Tower Private Advisors
- Intriguing mixture of headlines
- Cartoon of the week
- Payrolls report should be disappointing
Capital Markets Recap
There was quite a mélange of stories this week. They can almost tell a cohesive story. (Mélange is such a delightful word to say. It makes my mouth happy just to say it–every part of the mouth working together to produce a spoken delicacy.)
- Apple will begin manufacturing Macs in the U.S.
- Citigroup lays off 11,000; takes [another] $1 billion charge
- France issues 15-year bonds at a record low – the WR&O from 11.23 noted that Moody’s had downgraded the nation.
Oh, and I neglected to include this delicious magazine cover from The Economist.
- Also according to The Economist, the U.K.’s ruling Conservative Party, “seems ready to embrace an EU exit,” which the magazine thinks would be a “reckless gamble.”
- According to the Wharton School, the U.S.’s deficit is much larger than it admits. “Knew that,” you say, “Social Security, Medicare, off balance sheet stuff.” Nope, this is about $7.5 trillion of stuff the government guarantees, from mortgages to student loans.
- Oil production in U.S. rises to 15-year high
- Some House Republicans back higher tax rate for wealthy
- Obama stands by demand for higher tax rates on richest
- White House rejects GOP plan to avert fiscal cliff
- Fiscal cliff negotiations deadlock over tax rates
- Fiscal cliff concerns ease among global investors. WHAT?!
Some are beginning to characterize the fiscal cliff like the cartoon below. We go off the cliff at the end of the year. Cooler heads prevail (i.e. Congress people realize they’ll be up for re-election) and the cliff is fixed. It’s being called the Fiscal Cliff Bungee Jump, but I like my Trampoline characterization better.
- T. Rowe Price joins scramble to launch ultra-short bond funds. (Folks tiring of money market non-yields.)
- Funds warn investors away from high-yield bonds. Both T. Rowe Price and Vanguard offer high-yield bond funds; both warning investors away from them.
- DoubleLine readies bank loan mutual funds. Like high-yield bonds, bank loans are loans to less-than-investment grade borrowers. They tend, however, to be secured and senior, making them a bit safer; their rates also reset, making them somewhat defensive in a rising rate environment. According to some fund companies, they are starting to see a rotation from the high-yield bond funds to bank loan funds.
- Opportunistic Jefferson National introduces products addressing the fiscal cliff. (Added as an investment in one of its variable annuity products.)
- THIS JUST IN. According to the Wall Street Journal, after an SEC Commissioner dropped his objection to the notion, the SEC is more likely to prevail with its proposal to move money market funds from a dollar-for-dollar to a floating share price. This is a BIG DEAL. Stay tuned.
Since this was the first week of the new month (December? already?) the markets turned away from the Fiscal Cliff Armageddon Countdown timer long enough to check out the Nonfarm Payrolls report that came out today. The report can be a bit confusing since it comes from two sources. The headline Change in Nonfarm Payrolls figure comes from the Establishment Survey, while the Unemployment Rate comes from the Household Survey. They are as they sound, surveys of establishments (call businesses) and surveys of households (call homes.) So the headline news was that 146,000 jobs were added. “Better than expected!” Then unemployment rate fell from 7.9% to 7.7%, but 121,000 fewer people were employed. How can that be?
Well, the establishment survey said that 146,000 jobs were added. A different survey is used to calculate the unemployment rate. The household survey showed that 121,000 fewerpeople were employed–sounds like unemployment went up. But, no, the number of unemployed went down, too. Huh? The unemployment rate compares the number of unemployed to the total Labor Force, and the labor force is made up of those working and those willing to work. That number went down by 350,000 in November; i.e. 350,000 people gave up and, thus, removed themselves from the labor force. So here’s all of the math.
Employed, Unemployed, and Labor Force
It looks like the unemployment rate fell by 0.2%, right? Not so fast. I faked out Excel by inserting that figure myself. Left unrounded, the number is less rosy, yet. If the change is unrounded, it comes out as a change of 0.13%. So, technically, the unemployment rate fell from 7.88% to 7.75%, or a drop of 0.13%.
I think that’s enough detailed Economics for one week.
Key indicators to watch
- NFIB Small Business Optimism
- Job Openings Labor Turnover Survey (JOLTS)
- Federal Open Markets Committee Rate Decision
- Producer Price Index
- Consumer Price Index
- Initial Jobless Claims
- Industrial Production
- Capacity Utilization
Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors