Tag Archives: US economy

Our Two Cents – Week of 2/27/12

As Hollywood celebrated the Academy Awards Feb. 26, the world watched “The Artist” snag five trophies and Meryl Streep receive her third Oscar win. On the financial stage, eyes cast on the German parliament, Greek finances and U.S. economy confidence.

After agreeing on a new rescue package for Greece Feb. 20, the eurozone stepped back into the spotlight as German Chancellor Angela Merkel won a parliamentary about Greek aid from the Bundestag—the lower house of the German parliament. The vote favored the 130 billion-euro package to help Greece. She cautioned her fellow lawmakers that pushing Greece out of the euro would result in failures for the European Union and global economy.

Merkel also spoke about the European Stability Mechanism, saying Germany was willing to expedite payments to the ESM—the eurozone’s primary bailout fund—if other European members followed. She said Germany was willing to pay 11 billion euro to the ESM to accelerate funding. Regardless of adding new money to the fund, some German lawmakers believed that a third Greek rescue package could arise because they felt that even new funds would not right Greece’s finances. Aside from discussions about Greece, Germany saw positive news in its IFO (the country’s No. 1 think tank), predicting an increased business climate. The nation’s rating jumped to 109.6 points, better than the expected 108.7. A higher IFO showed dwindling signs of a German recession.

In the U.S., economists continue to see financial optimism. As many Americans ushered in the weekend, the Standard & Poor’s 500-share index finished Feb. 24 at its highest point since 2008. The S&P closed at about 1,365 points—the highest mark since June 2008 before the worst of the financial crisis. The good news continued with signs of a growing economy. The National Association for Business Economics said the U.S. economy will rise 2.4 percent in 2012. The NABE February survey also showed expectations of an average unemployment rate of 8.3 percent, with the economy adding about 170,000 jobs a month in 2012.

For hedge funds in 2012, investors forecast $250 billion in new assets, with net inflows of as much as $140 million and the rest coming from investment returns. According to the Morningstar MSCI Composite Hedge Fund Index, hedge fund performance in January jumped 1.9 percent—the largest monthly gain since December 2010.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

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The US economy is on the mend and a self-sustaining expansion appears set to take hold.  At least, that’s the verdict of most Wall Street economists, following the latest slew of economic data, which showed that non-farm payrolls increased by 243,000 last month – the largest number of net additions since last spring and, that the unemployment rate dropped to 8.3 per cent – the lowest reading since February 2009.

Further, the newfound cheer in the labour market has been accompanied by the return of American households’ vociferous appetite for new borrowing.  Indeed, consumer credit advanced at an annual rate of more than nine per cent in December – on top of the eye-popping near-ten per cent jump the previous month – to bring the annual rate of growth in the fourth quarter to 7 ½ per cent, the most rapid rate of increase in more than a decade.

The headline numbers would appear to suggest that the previously beleaguered consumer, the primary engine of economic growth, is back in the driving seat and set to propel the economy forward.  However, first appearances can be deceptive and a more considered analysis of the data reveals that the grounds for optimism may not be as robust as the bullish commentators seem to believe.

The notion that the labour market is in recovery is not in dispute but, the headline numbers almost certainly flatter to deceive.  The unemployment rate has dropped almost two percentage points from its cycle peak of more than ten per cent during the autumn of 2009 but, the improvement is exaggerated by trends in the labour force, where numbers have declined by 2.4 million since the end of the recession more than 30 months ago, and stagnated since the summer of 2007.

Numbers in the labour force have failed to keep pace with the natural growth in the working-age population, which amounts to roughly 125,000 every month, and as a result, the participation rate has dropped to the lowest level since the summer of 1983.

The underlying increase in the working-age population since the economic recovery began two-and-a-half years ago, suggests that the labour force should be near 160 million – more than six million above the documented number – in which case the unemployment rate would be close to 11 ½ per cent and, that sobering statistic is before consideration of the countless Americans that are currently reported as underemployed.

Back-of-the-envelope calculations reveal that the labour market remains oversupplied, but the harsh reality is disguised by the fact that potential workers have been leaving the labour force in their droves due to the general absence of employment opportunities.  Individuals of working-age are not included in the labour force if they retire, return to full-time education and are unavailable for work, simply give up looking for gainful employment, or are institutionalised.

Working-age individuals who have simply given up looking for work capture the largest share of those who have left the labour force by far, but those who have returned to school are a significant component and help to shed some light on the recent trends in consumer credit.

Note that non-revolving credit outstanding jumped $22 billion over the past two months and federal government loans, which include student loans, accounted for almost 70 per cent of the increase.  Further, outstanding federal government loans have surged 2.4 times over the past two years to more than $425 billion, as the demand for student loans leapt exponentially.

Federal and private student-loan debt combined is rapidly approaching $1 trillion and exceeded credit-card debt for the first time in 2010.  The trend is disturbing because the debt burden for individual borrowers is far higher given that there are considerably fewer people with student loans than there are credit card holders.

Student-loan debt has increased for every age group over the past three years according to CreditKarma, the credit score tracking site, but the pace of growth among those aged between 35 and 49 has been staggering at almost 15 per cent a year.  Further, loans to parents for the college education of their children have soared by 75 per cent over the past five years and, the estimated payback figure has jumped to an estimated $50,000 for parents over a standard ten-year period.

Needless to say, signs of stress are beginning to emerge.  Indeed, a survey by the National Association of Consumer Bankruptcy Attorneys (NACA) reveals that more than 80 per cent of bankruptcy attorneys say that the number of their potential clients with student-loan debt has increased ‘significantly’ or ‘somewhat’ over the past three to four years.

The trend is disturbing as almost all of the attorneys surveyed believe that extremely few borrowers will be discharged from their loan obligations as a result of undue hardship.  Indeed, NACA reports that, “For those with federal student loans, the government has collection powers far beyond those of most creditors. The government can garnish a borrower’s wages without a judgment, seize a tax refund … and deny eligibility for new education grants or loans.”

NACA notes that, “There is no discharge in bankruptcy for federal loans except in extremely limited circumstances,” and that, “Unlike any other type of debt, there is no statute of limitations. The government can pursue borrowers to the grave.”

Recent economic data has seen the enthusiastic bulls hail the arrival of a self-sustaining recovery.  Not for the first time, the analysis is decidedly myopic and a closer examination of the facts reveals that the conclusions are premature.

 

Previously posted on www.charliefell.com

 

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 2/21/12

While many Americans enjoyed a restful holiday weekend, financial officials in Greece busily discussed and ultimately approved the nation’s new rescue plan.

Eurozone finance leaders agreed to the $172.1 billion rescue deal for Greece—a plan that would have the country’s private creditors take larger losses than previously agreed. The package could help Greece reduce its government debt from about 160 percent to about 120 percent by 2020. Greek Prime Minister Lucas Papademos called the agreement “historic,” giving his country a new economic lifeline.

Here in the U.S., economic confidence resounded. According to a new Pew Research Center poll, almost half of all Americans expect the economy to be better by 2013. Also, according to a new CBS News/New York Times poll, as many as 34 percent of Americans say the economy is getting better—up from 28 percent who thought so a month ago. One of the factors for an improved economy is jobs. Jobless claims fell to a new low, now at 348,000, and retail sales grew by 0.4 percent. In the institutional arena, hedge funds, commodity trading advisors and private equity funds are expected to increase allocations in 2012, according to an AlphaMetrix survey.

While we were reading the world’s biggest financial headlines, Currensee itself received some ink. FINalternatives profiled the Trade Leaders Investment Program, speaking with our CEO Dave Lemont. The publication said Currensee is aiming to “revolutionize money-under-management CTA world.”

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Our Two Cents – Week of 1/23/12

There’s nothing better than kicking off the week on some high notes—especially coming off last night’s victory from the New England Patriots, sending them to the Super Bowl.

In the U.S., optimism remained the key theme last week. Jobless claims dropped 50,000 to 325,000—down from 402,000 last week—marking the lowest level since April 2008 and the biggest drop since September 2005. Experts said the sharp decrease illustrated signs of an upward-ticking economy. According to new survey results, 40 percent of wealthy Americans have optimistic thoughts about the U.S. economy in 2012, the highest level of optimism in six months. The findings came from the December 2011 Ipsos Mendelsohn Affluent Barometer, which examines lifestyles, spending patterns and media habits of wealthy Americans (those whose household income is $100,000 or more). While wealthy Americans signaled their optimism for 2012, the hedge fund industry also displayed early signs of a good year. In terms of inflows, more than half of investors planned to boost their hedge fund investments this year, according to a Barclays survey. In the Forex world, U.S. client profitability has increased on average 6.4 percent in Q4 of 2011.

Signs of economic confidence even transcended the Atlantic to Europe. Spain enjoyed a successful auction of benchmark 10-year bonds that investors gobbled up. In Italy, Prime Minister Mario Monti said Germany—in its own self-interest—must assist Italy and other embattled euro zone nations to help lower borrowing costs. Monti heralded Germany’s

“culture of stability” as “a precious German product [that] has been marvelously exported.” In Greece, officials and private creditors continued to devise solutions for its debt, nearing agreements to write down 50 percent of the face value of the country’s debt by exchanging existing bonds for newer ones with longer maturities and lower interest rates. Officials are expected to meet Jan. 23 to further discuss and resolve Greece’s debt.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

­­Our Two Cents – Week of 1/9/12

With the first week of 2012 crossed off the calendar and the Iowa caucus in the past, the one word to describe the start of January—especially in the United States and European financial markets—is optimism.

The U.S. economy added 200,000 jobs, and its unemployment rate fell to 8.5 percent in December (from 8.7 percent in November). These figures paint an initially positive scene that the long-awaited economic recovery is finally making some positive strides. This good news comes on the heels of news earlier in the week about weekly jobless claims which have dropped to 372,000. Even though the holidays have passed, retailers and the economy also unwrapped a nice financial present. According to the International Council of Shopping Centers’ tally of 25 retailers, sellers collectively reported a 3.5-percent increase in monthly revenue at stores open at least a year. For November and December, retailers saw holiday sales increase 3.3 percent. While consumers were purchasing, hedge funds were gaining. In November, hedge funds raked in $3.6 billion in new money, according to BarclayHedge and TrimTabs Investment Research. Also, investors are confident about the 2012 hedge fund outlook, especially after they experienced a rough 2011.

In Europe, the markets rallied early last week, showing early signs of optimism after the previous year that saw economic chaos. To start 2012, Germany successfully auctioned its bond issuance by selling its 10-year benchmark bund. The nation sold $5.28 billion of the 2-percent January 2022 bund, its current 10-year benchmark paper, with bids reaching $6.52 billion. Successful bonds also found their way to the United Kingdom. British bond experts say U.K. government bonds—seeing record lows at the end of 2011—will remain as safe-haven assets, especially because the euro zone crisis hasn’t been solved. Experts say investors will continue to turn to U.K. government bonds because the country is able to control its currency and enact a monetary policy stimulus if needed.

 

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

­­Our Two Cents – Week of 1/3/12

The crystal ball atop New York City’s Times Square has dropped, champagne glasses have clinked and confetti has strewn—all signs welcoming 2012. As we said goodbye to a year that saw economic commotion, we greeted the new year with a refined sense of optimism for the U.S. and equal thoughts of hope for abroad.

Americans are more confident about 2012 after what they say was a less-than stellar 2011, according to an Associated Press poll. Nearly 70 percent of Americans said 2011 was a poor year because of continuing economic crisis, and 62 percent said they were hopeful for a more positive 2012. About 37 respondents said they saw economic improvements coming within the next 12 months, and almost 40 percent believed their personal financial situations will improve. Signs that the U.S. economy is starting to accelerate are already coming to fruition. Experts say an improving job market and increasing retail sales—especially in the past holiday season—are reasons for why growth in the U.S. economy may hasten even if conditions abroad aren’t replicated. Holiday sales during the week ending Dec. 24 ascended nearly 15 percent from the same period in 2010 to $44 billion, thanks to Christmas Eve falling on a Saturday.

While the U.S. conditions are rebounding, Europe’s markets are starting 2012 on the right foot. Italy’s FTSE MIB index is up nearly 1 percent, and Germany DAX is also up more than 1 percent. Yields in Italy are down to below 6.9 percent.

In the last few days of 2011, Italy’s Treasury paid significantly less to borrow money for six months than it did a month ago, restoring some senses of economic confidence. Even though Spain has slipped into recession, the country’s inflation has eased much more than expected in December to its lowest level in 13 months. Inflation rates also relaxed in Germany for the third straight month.

Speaking of Germany, it received the highest mark on the Bank of Montreal’s economic report card of the world’s most important economies in 2011. The nation earned a score of 89.2 because of its 2.5-percent inflation rate, 7.1-percent jobless rate and 1.2-percent budget deficit. Greece closed the list at No. 12 because of its 3.2-percent inflation rate, 16.6-percent jobless rate and 5.9-percent budget deficit. The U.S. earned the No. 6 spot for its 3.2-percent inflation, 9-percent jobless rate and 10-percent budget deficit. The bank based ratings on low inflation, low unemployment and low budget deficits.

The year 2012 also observes the 10th anniversary of the euro. While some individuals blamed the euro for causing Europe’s economic meltdown, the monetary unit could become the world’s leading single-currency alliance if leaders can succeed in tightening fiscal integration, according to one official from the European Central Bank. ECB policymaker Christian Noyer said if European officials can implement the actions from the Dec. 9, 2011, emergency summit, the union will emerge stronger.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

While turkey and gravy were on our minds last week, we didn’t forget about helpings of headlines that included holiday shopping, European finances and the NBA lockout. Here’s our feast of news for the week.

Black Friday’s numbers were certainly in the black. The day-after-Thanksgiving shopping extravaganza, which kicks off the holiday season, bagged a record 226 million shoppers who visited stores and websites this past weekend. According to the National Retail Federation, the number of shoppers increased from 212 million last year, and the average holiday shopper spent nearly $399, up 9.1 percent from about $365 last year. Total spending for the weekend generated an estimated $52.4 billion. That’s some good news for the U.S. economy as Americans are still spending in an economy that’s struggling to produce jobs. Across the Atlantic, the European economic crisis is still escalating. President Barack Obama is meeting with top European Union leaders to discuss how the U.S. can aid and help prevent global economic backlashes. According to Moody’s Investor Service, “all of Europe’s sovereign ratings are being threatened by the ‘rapid escalation’ of the crisis,” and the Organization for Economic Cooperation and Development is warning that the region could face further economic despairs. As the crisis engulfs other European nations, Germany refuses to bailout her other nations because it has been the go-to sibling for financial assistance. South of Germany, Italy’s newly installed Prime Minister Mario Monti is busy at work reviewing the country’s finances as he tries to steer Italy to positive financial waters by preparing new budget measures. In the hedge fund world, the GlobeOp Forward Redemption Indicator for November measured 3.44 percent, up from 2.51 percent in October. Experts forecast redemption requests will increase as year-end approaches. Rounding out this week’s news is the NBA lockout. Some lawyers representing the players and owners have charged more $1,000 per hour for services. Of course, fans, local restaurants and vendors have also faced the brunt of revenue losses from the lockout, but good news is that basketball—and hopefully some in-the-black revenues—is expected to tip off Christmas Day.

 

 

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Let's face it. Assessing the meaning and impact of fundamental information on the financial markets can be a challenge. Equities, commodities, interest rates, and exchange rates can one day react very positively to good economic data and the next day go in the opposite direction on a similar report. This is one of the things that drives a lot of new investors and traders crazy, as they don't understand (yet) that the market is a discounting mechanism which generally prices expected outcomes in advance. Even experienced market observers struggle with it, though, because there are so many influencing factors driving prices. If you really want to know whether the market believes a US data release or news item is of meaningful fundamental impact, though, look to the Mexican Peso.

You may be wondering what in the world I'm talking about here, but stick with me.

The US is Mexico's biggest trading partner – by a long shot. When the US economy is doing well, demand for Mexican goods and services by its northern neighbor go up, and vice versa. What does that mean for the Mexican peso? It means higher demand for the currency when times are good, and lower demand during the tough times. This is anticipated in the USD/MXN rate when US data and other developments hit the market. We need look no further than the chart of recent exchange rate movements to see this.

Notice how USD/MXN fell from late 2009 into the April/May 2010 period. You may recall that was a period of increased positivity in the markets when we were seeing better US economic data, the impact of the Fed's first round of QE was being felt, and stock markets were performing very well. This is at a time when the dollar, in general, was rising quite steadily, as the chart of the USD Index below indicates.

As we headed into the summer months, though, the data became less good. The dollar turned sharply lower and USD/MXN went rapidly higher. The fact that USD/MXN held to a range during most of the period that followed until November, even as the dollar was being sold aggressively, tells us how weak the peso was. This is when things were becoming clear that the weakness was going to lead to the Fed coming back in for another round of QE.

After the low was put in at the start of November, the dollar rallied sharply in the early phases of QE. The US data was still on the weak side initially, but notice how the peso got stronger once again in December when we started getting better data, like the surprisingly strong payrolls report.

So we can see the tracking USD/MXN can be very helpful in understanding how the market views the fundamental outlook of the US.

Of course you can take things a step further. A fundamentally-oriented trader/investor could apply their expectations of what's happening in the US economy to Mexican stocks or debt securities. Companies who are exporters to the US would be expected to do better as the US economy was stronger. Their equity values would rise, and the value of their debt would probably increase too because of improved credit quality (though the overall Mexican rate environment would have to be considered). Imagine a trade or investment where you have a rising portfolio of Mexican stocks and/or bonds at the same time as the peso is increasing in value. Not a bad 1-2 punch, I'd say.

These sorts of relationships exist in many places. They are worth being aware of and tracking.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

How about that US jobs report that came out last Friday! How would you describe it – strong, fair, weak or poor? Expectations were set high for this report as it appeared that job creation had finally turned the corner in the US. The prior two months saw 200k jobs being created each month and now that census hiring was in full swing, most were expecting a figure between +550k to +650k. Commentator after commentator on the financial channels were revising their expectations upward as a little euphoria started to build.

Even the President got in the act as he touched on the jobs report this past Wednesday at Carnegie Mellon. President Obama stated, “After losing an average of 750,000 jobs a month during the winter of last year, we’ve now added jobs for five of the last six months, and we expect to see strong job growth in Friday’s report.” So he used “strong”. Traders paid attention. After his speech the markets started to rally on Wednesday, with commodities surging on expectations of consumer demand reigniting. Stocks had their best day, it seems, in eons. We were going to have a strong jobs report on Friday. At least +500k and if the president said “strong” then get ready for a good report, likely in the neighborhood of +750k, if not larger. Can you dream of creating one million jobs in a single month! The president said it would be “strong” so it has to be good.

Of course the BLS released the figure on Friday morning and it could not have been more disappointing. Job creation of 431k with 411 of those being Census-related. What? The US created 20k non-Census jobs in the month of May during a supposed economic rebound! To make matters worse there seems to be quite a bit of double-counting the Census figures. After all, if you were hired to work for the Census for a week, let go and then rehired, the tally is +2, not +1. To quote the NY Times on Saturday morning “Jobs Data Casts Pall Over Economic Recovery.” For those of you who are less familiar with US politics, the readers of the NY Times tend to vote on the same side that Obama does, but not even the NY Times could polish this ‘not so strong’ report.

Sell, sell, sell. Currency traders can easily adapt to changing situations as the market is seemingly always open and ready for trade. It looks as if they have as well since the trade tally count at Currensee.com has gone from 1m to nearly 1.2m in a very short period of time. Equity investors, not so much. If you bought an equity ETF after the President spoke on Wednesday and sold on Friday, ouch.

Looking ahead though traders do love volatility and this difference of opinion will just continue to create more volatility. This is golden for traders and bad news for investors. By the way, if you think that this was a one-off, have a look at the difference of opinion between ECB President Trichet and US Treasury Secretary Geither from the G-20. Geither was pushing for increased consumption from other industrialized countries. Led by Trichet, the other 19 countries said no and must have told Mr. Geithner that you need to create jobs for consumption; jobs is what is needed to drive an economy.

This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.