Weekly (sorta) Recap & Outlook – 01.24.13

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

Leave a Reply