Weekly Recap & Outlook – 04.12.13

Tower Private Advisors

Below

  • Japan
  • Jobs but no workers
  • Discouraged consumers

Capital Markets

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Top Stories

  • Obama calls for caps on IRA – while you might think the $3 million cap is reasonable, it appears to be based on a certain annual withdrawal rate ($205,000) and a discount rate, which is based on interest rates, which are sorta low. Higher interest rates would mean a higher discount rate…and a lower cap.
  • Banks and trade groups got Fed minutes 19 hours before public – about every six weeks the Federal Open Markets Committee meets for a couple days. The result used to be a rate decision, wherein the Fed announced its new Federal Funds rate target. With rates fixed at zero, there’s no rate decision, so the transcripts of the meetings take on increased importance. The transcript is released six weeks later, and they can often give important clues as to what the Fed’s thinking.
  • White House warns of possible $943M rescue for the Federal Housing Administration – and it’s coming right out of your pocket. The FHA has authority to draw from the Treasury without Congressional approval
  • Cheap money isn’t producing significant growth – didn’t you sort of question that? The Economist magazine did, too, apparently, and determined that six years of ultra-low global interest rates have not meaningfully contributed to economic growth and may be setting up for trouble.
  • Japan hits high note among Asian-Pacific markets
  • Yendrops to lowest value against U.S. dollar since 2009
  • WisdomTree seeks approval of hedged Japanese small-cap ETF

Now, there’s an interesting collection of news stories, and all of them knit together into one story. Japan has been struggling with deflation forever. With the election of new Prime Minister, Shinzo Abe, Japan appears to be entering a new era, launching a desperate experiment to reverse the deflation tide, and he’s serious. “Abenomics,” as it’s called, is targeting increased inflation by flooding the market with currency. Japan’s central banker has doubled the CB’s inflation target to 2% and has promised to double the money supply by purchasing $75 billion of Japanese bonds per month. One certain effect will be to trash the yen. Among other things, that will make Japanese exports a lot cheaper, helping Japanese manufacturers…and their publicly-traded stocks. The chart nearby shows the Yen and the Nikkei 225. The latter began to accelerate when Abe said to his opponent, in effect, let’s get it on, and called for new elections. Then the market spiked in early April on the doubling-the money-supply comment.

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This Week

There weren’t many economic releases of significance this week. The Job Openings and Labor Turnover Survey, cleverly called JOLTS, showed an increase in job openings to a new, post-recession high. At the same time, last week’s Unemployment Report showed another drop in the portion of the population considered in the work force. That metric is called the Labor Participation Rate. Here it is, overlaid on Job Openings. While one might think that this is a result of a sub-par recovery, and that in sub-par jobs, but note that the trend had begun before the official dates of the 2001 recession. It only accelerated in the 2008-2009 recession.

 

Houston, we have a problem. Here’s a look at the participation rate going back as far as it’s been recorded. We’re now back to 1978 levels, but someone sharper than I is going to have divine the causes and the implications, but it certainly doesn’t seem like a good phenomenon. Isn’t there something about a problem with workers per Social Security recipient?

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And what’s wrong with the folks that the University of Michigan surveys? Don’t they know that stocks are up by double digits? gasoline prices are coming down? Ben Bernanke’s got their backs?

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Next Week

Key indicators to watch . . . a whole bunch of ‘em

  • Empire State Manufacturing
  • Philadelphia Fed
  • Consumer Price Index
  • Industrial Production
  • Capacity Utilization
  • Federal Reserve Beige Book
  • Initial Jobless Claims

Housing Related

  • NAHB Housing Market Index
  • Housing Starts
  • Building Permits

That’s about it.

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

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