Weekly Recap & Outlook – 09.21.12

Tower Private Advisors

  • Troubling Volatility Index readings
  • Headline hodge podge

Capital Markets

I remain concerned about the low Volatility Index (VIX) level. It suggests that option traders, at least, aren’t concerned about downside volatility, and everytime the VIX has reached these levels, it’s spelled trouble for stocks, as shown below.

Well, that’s not entirely true. In the mid ’00s, a time that former PIMCO guru, Paul McCulley, called “The Great Moderation,” there was a multi-year period when the VIX was lower than it is now. That was, however, a time when the economy was only beginning to anticipate the effects of the housing bubble–the bubble blowing was in full swing at the time. I daresay we’re in a different enviroment now.

Top Stories

Some headlines from this week…

  • Investors act ahead of any sovereign-rating downgrade – you wouldn’t know it by looking at Spanish and Italian bond yields (below). Looks to me like the ECB announcement


  • Deposit flight from 4 Eurozone countries threatens currency – still, some folks aren’t taking any chances
  • In an article titled, “The new Corn Laws,” The Economist magazine argues that while other factors are to blame, like the weather, governments “exacerbate the problems they are trying to solve.” This will take on increasing importance as the Federal Reserve’s quantitative easing program should prove to be inflationary and is likely to push up commodity prices higher, some of which have already been affected by the drought, some of which will have been/be affected by government decisions, such as what The Economist terms, “America’s biofuels policy,” in which we essentially put food in giant stills and make automotive grade moonshine.
  • According to Politico, the “fiscal cliff” is no longer in the distance for U.S. policymakers. This has to be one of investors’ top fears for the balance of the year. The same Congress that couldn’t agree on debt ceiling decisions now has to deal with 4.5% of our economy, which is set to evaporate at the end of the year.

Contrast these two headlines:

  1. Less than half of mid-income Americans use a financial advisor
  2. Financial advisors are top information source for wealthy

If you want to be wealthy, you could do worse than follow their examples when it comes to financial matters.

  • Headline from Monday, September 17:  Greece’s creditors signal willingness to be more flexible
  • Headline form Friday, September 21: Negotiators struggle to agree on funds release for Greece


  • There was some concern that the German Parliament would shoot down the ECB’s bond buying program but, behold, German Prime Minister Angela Merkel said the Central Bank is within its legal mandate.

It’s all your fault: a couple of researchers at the San Francisco Federal Reserve found, in a study, that if consumers weren’t so worried about the economy the unemployment rate would be about 2% lower.

…and if that’s not enough, corporate profits are expected to fall–i.e. negative growth, not less growth–in the third quarter for the first time since 2009. Some smart folks say that’s a significant factor preventing unemployment from falling.

Flavor of the year

  • [Fund company] Advantus launches dividend-focused index mutual fund.
  • WisdomTree prepares dividend-oriented ETF focused on China.

If you’re able to fog a mirror, you might have heard that the iPhone 5 is on sale this weekend. Here’s a look at the reasons folks will stand in line to buy it.

This Week

The housing market continues to improve, as measured by the NAHB Housing Market Index, a measure of homebuilder sentiment. That chart, on display below, shows that the index tends to be leading of housing starts.

Existing Home Sales rose by 7.8% in August, up from a 2.3% advance in July and better than an expected 2% increase. Both Housing Starts and Building Permits were slightly worse than expected, but don’t tell that to the S&P Homebuilders index, which is up by 22% over the last month, as shown below.

Rounding out the week, Initial Jobless Claims were flat at 382,000; The Philadelphia Federal Reserve index (aka Philly Fed) was negative for the fifth month in a row, and the Leading Economic Indicators fell by (-)0.10% this month, leaving the  which produces the distinct impression, evident in the chart below, of the index beginning to roll over.

Next Week

 Key indicators to watch

  • Chicago Fed National Activity Index
  • Personal Income, Spending, and Saving
  • Durable Goods Orders
  • Q2 Gross Domestic Product (3rd release)
  • University of Michigan Confidence

Regional indicators

  • Dallas Fed Manufacturing Activity Survey
  • Richmond Fed Manufacturing Activity Survey
  • Kansas City Fed Manufacturing Activity Survey
  • Milwaukee Purchasing Managers Index
  • Chicago Purchasing Managers Index

Housing related indicators

  • New Home Sales
  • Pending Home Sales
  • S&P/CaseShiller Home Price Index
Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors

One Response to “Weekly Recap & Outlook – 09.21.12”

  1. Lloyd Ehmcke says:

    I think, with this info in hand, I will go play golf. Ha.

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