A lighter economic week to some extent\u2014at least compared to last week.<\/p>\n
Consumer credit<\/strong> growth slowed in June, to $6.46 billion, which is about half of what was expected by analysts.\u00a0 This can be a tricky measure, though, as slowing credit may mean less spending (due to Americans\u2019 tendency to use credit cards extensively), or may mean income is growing and we don\u2019t need the credit as much).\u00a0 The \u2018non-revolving\u2019 credit (non credit card) piece increased by a large amount, mainly due to government student loans.<\/p>\n Non-farm productivity<\/strong> for Q2 showed a gain of +1.6%, which was a few tenths of a percent better than forecast.\u00a0 Unit labor costs<\/strong> for the quarter also rose +1.7%, which was quite a bit higher than the expected +0.5%\u2014the year-over year trend remains at +0.8%, which is in line with generally low inflation currently.<\/p>\n The international trade deficit<\/strong> narrowed by $5.1 billion to $42.9 billion in June, which is the tightest amount in almost two years and significantly better than forecast.\u00a0 Much of this stemmed from lower energy prices, which explains some of the import side, but appears our exports have picked up some of the slack\u2014this is a positive sign.\u00a0 This figure is also affected by the strength\/weakness in the U.S. dollar versus our key trading partners, like Europe, Japan and increasingly, China.<\/p>\n Wholesale inventory <\/strong>accumulation i<\/strong>n June was about a half-percent weaker than expected at -0.2% and the May figures were revised down.\u00a0 This was largely in line with other data.\u00a0 Import prices<\/strong> fell in July a bit by -0.6% due to lower commodity prices (mostly petroleum), which countered expectations for a small gain.<\/p>\n Initial jobless claims<\/strong> came in at a lower 361k for the Aug. 4 week, which was a bit less than the 370k forecast.\u00a0 Free from seasonal distortions like summertime auto plant shutdowns, this is a positive below-trend development, albeit for only a week.\u00a0 Continuing claims<\/strong> came in at 3,332k for the Jul. 28 week, which was about 53k higher than forecast.<\/p>\n Don\u2019t expect a lot from Europe in August\u2014that\u2019s when the entire continent takes to \u2018holiday.\u2019\u00a0 (We say that tongue-in-cheek, but not completely.)\u00a0 A few thoughts came to mind recently.<\/p>\n While the situation and numbers look terrible (lack of GDP growth and high debt), this story is the same one as the ongoing saga we\u2019ve been facing for, well, now years.\u00a0 It would be more helpful if there were something new to tell clients, at least.<\/p>\n Spain\u2019s problems are a similar to a mix of what\u2019s been experienced by Ireland and Greece, only larger.\u00a0 Like Ireland (and the U.S. to some extent), the real estate overbuilding boom that ended up in a burst bubble left a mess on bank balance sheets and consumer finances.\u00a0 This isn\u2019t unlike other banking crises in the past, where the fundamental building blocks of assets-to-liabilities broke down.\u00a0 As it\u2019s a tangible asset, we can at least put a finger on real estate and get a general idea of where we stand.<\/p>\n Like Greece, however, the excesses in parts of Southern Europe were perhaps accentuated in an environment of less industrious behavior (compared to parts of Northern Europe).\u00a0 This has been a cultural tendency of peripheral countries for decades (if not longer), while the Northern economies like Germany have been the workhorses of the EU.\u00a0 Not to simplify things too much in a complicated situation, but the lesser-known story of this that there are segments of these countries (Milan and Turin in Italy, for example) that are extremely productive, manufacturing-oriented and perhaps compare better to Berlin than to Rome.\u00a0 There are productive urban elements within those periphery states that have been taking up the slack and essentially bailing out the rest of the nation(s) for a very long time.<\/p>\n The frustrating part about this whole mess is the political angle.\u00a0 Despite their grumblings, Germany has as much to lose as anyone in this process.\u00a0 Since, unlike corporations, sovereign states can\u2019t drop off the face of the earth, they have to be handled somehow\u2014either bailed out or restructured on some other way.\u00a0 If the Euro breaks apart, or even breaks into two currencies (say, North and South, example), Germany could be hurt due to the likely immediate and dramatic appreciation of that Northern currency\u2014which makes their important export sector less competitive.<\/p>\n At the same time, many politicians don\u2019t have the incentive to ramp up action until the 11th hour (we\u2019ve obviously seen that tendency in the U.S. as well).\u00a0 Citizens of nations like Germany don\u2019t want to give out any freebies to their seemingly \u2018work-challenged\u2019 Southern neighbors, and want assurances of deficit and debt reduction as a condition of any bailout.\u00a0 Of course, debt reduction can only meaningfully occur if there\u2019s growth, so it\u2019s a catch-22.\u00a0 Germany would rather act on even greater strength (and deeper peripheral economy desperation), than the other way around.\u00a0 So, that\u2019s why we seem to be left waiting.<\/p>\n On a more general level, though, banking and fiscal crises are only solved through (1) default or (2) deeper consolidation, time and\/or more money.\u00a0 Default remains an ever-present option and bargaining chip, but no one at the table would prefer this, so they seem willing (although not to the level markets would like to see) to do what it takes to avoid it.\u00a0 Debt problems can also be solved with time and\/or additional cash.\u00a0 What might also be critical is the creation of a deeper union between countries on a fiscal level, rather than just monetary.\u00a0 The average post-major financial crisis period of deleveraging takes 5-10 years (although it can take a generation, in more extreme cases), according to economists that have delved into researching these episodes over the last several centuries, and we\u2019re still well within that timeframe.\u00a0 The risk, of course, is a lack of patience and, if money is printed to help cover the gap, we might have excessive monetary stimulus in the system, which might have some inflationary side effects down the road.\u00a0 We could face that in the U.S., too.<\/p>\n Conclusion:\u00a0 despite news changing by the week, nothing has changed from the ongoing story.\u00a0 This is a multi-year \u2018condition\u2019 more than it is a month-to-month \u2018crisis.\u2019\u00a0 The one positive is that the current probabilities of the outcomes at hand may be currently priced in.\u00a0 Valuations have cheapened a great deal and this means that opportunities might surface selectively.\u00a0 We shouldn\u2019t write off the continent just yet.<\/p>\n Market Notes <\/em><\/strong><\/p>\n Period ending 8\/10\/2012<\/strong><\/td>\n 1 Week (%)<\/strong><\/p>\n<\/td>\n YTD (%)<\/strong><\/p>\n<\/td>\n<\/tr>\n 0.96<\/p>\n<\/td>\n 9.86<\/p>\n<\/td>\n<\/tr>\n 1.15<\/p>\n<\/td>\n 13.28<\/p>\n<\/td>\n<\/tr>\n 1.68<\/p>\n<\/td>\n 9.06<\/p>\n<\/td>\n<\/tr>\n 1.94<\/p>\n<\/td>\n 6.84<\/p>\n<\/td>\n<\/tr>\n 2.78<\/p>\n<\/td>\n 6.86<\/p>\n<\/td>\n<\/tr>\n -0.08<\/p>\n<\/td>\n 3.41<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n 3 Mo.<\/strong><\/p>\n<\/td>\n 2 Yr.<\/strong><\/p>\n<\/td>\n 5 Yr.<\/strong><\/p>\n<\/td>\n 10 Yr.<\/strong><\/p>\n<\/td>\n 30 Yr.<\/strong><\/p>\n<\/td>\n<\/tr>\n 0.02<\/p>\n<\/td>\n 0.25<\/p>\n<\/td>\n 0.83<\/p>\n<\/td>\n 1.89<\/p>\n<\/td>\n 2.89<\/p>\n<\/td>\n<\/tr>\n 0.09<\/p>\n<\/td>\n 0.24<\/p>\n<\/td>\n 0.67<\/p>\n<\/td>\n 1.60<\/p>\n<\/td>\n 2.65<\/p>\n<\/td>\n<\/tr>\n 0.10<\/p>\n<\/td>\n 0.27<\/p>\n<\/td>\n 0.71<\/p>\n<\/td>\n 1.65<\/p>\n<\/td>\n 2.74<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Markets this week were largely higher\u2014for the fifth straight week\u2014in an environment of summertime light volume and limited positive or negative news headlines.\u00a0 Energy and technology led from a sector perspective, while utilities and consumer staples on the defensive side lagged.<\/p>\n U.S. treasuries were down a bit on the week as risk-taking was the trend, but credit, floating rate and foreign issues earned positive returns.<\/p>\n Commodity markets were led by energy last week, while agricultural contracts pared back a bit.\u00a0 In recent weeks, there\u2019s no surprise that grains have been strongly affected by the severe drought conditions in the central U.S.\u00a0 In fact, one report mentioned that half of all U.S. counties have now been declared a \u2018disaster\u2019 areas (although this is not always as severe a status as one might assume; this merely allows those counties to apply for U.S. government financial aid).<\/p>\n Several grains, such as corn, play a critical role in the economy.\u00a0 Other than the more obvious summer corn-on-the-cob, it affects cereal prices, but even more relevant is the input cost to animal feed (corn is 90% of this), sugar derivatives like high fructose corn syrup (which everything seems to contain) and ethanol as a gasoline additive\/filler.\u00a0 All of this takes corn, and, although we produce a huge amount of it, natural disaster and weather can affect commodity prices dramatically.\u00a0 This affects the prices of many products, including indirectly to poultry and meat producers.<\/p>\n At the same time, while this is terrible news this summer, commodities have the tendency to eventually self-correct.\u00a0 A shortage (and high prices) one year usually results in a higher planting percentage the next year.\u00a0 Then, as weather conditions are often less extreme, we produce too much, bringing prices back into line again.\u00a0 This may take some time, but is a common pattern for agricultural commodities.<\/p>\n Have a good week.<\/p>\n Karl Schroeder, RFC, CSA, AACEP<\/p>\n Investment Advisor Representative<\/p>\n Schroeder Financial Services, Inc.<\/p>\n 480-895-0611<\/p>\n Sources:\u00a0 FocusPoint Solutions, Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Thomson Reuters, Schroder\u2019s, Standard & Poor\u2019s, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.\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":" A lighter economic week to some extent\u2014at least compared to last week. Consumer credit growth slowed in June, to $6.46 billion, which is about half of what was expected by analysts.\u00a0 This can be a tricky measure, though, as slowing credit may mean less spending (due to Americans\u2019 tendency to use credit cards extensively), orRead more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-900","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/900","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\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=900"}],"version-history":[{"count":1,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/900\/revisions"}],"predecessor-version":[{"id":901,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/900\/revisions\/901"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=900"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=900"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=900"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n \n \n \n \n DJIA<\/td>\n \n \n \n S&P 500<\/td>\n \n \n \n Russell 2000<\/td>\n \n \n \n MSCI-EAFE<\/td>\n \n \n \n MSCI-EM<\/td>\n \n \n \n BarCap U.S. Aggregate<\/td>\n \n \n \n\n
\n U.S. Treasury Yields<\/strong><\/td>\n \n \n \n \n \n \n 12\/31\/2011<\/td>\n \n \n \n \n \n \n 8\/3\/2012<\/td>\n \n \n \n \n \n \n 8\/10\/2012<\/td>\n \n \n \n \n \n