Weekly Recap & Outlook – 01.17.14

Tower Private Advisors 

Capital Markets Recap


Top Stories

 Just a handful…

  • Recent data show that hedge funds run by women outperform those run by men. Oh, whatever… [Joke]
  • 93% of financial advisers believe that rising rates will be one of the top five issues faced by clients in 2014. That leads me to believe that rising rates will not be an issue for investors in 2014. There’s just no way that 93% of financial advisers are that smart.
  • General Motors will pay its first quarterly dividend in almost six years.
  • Finally, we’re going to get the economy shifting into high gear. A White House official said that, “the President will use every tool he can to create new jobs and opportunities for the middle class.”
  • No doubt aware of the preceding bullet point, The Economist magazine says that 2014 could be the year when the U.S. busts a move higher.
  • In this week’s most shocking story, a couple of chaps on the U.S. House Financial Services Committee said that the SEC failed to consider the consequences of applying the Volcker Rule

This Week

Here’s a look at the U.S. economy vis-a-vis expectations from economists. The chart below is the Citigroup U.S. Economic Surprise index. It measures how economic data point releases are faring relative to the consensus of economists. If the line is about the dashed, zero line, it means that economic releases are better than expected; below, worse. Right now, it’s saying that economists are way to pessimistic. When the economists wise up, they’ll ratchet up their estimates more rapidly, and the line will head down.


Here is why this is important. In the stock market, it’s all about expectations. That’s why we see the the phenomenon of stocks falling when a company reports great, but not as good as was expected, and the stock falls–same thing here. When the economy surprises to the upside–i.e. does better than expected–it forces investors to recalibrate. The line above could continue to rise, but economists would eventually wise up, as it only appears that they don’t mind being wrong. When they do, they’ll begin to over-estimate the strength of the economy and the line will head south.

Here’s a long term look at the index. In the last 10 years the index hasn’t gotten much higher than it is now.


The readings are beginning to get a little stretched. The current reading is in about the 95th percentile of readings. Pretty soon, it’s likely that the economic readings are going to start to disappoint the consensus. At that point, expect the discussions of the Fed being mis-guided in their decision to taper. It might also correspond to weakness in the stock markets. We shall see. One thing is clear, the economy has been stronger than almost all economists have expected.

There really wasn’t much of interest this week in individual economic reading releases…

  • Small Business Optimism remains subdued, well below pre-recession levels
  • Empire State Manufacturing index B L O W S away economists estimates (12.51 v. 0.98)
  • Producer Price Index rose 1.2% on a year-over-year basis
  • Consumer Price Index…1.5%
  • Initial Jobless Claims above recent lows
  • Housing Starts fall by 9.8%
  • Building Permits fall by 3.0%
  • University of Michigan Consumer Confidence falls slightly
  • Job openings from the JOLTS report continue to claw their way back to pre-recession levels…highest since early 2008

Next Week

 Almost no releases scheduled for next week. Initial Jobless Claims, Mortgage Applications, House Price Index, Existing Home Sales. That’s about it.

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


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