud survival of $5 million gift-tax exemption–and it’s made permanent…for now, at least. Nothing Congress does is permanent.
  • Congress prepares for fight over U.S. debt limit. You may have heard or will hear of the silly notion of the Treasury minting a $1 trillion coin. Treasury Secretary Tim Geithner announced recently that we had hit the debt ceiling, and some have suggested that the Federal Reserve could just pop out a $1 trillion coin to pay down some debt. I dunno, ‘sounds a little inflationary. Here is one story on the subject. Even Paul Krugman, economic whacko, says it’s a gimmick. Click here to send me a nasty e-mail for calling Paul Krugman a whacko.
  • Agencies leave U.S. rating unchanged after budget deal
  • Budget deal offers little hope for hiring, sales growth
  • Advisers are unimpressed with “fiscal cliff” deal. Count me among them.
  • …but Financial advisers are more optimistic about 2013
  • Investors pour $7.17 billion into stock ETFs

And other stuff…

  • Fed is divided on length of stimulus, minutes show (slightly more on this, below.) The Federal Reserve has essentially been funding our $1 trillion budget deficits for the past few years by buying about that much, each year, of government securities. The Fed is price insensitive; it cares not for yield. Something tells me that when that $1 trillion goes up for sale to price sensitive buyers, who do care about yield, bond market dynamics could change a wee bit.
  • This isn’t good. Smallest population growth since Great Depression expected in U.S. The Asian investment bank Nomura estimates that population demographics account for “only 30-40%” of economic growth. Well, at least it’s not 50%.


  • Bonds might start losing appeal, experts say. Brilliant!
  • Emerging-market equities enter longest rally in 14 months
  • Cognios launches market-neutral mutual fund. Investors are still clamoring for some downside protection. In 2007, it was the furthest thing from their minds. Gimme a sharp shellacking of stocks, a drop in valuations, and it’s go long stocks. Buy what others don’t want. Right now they want protection–or at least fund providers think they do.
  • And not to be outdone, State Street Global Advisors readies 6 actively managed ETFs for launch…four of them carry the “Risk Aware” label. Where were they five years ago. To be fair, risk seems scarce right now, so the timing might not be terrible on a multi-month horizon.
  • Northern Trust readies 4 money funds. What’s unique about these is that their net asset value (NAV) fluctuates. I don’t know if there are any other money market funds with this…uh…feature. Typically, they’ve all traded for $1, with the yield fluctuating instead. This may be an attempt to front-run changes that seem to be imminent from the SEC, namely that money market fund NAVs float.

This Week

The first week of the month always produces the big Nonfarm Payrolls report, which reports on the Change in Nonfarm Payrolls, as well as the Unemployment Rate. The latter has taken on increasing importance, following the Federal Reserve’s last Open Markets Committee meeting. In that meeting, the Fed said it would not tighten monetary policy so long asUR the Unemployment Rate is north of 6.5% and inflation is less than 2.5%. Here is a look at the rate, along with a regression that shows the rate falling below 6.5% in late 2014.

As to payrolls, they grew by 155,000 in December, which was better than the 146,000 in November and slightly better than the 152,000 that the dismal scientists had expected. Earlier in the week, ADP had released its Employment Change index, which had been re-tuned to more closely match–and foreshadow–this report. The ADP report had shown a big jump, from 118,000 to 212,000. Perhaps some more tweaking is needed. The Change in Private Payrolls was a little better, with 168,000 jobs added there, including 25,000 from increased Manufacturing payrolls.

It’s going to take a long time to rectify the situation below–a long time mitigated by some stronger employment reports. Click on the image below to go directly to the blog it was lifted from. It was posted there as THE SCARIEST JOBS CHART EVER. It shows the current jobs recovery, along with the other post-WWII recoveries relative to their prior peaks, and the time it took to recover them.


Markets got a bit nervous yesterday when the minutes from the FOMC’s latest meeting were released. While the Wordle cloud below doesn’t show it, the minutes apparently indicated the Federal Reserve would curtail its purchases later in the year.


Next Week

quiet week next week…

Key indicators to watch

  • NFIB Small Business Optimism
  • Initial Jobless Claims
  • Job Openings Labor Turnover Survey (JOLTS)

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors