| WEEKLY QUOTE
“Patriotism is easy to understand in America; it means looking out for yourself by looking out for your country.” - Calvin Coolidge WEEKLY TIP A dollar available now is worth more than a dollar available in the future – not just because of long-term inflation, but because that now-available dollar can potentially earn interest. This truism is known as the time value of money. WEEKLY RIDDLE You hold a sheet of cellophane. Fully unfolded, it is 3 feet long by 2 feet wide. How can you get two people to stand on it (when it is fully unfolded) in such a way that they can’t touch or see each other? Last week’s riddle: What runs around a field, but doesn’t move? Last week’s answer: A fence.
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June 17, 2013 IMF: FED SHOULD WAIT 6 MONTHS TO TAPER QE3 On Friday, the International Monetary Fund called for the Federal Reserve to keep easing at current levels at least until the end of 2013 and to carefully manage any exit from QE3. In its annual review of the U.S. economy, the IMF characterized the March 1 federal budget cuts as “excessively rapid and ill-designed” and called for their repeal. It lowered its 2014 GDP projection for the U.S. to 2.7%. The IMF still projects U.S. growth for 2013 at 1.9%.1,2 RETAIL SALES UP 0.6% IN MAY This Commerce Department announcement was a nice surprise, as retail purchases advanced just 0.1% in April. A 1.8% jump in car and truck sales was instrumental, though the pace of overall retail purchases still improved 0.3% for May with vehicle sales factored out.3 A NOTABLE RISE IN THE PPI Increases in food and energy costs took the overall Producer Price Index 0.5% higher for May, with a surge in gasoline prices central to the advance. The core PPI (minus food and energy prices) rose 0.1% last month.1,4 HOUSEHOLD SENTIMENT SLIPS On Friday, the University of Michigan’s preliminary June index of consumer sentiment came in at 82.7. That was a surprise to the downside; economists polled by Bloomberg had forecast a reading of 84.5, the index’s final mark for May.1 HEADWINDS BUFFET WALL STREET The Dow fell 1.17% from June 10-14, closing at 15,070.18 Friday. Similar weekly losses plagued the NASDAQ (-1.32% to 3,423.56) and the S&P 500 (-1.01% to 1,626.73). Last week also brought a 12.62% rise for the CBOE VIX, which settled at 17.05 Friday.4 THIS WEEK: June’s NAHB housing market index comes out Monday, and a G8 summit begins in Ireland. Tuesday, the May Consumer Price Index arrives along with data on May housing starts; Adobe Systems and La-Z-Boy present earnings. Wall Street will be focused on the Federal Reserve’s latest policy announcement on Wednesday; in addition, earnings news rolls in from Red Hat, FedEx and Jabil Circuit. Thursday, NAR releases its report on May existing home sales and the Conference Board’s May index of leading indicators appears, complemented by earnings from Kroger, Rite Aid and Oracle. Friday is a quadruple witching day which also offers earnings from CarMax. Sources: cnbc.com, bigcharts.com, treasury.gov – 6/14/134,5,6,7
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. |
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Please feel free to forward this article to family, friends or colleagues. |
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Gregg Hancock is a Wealth Management Officer with First Midwest Wealth Management and may be reached at 309-797-7622 or emailed gregg.hancock@firstmidwest.com to schedule a time to discuss your wealth planning questions. |
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| This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
Citations. 1 – nasdaq.com/article/midday-update-stocks-sliding-after-imf-cuts-us-growth-forecast-consumer-sentiment-dips-cm253273 [6/14/13] 2 – bbc.co.uk/news/business-22911400 [6/14/13] 3 – stltoday.com/business/local/u-s-retail-sales-jump-percent-in-may-on-autos/article_33200d05-0de6-5d75-a666-5d422d700c76.html [6/13/13] 4 – cnbc.com/id/100816191 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F14%2F12&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F14%2F12&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F14%2F12&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F13%2F08&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F13%2F08&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F13%2F08&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F13%2F03&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F13%2F03&x=0&y=0 [6/14/13] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F13%2F03&x=0&y=0 [6/14/13] 6 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/14/13] 7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/14/13] |
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Where Did Inflation Go?
Where Did Inflation Go?
Shouldn’t it be rising with all this bond buying?
Provided by Gregg Hancock – Wealth Advisor
Consumer inflation just hit a 50-year low.
So indicates the Federal Reserve’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) price index maintained by the Bureau of Economic Analysis.1
Besides tracking consumer inflation, the PCE price index measures household purchases, a major factor in GDP growth. The core PCE index does the same thing without including volatile food and energy prices. The broad PCE index hit 0.74% in May, with core PCE at 1.05% – a new all-time low, breaking the 1.06% measured in March 1963.1,2
Why isn’t QE3 generating more inflation?
The Fed is still “printing money” to the tune of $85 billion a month, but the headline PCE index has fallen since last year (it approached 2.0% in early 2012). The Consumer Price Index only advanced 1.1% between May 2012 and May 2013, and that was the smallest annualized gain in the CPI since November 2010; the core CPI only rose 1.7% in that period.1,3,4
What is keeping inflation in check? Chalk it up to extraordinary circumstances – and the perception that they will continue. Short-term interest rates are nil and the Fed has told the world that our benchmark interest rate will be at rock-bottom levels until our jobless rate dips below 6.5% or inflation tops 2.5%.4
QE1 and QE2 did boost inflation in the short-term; in fact, one of the things that prompted QE2 was the Fed’s concern about deflation in 2010. Yet inflation has lessened since QE3 started.4
Three factors may be encouraging disinflation.
One, the Fed has repeatedly emphasized that QE3 will not stoke inflation; it has not implied, hinted or communicated that it will let inflation get out of hand or exceed its present 2.0% target. Two, economists, analysts and investors seem to have widespread faith that the Fed can capably fight sudden spikes in the PCE index or the CPI and keep things under control. Three, total government spending (as a percentage of potential nominal gross domestic product) fell about 3% from Q2 2010 to Q1 2013 – and that’s not even taking sequestration into account. That implies reduced demand in the economy.4
Psychologically, there is little or no fear of runaway inflation and the prevalent expectation is that there will be low inflation for some time. This psychology may be influencing the current disinflation as well.
Also, while the Fed creates money and purchases bonds from banks via its ongoing stimulus, the bulk of that money has turned into bank reserves. Lenders are conservatively sitting on these reserves as they pay interest. Should the Fed boost the interest it pays on them, it will give these banks more reason to maintain them.4
When might inflation expectations change?
If the Fed were to raise its inflation target, they would change greatly. No one sees that happening anytime soon.
Will the Fed taper sooner, or later?
With such mild inflation, it might be later. On June 10, Federal Reserve Bank of St. Louis President James Bullard argued for sustaining an “aggressive” stimulus given the “surprisingly low inflation readings” of recent months, markedly below the central bank’s target.5
“Inflation in the U.S. has surprised to the downside,” Bullard commented at the International Economic Forum of the Americas in Montreal, later adding that “it hasn’t moved back at all. I am still waiting for that to happen and I am getting a little bit nervous.”5
As former Richmond Fed economist Ward McCarthy noted to Bloomberg, “This is an inopportune time to be talking about curtailing [QE3]. They are missing on the inflation mandate.”5
Gregg Hancock is a Wealth Management Officer with First Midwest Wealth Management and may be reached at 309-797-7622 or emailed gregg.hancock@firstmidwest.com to schedule a time to discuss your wealth planning questions.
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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1 – advisorperspectives.com/dshort/updates/PCE-Price-Index.php [5/31/13]
2 – bea.gov/faq/index.cfm?faq_id=518 [6/13/13]
3 – bls.gov/news.release/cpi.nr0.htm [5/16/13]
4 – theatlantic.com/business/archive/2013/06/the-biggest-economic-mystery-of-2013-whats-up-with-inflation/276772/ [6/12/13]
5 – bloomberg.com/news/2013-06-10/fed-s-bullard-says-low-inflation-may-warrant-longer-qe.html [6/10/13]
June 10th 2013 Weekly Economic Outlook
| June 10, 2013 | ||
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| WEEKLY QUOTE “We are an impossibility in an impossible universe.”
- Ray Bradbury WEEKLY TIP You can’t control what happens with interest rates or stocks in the future; you can control the amount you save for retirement. Boosting your personal savings ratio may bring you closer toward your retirement savings objective. WEEKLY RIDDLE What runs around a field, but doesn’t move? Last week’s riddle: There is a word that starts and ends with T, and contains “tea” |
A REASSURING JOBS REPORT A jittery Wall Street liked the big picture it saw in the Labor Department’s May employment report. The economy added 175,000 jobs last month: decent hiring growth, not dismaying to investors, yet not impressive enough to signal the Federal Reserve to taper off QE3. Economists polled by Bloomberg forecast payrolls rising by 163,000. The jobless rate ticked up to 7.6% in May as more people started looking for work; the private sector hired 178,000 new employees and the number of discouraged job seekers hit a 52-month low. The Dow had its best day since January on Friday, rising 207.50 in response.1,2 FACTORY ACTIVITY CONTRACTS IN MAY That was the message sent by the Institute for Supply Management’s latest manufacturing PMI. The May reading dropped 1.7 points to 49.0%. On the other hand, the ISM service sector PMI rose 0.6 points in May to 53.7.3 FED BEIGE BOOK HINTS AT SLOWER GROWTH The central bank’s latest anecdotal survey of businesses, lenders and other segments of the private sector noted “modest to moderate” economic expansion, as opposed to the “moderate” growth referenced in the previous edition. It did report a “moderate to strong pace” of expansion in the real estate sector.4 STOCKS RISE, 10-YEAR TIPS REAL YIELD GOES POSITIVE Volatility didn’t stop stocks from advancing last week – the Dow rose 0.88% to 15,248.12, the NASDAQ 0.38% to 3,469.22 and the S&P 500 0.78% to 1,643.38. NYMEX crude soared 4.4% for the week to settle at $96.03 Friday. Another factoid of interest: the real yield of the 10-year note went into positive territory this week for the first time since January 23, 2012.2,5,6 THIS WEEK: The data stream looks to be fairly light this week. Monday offers earnings reports from Lululemon, Pep Boys and Annie’s. Nothing major is scheduled for Tuesday. Men’s Wearhouse and H&R Block announce quarterly results on Wednesday. Thursday, the Census Bureau provides its May retail sales report, Casey’s General Store reports earnings, and the latest initial jobless claims figures arrive. Friday sees the release of May’s Producer Price Index, the Federal Reserve’s report on May industrial output and the University of Michigan’s preliminary June consumer sentiment survey. Sources: barrons.com, usatoday.com, bigcharts.com, treasury.gov – 6/7/135,6,7,8
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
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Please feel free to forward this article to family, friends or colleagues.
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Gregg Hancock is a Wealth Management Officer with First Midwest Wealth Management and may be reached at 309-797-7622 or emailed gregg.hancock@firstmidwest.com to schedule a time to discuss your wealth planning questions. ____________________________________________________ This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. Citations. 1 – bloomberg.com/news/2013-06-07/payrolls-in-u-s-increased-175-000-in-may-unemployment-at-7-6-.html [6/7/13] 2 – blogs.barrons.com/stockstowatchtoday/2013/06/07/market-snaps-two-week-losing-streak-on-solid-jobs-report/ [6/7/13] 3 – ism.ws/ISMReport/NonMfgROB.cfm [6/7/13] 4 – articles.chicagotribune.com/2013-06-05/business/chi-fed-beigebook-20130605_1_u-s-economy-federal-reserve-most-districts [6/5/13] 5 – usatoday.com/money/markets/overview/ [6/7/13] 6 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F7%2F12&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F7%2F12&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F7%2F12&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F6%2F08&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F6%2F08&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F6%2F08&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=6%2F6%2F03&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=6%2F6%2F03&x=0&y=0 [6/7/13] 7 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=6%2F6%2F03&x=0&y=0 [6/7/13] 8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [6/7/13] |
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