Perspectives Blog

Signs point to an improving U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | December 9, 2013

…of the growth came from a massive inventory build, and this will subtract from Q4 GDP. Metrics on final demand weakened and consumer spending was revised to a slower pace of 1.4%, the weakest quarter since 2009 just after the recession ended. But business thrives with corporate profits strong, up 8% YoY. 2014 will see fewer drags and continued improvement is expected with trend growth picking up to 2% – 3%. Finally, consumer sentiment readi…

The Fed’s decision tree

Zach Pandl, Portfolio Manager and Strategist | October 8, 2013

…l need to wait for more communication to get a clearer picture on the direction for policy. For the time being we are thinking about the QE outlook as a simple decision tree as shown in the diagram (for simplicity we ignore a recession scenario). If incoming data appear strong over the next few months, we think the outlook for QE would be straightforward: the Fed would begin to taper at the December or January FOMC meeting. This would certainly b…

The bean counting on second quarter GDP

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 25, 2013

…wl, with industrial production up only 0.5% in Q2 with manufacturing production basically unchanged. Purchasing Manager Indexes stalled with the manufacturing index averaging 50.2 in the quarter, the weakest quarter since the recession ended. Government spending cuts have started as the sequester takes hold. Of course, the flip side here is an improvement in the budget deficit, as outlays fell 2.5% in the quarter and the rolling 12 month deficit…

Labor market takes center stage

Zach Pandl, Portfolio Manager and Strategist | October 15, 2013

…conomic fluctuations—by stabilizing real activity. I thus translate the ‘maximum employment’ proviso of the Federal Reserve Act as a mandate for the Fed to lean against the wind, stimulating the economy when the economy is in recession or unemployment is clearly in excess of the NAIRU (the non-accelerating inflation rate of unemployment—the minimum rate of unemployment consistent with stable inflation), and restraining the economy through tighter…

Should investors care about valuation?

Rich Rosen, Portfolio Manager | November 25, 2013

…investors, history has taught us that earnings and earnings growth are what drives stocks over time. That was proven in the two years ending in 2011 when stocks appreciated, even in the face of a 20% drop in valuation. During recession, stocks generally go down because earnings decrease. As to valuation, the market doesn’t like inflation (because the quality of earnings stink), and hates deflation (earnings growth is harder to come by) and uncert…

Should your income be fixed?

David King, CFA, Senior Portfolio Manager | December 16, 2013

…bonds, bank term deposits, savings accounts, etc. has been to provide an adequate rate of return with low risk. If these investments will do that today, this discussion is over; but will they? The event we now call The Great Recession have wrung inflationary expectations out of the global economy. All major commodities, whether gold or oil, cotton or corn, are priced well below their peak levels of recent years. Recipients of government payments…

U.S. rates — play for growth

Zach Pandl, Portfolio Manager and Strategist | December 10, 2013

…e level of the unemployment rate and total job gains. After the meeting policymakers added the condition that tapering required “convincing evidence that progress will continue”. Because we doubt officials are worried about a recession, we took this communication to mean that tapering could only occur in the context of “fast growth”. With Q4 GDP growth tracking below 2%, we suspect officials will still not see enough evidence to begin the process…