In June Ben Bernanke said (just talk) he might reduce his $85 Billion in monthly bond purchases this year and end it by mid-2014, and global equity markets lost $3 Trillion in the five days after he said it. Yesterday, the Fed announced that they were actually (real action) going to reduce the monthly bond purchases by $10 Billion and the markets roared to new records. What changed?
Well, for the last six months Fed policy makers have tried to convince investors that tapering Quantitative Easing isn’t tightening policy. They succeeded yesterday by coupling a $10 billion reduction in monthly asset buying with a stronger commitment to keep interest rates at record lows and the market signaled its approval. So, it still doesn’t pay to be conservative and keep assets in cash equivalents, and it still pays very little to keep assets in bonds, and this will remain to be true as long as the Fed keeps interest rates at record lows. So expect a continued over allocation to riskier assets like stocks as compared to more conservative assets like cash equivalents and bonds.
In the immortal words of Prince, “We’re going to party like it’s 1999.”
Initial Jobless Claims
Initial Jobless claims climbed by 10,000 to 379,000 in the period ended Dec. 14, the most since the end of March. The median forecast of 48 economists surveyed by Bloomberg called for a decrease to 336,000. Estimates in the Bloomberg survey of economists ranged from 310,000 to 375,000. The prior week was previously reported at 368,000. No states estimated claims last week. It’s best to focus on the four-week average during the holiday season to determine the underlying trend, a government spokesman said as the figures were released. The four-week average tends to be less volatile. The data tend to be volatile around the Thanksgiving and Christmas holidays as seasonal adjustment is difficult to calculate. The four-week average of claims, a less-volatile measure than the weekly figure, climbed to 343,500, the highest in a month, from 330,250 in the prior week. The number of people continuing to receive jobless benefits increased by 94,000 to 2.88 million in the week ended Dec. 7. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those job-seekers rose by about 125,100 to 1.37 million in the week ended Nov. 30. These payments are set to lapse at year’s end as Congressional Democrats failed in a last-ditch effort to extend the assistance before the House adjourned last week. The unemployment rate among people eligible for benefits increased to 2.2 percent in the week of Dec. 7 from 2.1 percent the prior period.
Initial jobless claims reflect weekly firings and typically wane before job growth can accelerate. Employers have added an average 188,550 jobs per month so far in 2013, beating last year’s 182,750 monthly addition.
“I have not failed. I've just found 10,000 ways that won't work.” ~ Thomas Alva Edison
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury