It's The Economy Stupid: Stocks versus Bonds

Stocks versus Bonds

 

It’s earnings season.  In general, the majority of the stocks of the S&P 500 Index are beating their earnings estimates.  In general, the majority of the stocks of the S&P 500 Index are beating their revenue estimates.  The S&P 500 Index is at a 5 year high, currently trading at 1499.76, trading all around the 1500 mark, a mark not seen since 2007.  Meanwhile, bonds are trading at record low interest rates.  Rates not seen since before World War II, and World War 1.  The Treasuries high yield mark was set in 1981 when the generic T-Bill traded at a 15.91% yield, and the generic 30 Year Treasury Bond traded at 15.21%.  Rates have been headed down ever since then.  But here’s the thing.  Despite all the money the Fed is throwing at the bond market, rates are not going any lower.  And that’s important. The Fed is getting less bang for the buck in each of their successive QE strategies.  They’ve run out of juice, but not money.  They can just print money.  They can just increase the Money Supply.  If ANY inflation shows up in the economy, interest rates are going to go UP, Bond prices are going to go DOWN. 

 

Meanwhile, the economy is steadily, if slowly, improving, growing.  It does not take a genius to see that Bonds are going to be in a bad way in inflation shows up in the economy.  Meanwhile, stocks are prospering with steadily improving balance sheets and income statements.

 

Undoubtedly stocks have been on a rise.  And undoubtedly there will be a pause, possibly a correction in stock’s current run up.  Use any pull back to buy more stocks and lighten up on bonds.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: The Jobless Numbers Geaux Down

The Jobless Numbers Geaux Down

 

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Initial Jobless Claims	JAN 19	355K	330K	335K
Continuing Claims	JAN 12	3200K	3157K	3214K	3228K

 

What’s there to say.  The Jobless Claims are down.  Below economists’ expectations.  Less than the prior period’s numbers. 

 

Less Jobless.

 

That’s a good thing for the economy.

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Housing Starts & Jobless Claims

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Housing Starts	DEC	890K	954K	861K	851K
Housing Starts MoM%	DEC	3.3%	12.1%	-3.0%	-4.3%
Building Permits	DEC	905K	903K	899K	900K
Building Permits MoM%	DEC	0.5%	0.3%	3.6%	3.7%
Initial Jobless Claims	JAN 12	369K	335K	371K	372K
Continuing Claims	JAN 5	3155K	3214K	3109K	3127K

 

Better than expected numbers for Housing Starts in U.S. Jumped in December to Four-Year High

Initial Jobless Claims down, Continuing Jobless Claims up

 

Housing Starts in U.S. Jumped in December to Four-Year High

 

Builders broke ground on more houses than forecast in December, capping the best year for the industry since 2008, another sign residential real estate is boosting the U.S. economic expansion.  Starts climbed 12.1 percent last month to a 954,000 annual rate, exceeding all forecasts in a Bloomberg survey of economists and the most since June 2008. For all of last year, construction began on 780,000 homes, up from 608,800 in 2011 and also the most since 2008.  Low borrowing costs and rising property values are spurring homebuyer traffic for the market that triggered the latest recession. Confidence among homebuilders is

improving, even as tight credit remains an obstacle to further progress in residential real estate’s healing.  Building permits, a proxy for future construction, climbed less than starts, indicating the industry may take a breather in coming months. The number of applications issued climbed 0.3 percent in December to an 903,000 annual rate from a 900,000 pace in November. The reading was in line with the 905,000 median forecast of economists surveyed by Bloomberg.

 

Another report today showed the number of Americans filing first-time claims for unemployment insurance payments fell more than forecast last week to the lowest level in five years, pointing to further improvement in the labor market.  Applications for jobless benefits decreased by 37,000 to 335,000 in the week ended Jan. 12, the fewest since January 2008. Economists forecast 369,000 claims, according to the median estimate in a Bloomberg survey. A spokesman for the agency said the drop may reflect the difficulty the government has in adjusting the data following the holidays when seasonal workers are let go.

 

The median estimate of 84 economists surveyed by Bloomberg called for an increase to 890,000. Projections ranged from 850,000 to 930,000. The prior month was revised down to an 851,000 pace from a previously reported 861,000 rate.

 

 

It"s The Economy Stupid: CPI, Not So Much

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Consumer Price Index MoM	DEC	0.0%	0.0%	-0.3%
CPI Ex Food & Energy MoM	DEC	0.2%	0.1%	0.1%
Consumer Price Index YoY	DEC	1.8%	1.7%	1.8%
CPI Ex Food & Energy YoY	DEC	1.9%	1.9%	1.9%
Consumer Price Index NSA	DEC	231.416	231.475	231.254
CPI Core Index SA	DEC	229.726	229.601	230.601

 

Sooo, okay, CPI, Consumer Price Index, less than 2%.  Annual.  Not so much.  That about sums it up.

 

But for those of you who want details, here you go. 

 

Consumer Prices in U.S. Little Changed as Inflation Recedes. The cost of living was little changed in December, capping the third-smallest annual gain in the past decade, indicating U.S. inflation remains at bay.

 

The unchanged reading in the consumer-price index matched the median estimate of 83 economists surveyed by Bloomberg and followed a 0.3 percent drop the prior month. Costs rose 1.7 percent in 2012, down from a 3 percent increase in 2011.

 

Bloomberg survey estimates for the consumer-price index ranged from a drop of 0.2 percent to an increase of 0.3 percent.

 

Decade Average

 

Consumer prices rose 2.4 percent on average over the past decade.

 

The core index, which excludes volatile food and energy costs, climbed 0.1 percent for the fifth time in the last six months. For 2012, core prices rose 1.9 percent compared with a 2.2 percent advance in 2011. Last year’s gain matched the average increase over the past 10 years.

 

The Fed’s preferred price measure, which is tied to consumer spending patterns, rose 1.4 percent in the 12 months to November, according to data from the Commerce Department.

 

Inflation Outlook

 

Fed Chairman Ben S. Bernanke said earlier this week tried to assuage investors that the central bank will remain vigilant against any flare-up in prices. The core measure last month was restrained by declines in

the cost of used cars, clothing and medicinal drugs.  Tepid global growth and falling energy costs, including cheaper gasoline, are mitigating inflation risks. Energy costs decreased 1.2 percent in December. Gasoline fell 2.3 percent.

                       

Other Measures

 

The CPI is the broadest of three monthly price measures from the Labor Department because it includes goods and services. About 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.  Wholesale prices in the U.S. dropped for a third month in December as food costs fell by the most since May 2011, the Labor Department reported yesterday. For all of 2012, prices paid by companies climbed 1.3 percent, the smallest advance since a drop in 2008 and compared with an average 3.4 percent gain over the prior decade. Import prices also declined in  December, a Labor Department report showed Jan. 11. For all of 2012, import prices fell 1.5 percent, the first annual drop since they retreated 10.1 percent in 2008.

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Retail Sales & PPI

Reports today showed consumer spending climbed more than forecast in December, wholesale prices in the U.S. dropped for a third month in December, and manufacturing in the New York region contracted for a sixth month in January.

 

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Advance Retail Sales	DEC	0.2%	0.5%	0.3%	0.4%
Retail Sales Less Autos	DEC	0.2%	0.3%	0.0%	-0.1%
Retail Sales Ex Auto & Gas	DEC	0.4%	0.6%	0.7%	0.6%
Retail Sales "Control Group"	DEC	0.3%	0.6%	0.5%
Producer Price Index MoM	DEC	-0.1%	-0.2%	-0.8%
PPI Ex Food & Energy MoM	DEC	0.2%	0.1%	0.1%
Producer Price Index YoY	DEC	1.4%	1.3%	1.5%
PPI Ex Food & Energy YoY	DEC	2.1%	2.0%	2.2%

 

 

Retail Sales: Sales at U.S. Retailers Rose More Than Forecast in December

 

Retail sales in the U.S. rose more than projected in December as Americans wrapped up their holiday shopping, showing households looked beyond the year-end budget battle among U.S. lawmakers.

 

The 0.5 percent gain followed a revised 0.4 percent increase in November that was more than previously reported, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.2 percent rise. Sales excluding automobiles and gasoline climbed 0.6 percent for a second month.

 

Consumer spending, which accounts for about 70 percent of the economy, was boosted by an improving labor market, growth in incomes and discounting by chains such as Macy’s Inc. that may help sustain demand this year. At the same time, households may be hard-pressed to accelerate purchases as higher payroll taxes cut into take-home pay starting this month.

 

“Consumers continue to spend at a decent pace,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, who correctly forecast the gain in sales minus automobiles. “The payroll tax will have a modest impact on spending. We need faster job and income growth to allow the consumer to shift into higher gear.”

 

Stock-index futures remained lower after the figures, with the contract on the Standard & Poor’s 500 Index expiring in March falling 0.4 percent to 1,458.3 at 8:49 a.m. in New York.

 

 

PPI: Wholesale Prices in U.S. Fall More Than Forecast on Food

 

Wholesale prices in the U.S. dropped for a third month in December as food costs retreated, capping the smallest annual gain in four years and indicating there is little risk of a pickup in inflation.

 

The producer price index declined 0.2 percent following a 0.8 percent decrease the prior month. Economists projected a 0.1 percent fall, according to the median of 77 estimates. For all of 2012, prices paid by companies climbed 1.3 percent, the smallest advance since a drop in 2008 and compared with an average 3.4 percent gain over the prior decade.

 

Demand that cooled globally last year from Europe to China helped check input costs for producers. The reduced inflationary pressures mean Federal Reserve policy makers can keep adding stimulus to spur growth and employment without triggering a surge in prices.

 

Other reports today showed consumer spending climbed more than forecast in December and manufacturing in the New York region contracted for s sixth month in January.

    

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: Jobs

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Initial Jobless Claims	DEC 22	365K	371K	372K	367K
Continuing Claims	DEC 15	3225K	3109K	3245K	3236K

 

Sorry about the lateness of this report, but it took a long time to pole my pirogue to work this morning.  We are at 12-16 inches of rain…in the last 3 days.  I can honestly say I’ve seen more water….at the beach.

 

Jobless Claims and Continuing Claims continue to remain in a holding pattern.  The picture remains the same.  Not good, but not bad.  It is what it is.

 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

 

It's The Economy Stupid: All About Employment

Economic Event	Period	Economic Survey	Actual Reported	Original Prior	Revised Prior
Change in Nonfarm Payrolls	DEC	152K	155K	146K	161K
Change in Private Payrolls	DEC	155K	168K	147K	171K
Change in Manufact. Payrolls	DEC	4K	25K	-7K	5K
Unemployment Rate	DEC	7.7%	7.8%	7.7%	7.8%
Avg Hourly Earning MoM All Empl	DEC	0.2%	0.3%	0.2%	0.3%
Avg Hourly Earning YoY All Empl	DEC	1.7%	2.1%	1.7%	1.9%
Avg Weekly Earning YoY All Empl	DEC	34.4	34.5	34.4
Change in Household Employment	DEC		28	-122	-51
Uderemployment Rate (U6)	DEC		14.4%	14.4%

 

Payrolls in U.S. Climbed 155,000 in December; Unemployment Rate 7.8%

 

Employers added workers in December at about the same pace as the prior month, and the unemployment rate matched a four-year low, showing sustained gains in the U.S. labor market even as lawmakers were struggling to reach a budget deal.

 

The unemployment rate held at 7.8 percent, matching the lowest since December 2008.  A somewhat counter-intuitive thought on this is that a healthier employment picture would actually have the unemployment rate rise slightly because more unemployed people who have been out of the job market would begin looking for jobs.  Well, at least that’s what I am looking for.  But I am just a coonass with a finance degree, which of course makes me overqualified to be hired by CNBC.

 

Payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg called for an increase of 152,000. Improved hiring, hours worked and wages is helping underpin spending at retailers from Macy’s Inc. to Gap Inc., where December sales beat analysts’ estimates. Even bigger advances in employment may depend on lawmakers reaching an agreement on a

deficit-reduction plan after Congress this week averted income-tax increases on about 99 percent of households.

 

Hourly Earnings

 

Average hourly earnings climbed 2.1 percent from December 2011, to $23.73, the biggest gain in a year, today’s report showed. The average work week for all workers climbed to six minutes to 34.5 hours.  Private payrolls, which exclude government agencies, rose 168,000 in December after a revised gain of 171,000. They were projected to rise by 155,000, the survey showed. Factory payrolls increased by 25,000, the most since March and compared with the Bloomberg survey forecast of a 4,000 increase.  Employment at private service-providers increased 109,000. Retailers decreased staff by 11,300. Construction  companies added 30,000 workers, the most since September 2011. The figures may have received a boost from rebuilding efforts following SuperStorm Sandy, which left about 8 million homes and businesses without power for days after making landfall on Oct. 29.

 

Government Jobs

 

Government payrolls decreased by 13,000 in December, the third straight month of declines. Progress in the labor market is driving Americans’ confidence and spending. Macy’s, the second-biggest U.S. department-store company, reported a 4.1 percent rise in December sales at stores open at least a year, while Gap, the largest U.S. specialty-apparel retailer, had a 5 percent increase.

 

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury