{"id":946,"date":"2013-01-29T08:31:56","date_gmt":"2013-01-29T14:31:56","guid":{"rendered":"http:\/\/www.sunlakesofarizona.com\/blog\/?p=946"},"modified":"2013-01-29T08:31:56","modified_gmt":"2013-01-29T14:31:56","slug":"economic-notes-for-the-week-of-january-28th","status":"publish","type":"post","link":"https:\/\/dev.sunlakesofarizona.com\/blog\/2013\/01\/economic-notes-for-the-week-of-january-28th\/","title":{"rendered":"Economic Notes for the Week of January 28th"},"content":{"rendered":"

(-) Existing home sales<\/strong> for December fell by -1.0%, which ran contrary to an expected +1.2% gain, and obviously was a bit of a disappointment.\u00a0 Single family home sales dropped by -1.4%, which were offset somewhat by condo sales, which gained +1.7%.\u00a0 From a regional level, weakness in the Midwest (nearly -6%) and South overwhelmed gains in the Northeast and Western portions of the country.\u00a0 Net-net, a choppy report, but not entirely surprisingly considering the time of year we\u2019re in.<\/p>\n

(0) The FHFA home price index<\/strong>, that takes into account prices of homes with Fannie Mae\/Freddie Mac mortgages, gained +0.6% for November, which just fell short of consensus by a tenth of a percent.\u00a0 The Pacific and Mountain regions experienced gains near two percent, and drove the broader upward movement.\u00a0 The more critical measure, year-over-year price movement, registered a gain of +5.6%, making 2012 the first positive year in six years.<\/p>\n

(-) New home sales<\/strong> for December were lower than expected in December, falling -7.3% month-over-month, which ran counter to an expected consensus gain of +2.1%.\u00a0 Some of this difference was due to some revisions for November (the gain for which was boosted from +4.5% to over +9%), but the volatility is typical of this series and this time of year.\u00a0 Year-over-year, sales are up +9%, which is positive.<\/p>\n

The new home sales story has been a positive one, and may very well contribute meaningfully to U.S. GDP in 2013\u2014inching further towards normal after plodding along at very low levels for years coincident with the financial crisis.\u00a0 In fact, it could add up to a large percentage of the total GPP number\u2014which, in the slow growth period we\u2019re in, is meaningful.\u00a0 There are other effects as well, such as indirect demand for household goods and a general improvement in the \u2018wealth effect\u2019 that helps consumers feel richer and better able to spend (since their homes are worth more).<\/p>\n

(-) The Richmond Fed manufacturing index<\/strong> fell to a -12 for January from a positive +5 in December.\u00a0 The report showed general weakness in all areas, including shipments, orders and capacity utilization, as well as employment and workweek length.\u00a0 However, prices paid\/received continued at moderate levels, reflecting the tempered inflation environment.\u00a0 Sentiment from survey participants about look-ahead conditions also improved a bit from lower levels pre-fiscal cliff concerns at year-end, which was a bright spot in the result.<\/p>\n

(+) Initial jobless claims<\/strong> came in much lower than expected for the Jan. 19 ending week at 330k, which was far below the 355k expected.\u00a0 However, this may be at least partially due to a continued anomaly as a result of year-end \u2018distortions\u2019 and other seasonal adjustment factors, according to the DOL.\u00a0 (Their commentary is typically a bit vague, but this is the time of year when hiring\/firing activity accelerates, so figures are a little fuzzy.)\u00a0 Continuing claims<\/strong> for the Jan. 12 week came in at 3,157k, which was a bit lower than the 3,200k expected.\u00a0 Note that, due to the holidays, claims for nine states were calculated using estimated data, which corrupts the results somewhat.\u00a0 Nonetheless, the trend for both series has been moving lower\u2014a positive sign for the job market.<\/p>\n

(+) The Conference Board\u2019s indexes of economic indicators were released for December, with less fanfare these days it seems.\u00a0 The leading economic index<\/strong> rose 0.5% to 93.9, which was an improvement on an unchanged reading from the month prior.\u00a0 Results were led by better numbers in employment claims, building permits and credit (two-thirds of all indicators were positive), while consumer expectations and manufacturing new orders remained weak.\u00a0 The coincident and lagging indicators also rose over the month.\u00a0 The leading index certainly picked up speed over the second half of 2012 compared to a slower increase during the first half.\u00a0 The longer-term trendline has moved in an upward trajectory since the financial crisis\u2014as seen in the chart below.<\/p>\n

 <\/p>\n

\"2013-01
2013-01 Economic Index<\/figcaption><\/figure>\n

 <\/p>\n

The Bank of Japan this week further expanded their inflation target from 1% to 2%, in line with efforts to expand their economy and recent political rhetoric.\u00a0 For a sense of perspective, their core CPI over the past twelve months is currently -0.6%, which is certainly deflationary as opposed to inflationary, and problematic from the perspective of growth generations prospects.\u00a0 So, this is where the new inflation target originated from.\u00a0 So far, markets believe it, and the Yen has fallen almost 10% against the dollar in the past month, and Nikkei stock index is up just over 10% as tougher language and an asset-purchase program (like ours) has been announced.\u00a0 However, the last time inflation has reached the 2% level in Japan on a year-over-year basis was 1997\u2014this may be a long road.<\/p>\n

 <\/p>\n

Question of the Week (an occasional feature) <\/em><\/strong><\/p>\n

I keep hearing about currencies?\u00a0 What does this mean and why are they so volatile?<\/em><\/p>\n

The financial news often reports about what\u2019s just happened or newsworthy comments made by various policymakers.\u00a0 Of course, some is overblown but there is often a shred of truth to the underlying story.\u00a0 Currency futures have always been volatile.<\/p>\n

A long-running theme in global economic development in recent years (decades, actually) is the general improvement in the fiscal balance sheets and credibility of emerging market nations like Brazil and Malaysia, and the balance sheet deterioration of \u2018developed\u2019 nations of Western Europe, Japan and the United States.\u00a0 This effect would be more pronounced if it weren\u2019t for the legacy of \u2018stability\u2019 the developed nations historically that has kept their currencies and bond interest rates lower than they normally would be.<\/p>\n

Currencies seem mysterious because of their nature\u2014there is no absolute method for consistently measuring their value (there are some theoretical models, such as \u2018purchasing power parity,\u2019 but even these are unreliable, especially over the short-term).\u00a0 On a relative side, currencies only have value based on the confidence a depositor\/investor\/citizen has in that nation\u2019s government or central bank policies outright as well as relative to other nations\u2019 currencies, i.e. Japanese Yen vs. U.K. Pound, Euro vs. Brazilian Real.\u00a0 Aside from basic national stability (which is why developed nations tend to have more \u2018expensive\u2019\/stronger currencies than traditionally-less-stable emerging market nations).\u00a0 Currencies are a product with supply\/demand characteristics like any other, just more nuanced.<\/p>\n

Factors than can strengthen<\/span> a nation\u2019s currency value:<\/p>\n

    \n
  • \u2018Legitimate\u2019\/stable regime (such as a pro-Western style democracy or at least a trustworthy government) and track record of paying their bills in a timely and willingness to continue to do so;<\/li>\n
  • Capable monetary policy with sufficient central bank independence and ability to keep inflationary forces in check;<\/li>\n
  • Economic growth, which can include a strong industrial\/service base or abundant natural resources;<\/li>\n
  • Good fiscal conditions and\/or lower levels of debt.<\/li>\n<\/ul>\n

    Factors than can weaken<\/span> a nation\u2019s currency value:<\/p>\n

      \n
    • Unstable government, or one that is anti-business or anti-developed world (a caveat:\u00a0 a poorly regarded but stable regime that still pays their bills can sometimes buck this trend);<\/li>\n
    • Defaulting on government debt (one-time or repeatedly, like Argentina);<\/li>\n
    • High levels of debt in general\u2014which can raise chances for a future default;<\/li>\n
    • High inflation, which erodes currency value, either by itself or coupled with a less credible central bank;<\/li>\n
    • Low or unrealized economic growth, or resources that can\u2019t be fully taken advantage of due to any of the conditions noted above.<\/li>\n<\/ul>\n

      Other factors:<\/p>\n

        \n
      • A cheaper\/weaker currency can help a nation by making their exports cheaper, so industries are more competitive with foreign manufacturers.\u00a0 This is why many governments are pressured to \u2018devalue\u2019 their currencies, as long as it\u2019s done in a moderate way and doesn\u2019t affect citizens\u2019 purchasing power in the short run.<\/li>\n
      • A stronger currency, especially in the case of an emerging market, can be a source of national pride and reinforcement that the nation has \u2018arrived,\u2019 so to speak.<\/li>\n<\/ul>\n

        This issues can get murky, such as the case of Japan\u2014which is seen as a global manufacturing powerhouse with a stable governmental system (despite frequent PM changes) and high levels of debt, mainly held internally by the Japanese people.\u00a0 During the financial crisis, their \u2018safe haven\u2019 status pushed the Yen higher than perhaps it should have been due to this legacy.\u00a0 As Prime Minister Abe has announced stimulus plans and a goal of higher growth and inflation targets, the Yen has sold off in recent months\u2014not a surprise, considering inflation should erode a currency\u2019s value\u2014if this policy works as intended.\u00a0 On the other hand, emerging market currencies are still in the process of earning that all-important trust.\u00a0 They\u2019ve come a long way, but there is further to go.<\/p>\n

        This is a short summary, and we could obviously delve deeper into this topic.\u00a0 We may in future editions.<\/p>\n

        Market Notes <\/em><\/strong><\/p>\n\n\n\n\n\n\n\n\n\n
        Period ending 1\/25\/2013<\/strong><\/td>\n\n

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

        		\n

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

        DJIA<\/td>\n\n

        1.80<\/p>\n<\/td>\n

        		\n

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

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

        1.15<\/p>\n<\/td>\n

        		\n

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

        Russell 2000<\/td>\n\n

        1.40<\/p>\n<\/td>\n

        		\n

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

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

        1.56<\/p>\n<\/td>\n

        		\n

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

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

        -1.08<\/p>\n<\/td>\n

        		\n

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

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

        -0.38<\/p>\n<\/td>\n

        		\n

        -0.61<\/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\/2012<\/td>\n\n

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

        		\n

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

        		\n

        0.72<\/p>\n<\/td>\n

        		\n

        1.78<\/p>\n<\/td>\n

        		\n

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

        1\/18\/2013<\/td>\n\n

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

        		\n

        0.26<\/p>\n<\/td>\n

        		\n

        0.77<\/p>\n<\/td>\n

        		\n

        1.87<\/p>\n<\/td>\n

        		\n

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

        1\/25\/2013<\/td>\n\n

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

        		\n

        0.28<\/p>\n<\/td>\n

        		\n

        0.87<\/p>\n<\/td>\n

        		\n

        1.98<\/p>\n<\/td>\n

        		\n

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

        This week, the S&P gained for the fourth straight week and made its way to a 5-year high.<\/p>\n

        The 1500 on the S&P isn\u2019t anything magical but investors do tend to place some weight on round numbers and special mileposts like this, especially when they pop up in the national news.\u00a0 After our strong run as of late, are we due for a correction?\u00a0 Not necessarily, since valuations remain reasonable and growth is present.\u00a0 But, a pullback of some sort is never out of the realm of possibility\u2014of course, it would just be handy to know when and where.\u00a0 Absent that, conditions continue to improve and look positive for risk assets looking into 2013.\u00a0 Importantly, none of the important negatives that signal danger in equity markets are present, like high P\/E ratios or excessive euphoria (quite the opposite, in fact).\u00a0 This is true on an outright basis, but even more so relative to other asset classes like fixed income looking ahead.<\/p>\n

        From a sector perspective, consumer discretionary and financial stocks led, while technology (the only sector with a negative return on the week) and consumer staples lagged the index by the greatest amounts.\u00a0 Google and IBM had especially good weeks on earnings surprises.\u00a0 Apple, however, lost -10% just after its disappointing iPhone sales numbers were released (although final earnings were above consensus and the iPad seemed to be plugging along as expected).<\/p>\n

        In the foreign markets, developed nations were higher in line with U.S. equities, led by gains in while several core Euro nations like Germany (in which consumer sentiment has improved) as well as France and Spain, while emerging nations such as China and India lagged.<\/p>\n

        Bonds were mixed with slower issuance due to a holiday week, but credit (high yield and bank loans in particular) outperformed governments overall, which helped the performance of our portfolios.\u00a0 Emerging market-led international also fared well in relative terms, while foreign developed markets were roughly flat.<\/p>\n

        Commodity markets were led by strong returns in industrial metals\u2014particularly, lead and zinc.\u00a0 Precious metals and natural gas lost the greatest amounts during the week\u2014roughly 2%.<\/p>\n

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

        Karl Schroeder, RFC<\/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, FactSet, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Thomson Reuters, Schroder\u2019s, Standard & Poor\u2019s, The Conference Board, 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

        Notes key:\u00a0 (+) positive\/encouraging development, (0) neutral\/inconclusive\/no net effect, (-) negative\/discouraging development.<\/p>\n","protected":false},"excerpt":{"rendered":"

        (-) Existing home sales for December fell by -1.0%, which ran contrary to an expected +1.2% gain, and obviously was a bit of a disappointment.\u00a0 Single family home sales dropped by -1.4%, which were offset somewhat by condo sales, which gained +1.7%.\u00a0 From a regional level, weakness in the Midwest (nearly -6%) and South overwhelmedRead 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-946","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/946","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=946"}],"version-history":[{"count":2,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/946\/revisions"}],"predecessor-version":[{"id":949,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/946\/revisions\/949"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=946"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=946"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=946"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}