{"id":758,"date":"2012-04-02T10:19:05","date_gmt":"2012-04-02T16:19:05","guid":{"rendered":"http:\/\/www.sunlakesofarizona.com\/blog\/?p=758"},"modified":"2012-04-02T10:19:05","modified_gmt":"2012-04-02T16:19:05","slug":"economic-notes-for-the-week-of-april-2nd","status":"publish","type":"post","link":"https:\/\/dev.sunlakesofarizona.com\/blog\/2012\/04\/economic-notes-for-the-week-of-april-2nd\/","title":{"rendered":"Economic Notes for the Week of April 2nd"},"content":{"rendered":"

The final estimate for the Q4 2011 real GDP<\/strong> was released last week, and stood unchanged at +3.0%.\u00a0 Personal consumption was flat, goods spending was revised upward a bit, and services consumption was revised down slightly\u2014nothing too significant overall.\u00a0 More importantly, gross domestic income was revised up to +5.2%, which is the same level realized in Q3.\u00a0 Looking at the GDI\u2019s rate of growth can be somewhat helpful from the standpoint of the economy\u2019s momentum.\u00a0 While it\u2019s interesting and informative to see the economy\u2019s path of growth in the last several quarters, this is now old news and doesn\u2019t matter much anymore\u2014three months into the next quarter.\u00a0 It is really just a reflection on how right or wrong the initial estimates were and how adjustments might be made that could affect the current quarter\u2019s growth pace.\u00a0 Preliminary estimates place 2012 Q1 real GDP at anywhere from +2.0% to +3.0%, although predictions differ for the year as a whole.\u00a0 Several firms just raised their 2012 projections for the U.S. and world by a quarter percent or so.<\/p>\n

Pending home sales<\/strong> were weaker for February by -0.5%, quite a bit lower than the consensus expected rise of +1.0%.\u00a0 This index has been unchanged roughly since last November, but is up +13.9% year-over year.\u00a0 The important facet of \u2018pending\u2019 sales is the fact that it leads existing home sales by a month or two as signed contracts become final.\u00a0 By region, the South and West were down by several percentage points while the Midwest was over 6% higher…again, this points to a very uneven and choppy housing market environment nationwide.\u00a0 MBA mortgage applications<\/strong> were down -2.7%, which was a small deceleration from February\u2019s -7.4% decline.\u00a0 There\u2019s still very little activity here\u2014partially due to lack of housing sales, as well as an environment of tightened credit restrictions by lenders for both new buyers and those conducting refinancings.\u00a0 Speaking of mortgages, Treasury Secretary Geithner suggested to the Senate Appropriations Committee last week that Fannie Mae and Freddie Mac should reduce principal on some home mortgages.\u00a0 Talk about a political hot button.\u00a0 And we\u2019ll leave it at that.<\/p>\n

The Case-Shiller housing price index<\/strong> was flat for January (it shows up late relative to other metrics).\u00a0 Forecasters were expecting a slight decline nationwide, but, again, the index was mixed from region to region, which adds to the difficulty in estimating the housing picture.\u00a0 Additionally, some downward revisions to earlier months made this worse than it looked.\u00a0 Regionally, half of the cities in the survey were up (Phoenix, Washington DC and Miami), while the other half lost ground (led by Atlanta, Cleveland and San Francisco).\u00a0 This is nothing compared to several vacation areas (some in the West come to mind) that effectively doubled in value during the 2000\u2019s, only to drop by half again during the past several years.\u00a0 Now that is volatility\u2014especially for those who thought real assets were always a better investment than \u2018paper\u2019 assets.<\/p>\n

Consumer confidence<\/strong> was in line with consensus, experiencing a 70.2 reading (which represented a decline from February\u2019s adjusted number).\u00a0 This was a decline from February\u2019s upwardly revised figure and underlying components were a bit weaker, such as \u2018future\u00a0 expectations.\u2019<\/p>\n

Durable goods<\/strong> orders were up +2.2%, which was a bit of a rebound from January\u2019s weaker figure.\u00a0 This reading was still below the consensus forecast of +3.0%, but most underlying components were on par with expectations.\u00a0 Core capital goods (non-defense, non-aircraft) were up and the January decline was revised upward, which affected things the most, and core shipments were higher.\u00a0 Although this was a slight disappointment, the general upward trend has continued.\u00a0 Expect these production and similar figures to be closely scrutinized in coming months as data comparisons get tougher.\u00a0 The Chicago Purchasing Managers\u2019 Index <\/strong>declined slightly more than expected, from 64.0 to 62.2\u2014mostly due to lower levels of new orders.\u00a0 However, the production side rose about a point.\u00a0 These regional reports are still a little choppy, but continue a slow improving trend when multi-month moving averages are looked at.<\/p>\n

Personal income<\/strong> for February was a little weaker than expected, at +0.2% versus a consensus expectation of +0.4%.\u00a0 At the same time, consumer spending<\/strong> was up +0.8%, which was a bit more than anticipated.\u00a0 Services spending moved from flat growth upward last month, while real goods spending continued the upward trend of the past several months.<\/p>\n

Consumer sentiment<\/strong>, as measured by the University of Michigan, improved from 75.3 in February to 76.2 in March.\u00a0 Both current conditions and expectations were up.\u00a0 The expected inflation component for 5 and 10 years out was the same as last month at 3.0%.<\/p>\n

Initial jobless claims<\/strong> declined by 5,000 down to 359,000 for the March 24 week, slightly higher than the expected 350,000 figure.\u00a0 Continuing claims came in at 3,340,000, which was slightly less than expected.<\/p>\n

Market Notes <\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
\n

Period ending 3\/30\/2012<\/strong><\/td>\n

\n

1 Week (%)<\/strong><\/p>\n<\/td>\n

\n

YTD (%)<\/strong><\/p>\n<\/td>\n<\/tr>\n

DJIA<\/td>\n\n

1.02<\/p>\n<\/td>\n

\n

8.84<\/p>\n<\/td>\n<\/tr>\n

S&P 500<\/td>\n\n

0.85<\/p>\n<\/td>\n

\n

12.59<\/p>\n<\/td>\n<\/tr>\n

Russell 2000<\/td>\n\n

0.08<\/p>\n<\/td>\n

\n

12.44<\/p>\n<\/td>\n<\/tr>\n

MSCI-EAFE<\/td>\n\n

0.04<\/p>\n<\/td>\n

\n

10.86<\/p>\n<\/td>\n<\/tr>\n

MSCI-EM<\/td>\n\n

-0.05<\/p>\n<\/td>\n

\n

13.65<\/p>\n<\/td>\n<\/tr>\n

BarCap U.S. Aggregate<\/td>\n\n

0.12<\/p>\n<\/td>\n

\n

0.30<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n\n\n\n
U.S. Treasury Yields<\/strong><\/td>\n\n

3 Mo.<\/strong><\/p>\n<\/td>\n

\n

2 Yr.<\/strong><\/p>\n<\/td>\n

\n

5 Yr.<\/strong><\/p>\n<\/td>\n

\n

10 Yr.<\/strong><\/p>\n<\/td>\n

\n

30 Yr.<\/strong><\/p>\n<\/td>\n<\/tr>\n

12\/31\/2011<\/td>\n\n

0.02<\/p>\n<\/td>\n

\n

0.25<\/p>\n<\/td>\n

\n

0.83<\/p>\n<\/td>\n

\n

1.89<\/p>\n<\/td>\n

\n

2.89<\/p>\n<\/td>\n<\/tr>\n

3\/23\/2012<\/td>\n\n

0.08<\/p>\n<\/td>\n

\n

0.37<\/p>\n<\/td>\n

\n

1.10<\/p>\n<\/td>\n

\n

2.25<\/p>\n<\/td>\n

\n

3.31<\/p>\n<\/td>\n<\/tr>\n

3\/30\/2012<\/td>\n\n

0.07<\/p>\n<\/td>\n

\n

0.33<\/p>\n<\/td>\n

\n

1.04<\/p>\n<\/td>\n

\n

2.23<\/p>\n<\/td>\n

\n

3.35<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

REITs led among the asset classes last week, followed by broader U.S. equities.\u00a0 Defensive sectors of health care and utilities posted the best performance, while telecom and energy brought up the rear with negative numbers.\u00a0 Foreign equities were largely flat on average, despite word that Germany is allowing an increase to the European debt crisis bailout fund (presumably to combat concerns about Spain).<\/p>\n

The markets have experienced a few choppier weeks lately, just as we became so used to it going straight up.\u00a0 Ben Bernanke\u2019s comments on Monday about the labor market reinforced hopes for more quantitative easing if economic growth is not self-sustaining enough on its own.\u00a0 On one hand, from a shorter-term standpoint, markets love the idea of additional stimulus; however, it is puzzling that the prospect of the economy having the strength to stand on its own two feet is not better-received news than it is.\u00a0 The lack of need for additional QE should<\/em> be a positive development.<\/p>\n

For the quarter, stocks have undoubtedly bounced back strongly and the one-year trailing return has become almost<\/em> normal at +8.5%.\u00a0 The question on a lot of minds is \u2018what\u2019s next?\u2019\u00a0 Stocks continue to look attractive for a variety of reasons:\u00a0 100 companies in the S&P 500 have raised their dividends this year (only three cut them), and dividend growth rates have moved into the double-digits.\u00a0 Forward P\/E\u2019s stand at about 13.3 (several points below its long-term average) and we\u2019re still over 10% below the all-time closing high back in 2007.\u00a0 Pessimism (measured by cash flows into\/out of different asset classes) is still high, so it appears we may still have room to go before stocks become popular again.\u00a0 As has happened before in asset classes we follow, mainstream popularity could very well be the catalyst for a second phase of price movement.\u00a0 Looking at this from an opposite angle, other competing asset classes (such as bonds), have experienced huge amounts of cash inflows during the past few years and may be losing their luster.<\/p>\n

Speaking of bonds… last week, foreign and U.S. corporate debt outpaced U.S. government issues.\u00a0 Bonds have held pace this year, although returns have been nothing to write home about as government long-bond yields have risen 0.25-0.50% during the first quarter.\u00a0 \u2018Spread sectors\u2019 such as corporate credit and emerging market issues continue to look much more attractive than treasuries, especially as the economy improves.<\/p>\n

Commodities were much weaker last week as West Texas crude oil prices corrected mid-week back towards $102 a barrel.\u00a0 Despite the stronger demand conditions and geopolitical turmoil in the Middle East, prices may have got ahead of themselves a bit.\u00a0 Other contracts were up, such as cotton, coffee and copper.<\/p>\n

In the Extended portfolios, we benchmark ourselves against the S&P GSCI, which is one of the older and more established commodity indexes, constructed using weightings based on world commodity trade volumes.\u00a0 Of course, this is dominated by energy (crude oil, mostly).\u00a0 For the majority of our portfolios, we utilize commodity vehicles that track another index, the Dow Jones-UBS (formerly Dow Jones-AIG, back when that firm was acceptable), which \u2018caps\u2019 certain commodity sector weights at the maximum of 1\/3 of the total.\u00a0 This was done to compel that certain diversification was built into the system.\u00a0 While we\u2019ve lagged the GSCI a bit due to oil\u2019s strong run-up, we are better protected from single-commodity volatility.\u00a0 A trade-off, but not a bad one.<\/p>\n

We haven\u2019t heard much about gold in a while.\u00a0 Despite an increase in the price of about 7% this year so far (based on the ETF), some of the excitement seems to have waned.\u00a0 It has been under a bit of pressure as of late, in a direct negative correlative relationship to the lower likelihood of central banks creating more monetary stimulus as well as general improvement in global economies overall.<\/p>\n

It is important to look behind the scenes as to why gold has performed well during the last few years, as well as why it has lagged recently.\u00a0 The story behind gold is a simple one, which is why it appeals to many investors seeking a simple answer to a more complex set of problems.\u00a0 Historically, gold has been seen as a potential \u2018store of value\u2019 (much like a currency in its own right) during periods of deflation or inflation\u2014mostly the latter.\u00a0 Also, it has provided the perception of stability during more chaotic geopolitical and economic world events, much like U.S. Treasury bonds and bills have.\u00a0 These investments all worked well in 2011.<\/p>\n

One problem with valuing gold is that is has no inherent cash flows or other income to determine what investors can use to \u2018discount\u2019 its price relative to other assets.\u00a0 We only have the \u2018hope\u2019 that someone else, someday, will find it to be worth more than it currently is, or that it may hold its value a bit better than some other vehicles if conditions become volatile.\u00a0 However, that is relative, since the price of gold itself can be extremely volatile year-to-year\u2014like many other commodities\u2014so the reputation for stability is also misplaced by many.<\/p>\n

Today, relative to the stock market, gold is as expensive as it\u2019s been any time in the last 50 years\u2014including the late 1970\u2019s when runaway inflation was the norm.\u00a0 It is expensive in relative terms to the price of bonds, residential housing and average worker pay as well which also is a bit surprising considering that inflation now is lower than decades ago during gold\u2019s last \u2018shining\u2019 period.\u00a0 It is also priced higher relative to other commodities.<\/p>\n

Have a good week.<\/p>\n

Karl Schroeder, RFC, CSA, AACEP<\/p>\n

Investment Advisor Representative
\nSchroeder Financial Services, Inc.
\n480-895-0611<\/p>\n

Sources:\u00a0 FocusPoint Solutions, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Reuters, Schroder\u2019s, Standard & Poor\u2019s, U.S. Federal Reserve, Wells Capital Management, Yahoo!.\u00a0 Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return\/excluding dividends.\u00a0 Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.<\/p>\n

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.\u00a0 All information and opinions expressed are subject to change without notice.\u00a0 Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.\u00a0 Schroeder Financial Services, Inc. is a registered investment advisor.<\/p>\n","protected":false},"excerpt":{"rendered":"

The final estimate for the Q4 2011 real GDP was released last week, and stood unchanged at +3.0%.\u00a0 Personal consumption was flat, goods spending was revised upward a bit, and services consumption was revised down slightly\u2014nothing too significant overall.\u00a0 More importantly, gross domestic income was revised up to +5.2%, which is the same level realizedRead more<\/a><\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-758","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/758","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=758"}],"version-history":[{"count":1,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/758\/revisions"}],"predecessor-version":[{"id":759,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/758\/revisions\/759"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=758"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=758"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=758"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}