United States Consumer Credit increased to $26.01 Billion in July from $18.81 Billion in June. Consumer credit has been rising over recent months as banks become more willing to lend and consumers become more willing to borrow. US Retail Sales rose 0.58% in August over the prior month. This marks a year over year increase of 5 percent. Retail sales, excluding automobiles advanced 0.30% in August within the retail sales index. These numbers bode well for the overall US economy as borrowing and purchases increase as consumers feel more confident with their employment situation. US Initial Jobless Claims was 315,000 for the week ending September 6th, an 11,000 increase from the prior week.
Low rates have not been reason enough to continue an expansion in real estate. US Mortgage Bankers Association Mortgage Applications dropped 7.2% in the week ended September 6th. Renting continues to be the living arrangement of choice for those in their 20’s and 30’s. There are various reasons why this is the case, but we may need to look no further than the “slack” in the jobs markets the FED refers to in their monthly statements.
China’s month over month inflation rate increased 0.20% in August and increased 2.0% year over year. Inflation continues to be a non-factor globally for the most part. This should allow for continued loose monetary policy from central bankers. Accommodative central banks mixed with improving earnings and a strengthening consumer have been positive themes for the stock market.
Last week, U.S. Stocks and Foreign Stocks and Bonds all decreased. During the last 12 months, STOCKS outperformed BONDS.
Returns through 9-12-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
– .6
3.6
5.1
2.3
4.2
4.6
US Stocks-Standard & Poor’s 500
-1.0
9.0
20.4
22.1
16.2
8.1
Foreign Stocks- MS EAFE Developed Countries
-1.3
1.4
9.0
15.0
7.2
6.7
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
“Your Financial Choices” The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week, Laurie will does a retrospective as the show celebrates a 5 year anniversary: “5 Years on WDIY:Looking back at the topics covered, guests and personal moments”
Laurie will take your calls on this topic and other inquiries this week. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.comand visit www.wdiy.org.
“No matter how old you are now. You are never too young or too old for success or going after what you want. Here’s a short list of people who accomplished great things at different ages…
1) Helen Keller, at the age of 19 months, became deaf and blind. But that didn’t stop her. She was the first deaf and blind person to earn a Bachelor of Arts degree.
2) Mozart was already competent on keyboard and violin; he composed from the age of 5.
3) Shirley Temple was 6 when she became a movie star on “Bright Eyes.”
4) Anne Frank was 12 when she wrote the diary of Anne Frank.
5) Magnus Carlsen became a chess Grandmaster at the age of 13.
6) Nadia Comăneci was a gymnast from Romania that scored seven perfect 10.0 and won three gold medals at the Olympics at age 14.
7) Tenzin Gyatso was formally recognized as the 14th Dalai Lama in November 1950, at the age of 15.
8) Pele, a soccer superstar, was 17 years old when he won the world cup in 1958 with Brazil.
9) Elvis was a superstar by age 19.
10) John Lennon was 20 years and Paul Mcartney was 18 when the Beatles had their first concert in 1961.
11) Jesse Owens was 22 when he won 4 gold medals in Berlin 1936.
12) Beethoven was a piano virtuoso by age 23.
13) Issac Newton wrote Philosophiæ Naturalis Principia Mathematica at age 24.
14) Roger Bannister was 25 when he broke the 4 minute mile record.
15) Albert Einstein was 26 when he wrote the theory of relativity.
16) Lance E. Armstrong was 27 when he won the tour de France.
17) Michelangelo created two of the greatest sculptures “David” and “Pieta” by age 28.
18) Alexander the Great, by age 29, had created one of the largest empires of the ancient world.
19) J.K. Rowling was 30 years old when she finished the first manuscript of Harry Potter.
20) Amelia Earhart was 31 years old when she became the first woman to fly solo across the Atlantic Ocean.
21) Oprah was 32 when she started her talk show, which has become the highest-rated program of its kind.
22) Edmund Hillary was 33 when he became the first man to reach Mount Everest.
23) Martin Luther King Jr. was 34 when he wrote the speech “I Have a Dream.”
24) Marie Curie was 35 years old when she got nominated for a Nobel Prize in Physics.
25) The Wright brothers, Orville (32) and Wilbur (36) invented and built the world’s first successful airplane and making the first controlled, powered and sustained heavier-than-air human flight.
26) Vincent Van Gogh was 37 when he died virtually unknown, yet his paintings today are worth millions.
27) Neil Armstrong was 38 when he became the first man to set foot on the moon.
28) Mark Twain was 40 when he wrote “The Adventures of Tom Sawyer”, and 49 years old when he wrote “Adventures of Huckleberry Finn.”
29) Christopher Columbus was 41 when he discovered the Americas.
30) Rosa Parks was 42 when she refused to obey the bus driver’s order to give up her seat to make room for a white passenger.
31) John F. Kennedy was 43 years old when he became President of the United States.
32) Henry Ford Was 45 when the Ford T came out.
33) Suzanne Collins was 46 when she wrote “The Hunger Games.”
34) Charles Darwin was 50 years old when his book On the Origin of Species came out.
35) Leonardo Da Vinci was 51 years old when he painted the Mona Lisa.
36) Abraham Lincoln was 52 when he became president.
37) Ray Kroc Was 53 when he bought the McDonalds Franchise and took it to unprecedented levels.
38) Dr. Seuss was 54 when he wrote “The Cat in the Hat.”
40) Chesley “Sully” Sullenberger III was 57 years old when he successfully ditched US Airways Flight 1549 in the Hudson River in 2009. All of the 155 passengers aboard the aircraft survived.
41) Colonel Harland Sanders was 61 when he started the KFC Franchise.
42) J.R.R Tolkien was 62 when the Lord of the Ring books came out.
43) Ronald Reagan was 69 when he became President of the US.
44) Jack Lalane at age 70 handcuffed, shackled, towed 70 rowboats.
45) Nelson Mandela was 76 when he became President.
On Thursday, my older daughter Erika delivered a healthy baby boy, Maxwell Petrozelli. “Max” like Erika and her husband Matt, has a full head of black hair. At birth, he weighed 8 lbs 3 oz and his length was 21 inches. Erika, Matt and Max live in Saucon Valley, a 17 minute drive from my house. I suspect the route between my house and Max’s will become a well worn path.
The sun will come out in November. That’s the hope. Until then, the Wall Street weather report is for seasonal clouds and rain, as investor concerns over rising interest rates intensify.
Last week, stocks fell about 1% after five consecutive weekly rises, the skid greased by Friday’s release of strong August retail sales. And preliminary September consumer-sentiment numbers were the highest in a year.
Good news is bad news because investors believe that a strengthening U.S. economy will force the Federal Reserve to raise rates more quickly than foreseen. While there are plenty of domestic and overseas political developments that could command headlines, expect rates to dominate.
Last week, the Dow Jones Industrial Average fell 150 points or 0.9%, to 16,987.51, and the Standard & Poor’s 500 index lost 22 points to 1985.54. The Nasdaq Composite gave up 15, or 0.3%, to 4567.6.
“It’s a tug of war out there,” says Douglas Coté, chief market strategist at Voya Investment Management, between joy over U.S. economic growth and fear of rising rates. As the Fed winds up its quantitative-easing program, probably next month, he says, “the transition will be key in the immediate term, and markets will be volatile.”
The Commerce Department said Friday that August U.S. retail sales rose 0.6% over July, with positive revisions in previous months. The better-than-expected sales rise, among other positive data, has the market worried that rates will be hiked faster than anticipated, says Michael Arone, chief investment strategist at State Street Global Advisors. The market expects a first hike of the federal-funds rate in mid-2015.
Not surprisingly, these fears hurt bond prices and pushed up 10-year Treasury yields last week to over 2.6% from 2.35% just a few weeks ago, points out Cameron Hinds, chief investment officer for the Great Lakes region at Wells Fargo. (Bond prices fall when yields rise.) The question remains, “When will the Fed raise rates?” he says, “because the current run rate of U.S. economic growth justifies higher rates.” It could be earlier than the market thinks, Hinds adds. Voya’s Coté sees a March hike.
The market seems certain to focus on the Fed’s news conference on Wednesday, which follows the open-market committee meeting.
Yet, there remain other worries for investors, Arone notes, such as violence in the Middle East and Ukraine, the U.S. midterm elections, the anticipated additional easing moves of the European Central Bank, and even Scottish independence. Still, all three pundits believe that stocks will eventually follow the U.S economy higher.
And on Thursday, Alibaba Group (ticker: BABA) should price its initial public offering. Demand seems high, and the IPO price could exceed the range of $60 to $66 and generate over $20 billion.
That same day, we should find out if Scotland will remain part of the United Kingdom. Aye, laddie.
Scottish Independence would shake up the Global system. Polls released today showed for the first time that a majority — an extremely small majority, but a majority nonetheless — of Scots favor independence. A poll is not the election which will be held Sept. 18. The political union between Scotland and England might be abolished after 300 years. The implications of this are enormous and generally ignored.
One of the principles of post-World War II was the inviolability of Europe’s borders. Border disputes were the origin of centuries of war, and so Europe’s borders were frozen after World War II to avoid discussion.
Scotland separating from England can’t be minimized. If that centuries-old union can be revised, then anything can be revised. Scottish separatists’ reason for splitting is that they are a separate nation, that each nation has the right to its own state and the right to determine its own destiny, and that they no longer choose to be in union. But if they have the right to determine this, why shouldn’t others in Europe enjoy the same right?
For example, modern Spain is an amalgam of regions. One, the Catalan region — which contains Barcelona — has a strong separatist movement. If Scotland can leave the United Kingdom, then why shouldn’t Catalonia be allowed to leave Spain? Meanwhile, if French-speaking Belgians and Dutch-speaking Belgians wish to part ways and return their two regions to their respective countries of origin, why should they not be allowed to? And why shouldn’t the eastern part of Ukraine be allowed to secede and join Russia?
Raising the stakes, this is an issue that goes far beyond Europe. There are seemingly innumerable separatist movements in India, China, Africa and so forth. If Scotland has the right to leave the nation-state it is part of and form a new one based on ethnic identity, why can’t anyone follow suit? And if anyone can do it, but they are blocked by the state they wish to leave, is resorting to violence in pursuit of independence legitimate?
Having Scottish Independence happen in the heart of Western Europe would set a clear precedent that would expand geographically and conceptually. It would legitimize similar movements globally and force a reconsideration of what a nation is. Ultimately, a nation would be whatever the majority says it is (Source: Stratfor Global Intelligence).
Most of the time the U.S. stock market looks to 3 factors (call them the “pillars” that support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: We have graded this factor B (above average) based upon the increase in retail sales as reported in recent economic reports.
THE FED AND ITS POLICIES: We continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: We CONTINUE to rate this factor B- (slightly above average).
The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. We have identified one potential international crisis hot spot:
Iraq and the “powder keg” in the Middle East including Gaza. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate this Middle East powder keg situation as a 3 at this time. This is unchanged from last week, but still elevated. Risks continue to lurk, and they deserve our ongoing attention.
Manufacturing remains strong for the US economy. US Factory orders popped 10.50 percent in July from a revised 1.50 percent in June while construction spending increased 1.80 percent in July. The Institute for Supply Management Manufacturing Purchasing Managers index increased to 59 percent in August from 57.10 percent in July. A reading above 50 indicates the manufacturing economy is generally expanding.
The labor market reported mixed results as US Initial Jobless Claims were 302,000 coming in near its moving average, while US Non Farm Payrolls decreased to 142,000 in August from 212,000 in July. Payrolls was a big surprise for economists, many believing this report being a one month blip. The Labor Force Participation Rate increased to 62.90 percent in July from 62.80 percent in June. The participation rate averaged near 66 percent for the prior decade which confirms the “slack” in the economy the Fed has been referring to. US Average Hourly Earnings grew .20% in August from the prior month.
A great deal of focus was on the European Central Banks interest rate decision. As expected Mario Draghi, President of the ECB, increased monetary stimulus by lowering the interest rate on the main refinancing operations of the Euro system by 10 basis points to 0.05% and the rate on the margin lending facility by 10 basis points to 0.30%. The rate on overnight deposits was reduced to -0.20%. In addition to the changes in interest rates, the European Central Bank will purchase a broad portfolio of asset-backed securities.
This week’s labor report and Europe’s monetary stimulus decision leads to continued healing and slow growth of the US economy. Lower rates in Europe should keep US rates low while the Fed continues to provide accommodative policies in order for the labor market to strengthen.
Last week, U.S. Stocks and Foreign Stocks increased. Bonds declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 9-5-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
– .4
4.3
6.3
2.5
4.4
4.7
US Stocks-Standard & Poor’s 500
.3
9.8
23.4
21.7
16.7
8.3
Foreign Stocks- MS EAFE Developed Countries
.1
2.2
12.9
13.0
7.8
6.8
Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.
