It’s getting down to crunch time, people.
Market Roundup
The Federal Reserve will wrap up its all-important policy meeting precisely two weeks from today. There is a very real possibility we will get the first short-term interest rate hike since June 2006.
But is it a lock? What do the most recent figures on jobs and growth tell us, not to mention the latest Fed comments? Will they go … and is the market convinced it’s the right move?
The biggest potential development was today’s jobs report from the ADP Research Institute. It showed the economy added 217,000 jobs in the month of November, up from a revised 196,000 a month earlier and slightly above estimates.
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| More people are heading off to work. How will the Fed react? |
Employment was decent across company size, though a clear dichotomy was evident between service-oriented firms and those focused on manufacturing. Services firms added 204,000 jobs, while manufacturers added just 6,000.
We won’t get the official Labor Department figures until Friday. But all else being equal, the data supports the case of people at the Fed who want to hike rates. That would include Atlanta Fed President Dennis Lockhart, who said today in Fort Lauderdale, Florida, that “the case for liftoff is compelling”
On the other hand, the news we got yesterday from the Institute for Supply Management was pretty grim. The group’s key manufacturing index dropped to 48.6 in November from 50.1 a month earlier.
That easily missed economist forecasts. More importantly, it was the weakest reading going all the way back to June 2009. Long-term Treasury yields fell sharply in the wake of the news, hitting their lowest level in more than a month.
| “The Labor Department figures support the case of people at the Fed who want to hike rates.” |
We didn’t get any upside market momentum or encouraging inflation news (from the Fed’s perspective) from the latest oil inventory figures or the commodities market in general, either. Crude briefly dipped below $40 a barrel after the Energy Information Administration reported a supply build of 1.2 million barrels in the most recent week. OPEC ministers also aren’t expected to cut output at the meeting they’re holding in Vienna this week.
Lastly among the cross currents were comments from Fed Chairman Janet Yellen. At the Economic Club of Washington, she downplayed concerns about weak inflation and the negative influence of foreign economic struggles. She also argued that the “economy has recovered substantially,” citing strong auto markets, solid housing spending and the positive influence of the wealth effect (read: Higher house and stock prices).
Bottom line: This is definitely a “live” meeting in the sense that the Fed could move. But whether it will or not remains to be seen.
I believe that no matter what they do in two weeks, you should expect more volatility, more wild swings, and more pressure on key corners of the debt and equity markets. That’s why the “caution first” investing strategy I’ve been advocating since early summer still makes all the sense in the world.
Now, I want to hear what you think about the conflicting signals on jobs and manufacturing activity? Are things getting worse, better, or staying largely the same for the U.S. economy? What does that mean for your investing strategy? And how do the remarks from Fed officials like Lockhart and Yellen factor in, if at all? You can add your comments to the discussion on this web page.
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Black Friday and Cyber Monday are in the history books for another year, but there are still a few weeks left to the holiday shopping season. So what kind of season do you think it will be?
Reader Chuck B. said it’s too early to make a definitive call, but he had some opinions nonetheless. His take: “It remains to be seen how the holiday shopping has and will go. Apparently, online shopping did very well in the black days, while in-store business suffered at least a bit. There are still several weeks of December to go, though, and this will either make up the difference, or not.
“My guess would be that not as much business as hoped for will be done in that time, and the totals will be somewhat disappointing — especially to the large retailers. There may be some good sales in January. Amazon.com (AMZN) and a few other onliners will do well though, maybe showing significant gains.”
Reader Richard also suggested online retailers like Amazon.com are in the right place at the right time. His comments:
“I have to admit, I am dedicated to Amazon. Bezos has made it so easy to shop. Number one is service. Amazon tops the list. Number two, I received an email from Amazon stating that they had calculated my import duty wrong and they will be depositing a refund back into my account. Who does this? I would have never missed the $4.94.”
Reader $1,000 Gold added the following upbeat view on the economy and sales: “Cars are selling like crazy. People are driving everywhere now because of the low oil prices. Families are also stopping to eat, shop, and even take vacations. All this increased activity will translate into an improving economy.”
But Reader Jim said the economy still faces challenges that could put a damper on sales going forward: “This ‘recovery’ is like nothing we have ever seen. Two percent growth, 94 million not working, serious healthcare disruptions, and contract manufacturing don’t point to a great economy dead ahead — and this after six years of zero interest rates.
“Many key companies, like Deere & Co. (DE), are announcing layoffs and giving earnings warnings. Our big trading partners, Europe and Japan, are basket cases. We are slipping into another unwanted war with the wrong people in charge. They are worried about climate change. I do not see smooth sailing ahead.”
Thanks for sharing everyone. It is still early in the holiday season, and the news seems to be mixed as many of you noted. Online retailers like Amazon are grabbing significant market share, while offline retailers like Wal-Mart Stores (WMT) are struggling. I maintain we need to see both horses pulling in the same direction to bolster the broader economy, however. So the next couple of weeks will be crucial when it comes to fourth-quarter growth.
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Late in the day, news broke of a mass shooting incident in San Bernardino, California. Early reports are sketchy, but there may have been multiple assailants and 20 or more people injured or killed.Federal and local law-enforcement swarmed the scene, and many people were seen on television exiting an office park with their hands up. It’s too soon to say more about it other than my thoughts are with the victims in this difficult time.
The European Central Bank meets tomorrow, and investors are wrestling with what kind of announcements to expect. The ECB is currently buying roughly 60 billion euros a month worth of bonds, and some expect policymakers to boost that amount. They could also cut interest rates deeper into negative territory, widen the pool of bonds to buy, or extend the length of their buying pledge past September 2016.
Of course, none of Mario Draghi’s Euro-QE is actually working to boost inflation — which is the whole point. I say that because we just got fresh out of Europe today showing inflation rose just 0.1% last month, half the rate economists expected. Core inflation fell to 0.9%, versus expectations for a reading of 1.1%.
Facebook (FB) founder Mark Zuckerberg and wife Priscilla Chan just had a new baby girl Max — and they revealed they will give away almost all of their wealth to charity in her honor. Specifically, they plan to donate 99% of the shares they own — almost $46 billion worth — over time.
The 2016 presidential election process is continuing to play out, even as many of us focus on economics and markets. The latest there? Democratic front-runner Hillary Clinton is pulling ahead, with 60% of Democratic voters falling into her camp, according to a new Quinnipiac University poll.
On the Republican side of the aisle, Donald Trump still leads with 27% support. But Ben Carson (16%) has fallen behind Senator Marco Rubio (17%), while Ted Cruz gained a few points to 16%.
So what do you think the ECB will do? What about Mark Zuckerberg’s plan — will such a large donation help make the world a better place? Any thoughts on where the election process is playing out, or how it might impact the economy? Let me know below.
Until next time,
Mike Larson
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Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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I am absolutely confused. The oil industry alone has let go 250,000 people this year. Almost everyday there is another report of a company laying off people from 220 at Deere to Caterpillar.The list goes on. Thousands more lost their jobs this year.
What the hell is really going on?
You have to take these numbers with a grain of salt. There’s a major birth-death adjustment for small and medium-size business hiring, and in the first and second announcements, it’s fuzzy math. It takes several years, with better data, to really get a handle on things.
It is clear now , for example, that growth and jobs numbers of 2013 and 2014 were inflated. The semi-final revisions make it all look more modest than it seemed at the time. I strongly suspect that 2015 will be similar: inflated numbers now, plus Wall Street hype, followed by later disappointing revisions.
These numbers are all bogus. There is a speck of actual data which is then manipulated, extrapolated, titrated and finally misrepresented to create something that serves no real purpose other than to move markets.
Its just love ke all these deficit/surplus numbers that are reported. Makes no difference, the only one that matters is the overall national debt, and that one has NEVER decreased YoY.
zuck’s plan, you ask? zuckerberg is giving away 46 billion in fb stock over the next 40-50 years, about a billion each year. let’s see, that’s a tax write off, isn’t it? so zuck can earn a billion a year every year and keep all of it for himself, right? i rate this right up there with corporations not paying taxes by changing their mailing address overseas.
I was goning to make some similar comments regarding this. You have taken care of it very well!
thanks, tommr.
So, you are saying we have a patriotic duty to maximize our taxes? Oliver Wendell Holmes once said it wa every persons duty to pay as few taxes as possible by any legal means available. I agree. Most of our tax money is stolen or wasted by the corrupt, incompetent government bureaucracy anyway. Jim
Zuck structured this thing through an LLC which won’t provide any tax advantages. Fact remains he and his wife are being amazing philanthropists
glad to hear that. i love to be wrong about this.
Hey Dan, i own the brooklyn bridge and will sell it to you for a few dollars…
it appears the llc is so zuck can give money to political causes, which is prohibited through charities.
He is cheating the government out of what by law belongs to the government. No one should be allowed to accumulate wealth in the first place, and when they do it should be returned to the rightful owner: the government. He did not build it: why should he have anything to say about how it is used.
Wow! Jim
You have it completely bass ackwards. Jim
two wrongs don’t make a right, jim. first, close these loopholes on taxes. they’re clearly bad for our country. second, stop these corrupt politicians – good luck with that one.
I too believe Zuckerberg is on the level. Jim
I hear you. I just think taxes are regressive. If you tax something you get less of it. I think a kinder tax structure would promote a more vibrant economy that would benefit everyone. I think the politicians know this and use the tax code for social engineering and political gain. Also they use it to reward their big financial backers. Jim
Our current tax system is the equivalent of taking water out of one end of the pool and pouring in the other end, using a leaky bucket. Somehow they get way with calling this stimulative spending. These guys own a printing press. Why do they have to borrow and tax in order to spend? Why can’t the US treasury just print what they need and leave us the heck alone? Now that would be stimulative! Jim
I guess he figured out,that he can’t take it with him.So,instead of burying him with his stock certificates,he will give it away before he dies.I don’t think he plans on becoming less than a $billionaire,anytime before he dies.Still,if his actions encourage others to give,while still alive,it may be worth something.On the other hand,if someone can make more money,investing it and then willing it when they die,maybe better to not give it away now.
Employment is the most lagging economic indicator of all. It reflects the economy last summer. It’s the last inidcator the Fed should be paying attention to here. Manufactiring is in recession now. That’s the most important indicator the Fed should be watching.
To $1,000 gold’s post
Actually if Zuck has $46 billion and he invested it at say 5%, the interest would be $2.3 billion a year. So he could give away $2 billion a year and he would still have more than $50 billion left in 50 years. So he needs to give away $3 billion a year (or so) to really start noticing it. If he just set aside $1 billion for his family, and didn’t make any more money, the interest on that $1 billion would be $50 million a year…Its truly an amazing number. Would be tough living on a million a week though.
I couldn’t keep track of it :)
Seriously, people like that invest most of their income. But the environment for productive use of capital is hostile. It’s all going into stock buybacks and M&A instead.
i’m not smart enough to figure out how they do it, but another example is bill gates who has been giving his microsoft stock to charity for some time now. since then, gates has become the richest man in the world – and is unemployed, as i understand it.
if i recall correctly, rockefeller made billions, yet paid very little taxes. if he put his billions of company stock into a charitable trust and there were no realized gains, then maybe he would pay no taxes, keep the full amount, plus still write the donation off on income. sort of a magic trick like changing your corporate mailing address overseas and not paying any taxes. i’m just taking a wild guess here.
The Kennedy Family and the Clintons could teach us all a thing or two about tax avoidance. The tax code is delighted by rich people so they don’t have to pay taxes. The working people get clobbered. Jim
amen. i don’t know exactly how they do it, but you and i end up paying in the end.
I find it interesting that Mr. Larson fails to mention all the those who have lost jobs in November. All year Obama has mentioned the job growths but yet there are many million with jobs now than when he stated, All of President Bush’s great economy in gone. When the Dems took over the purse strings and budgets in the 2996 elections, Bush’s deficit was near 1.5 trillion. Look at it now. Nearing 20 fast and that’s not counting the funds owed to Medicare, Medicaid, Social Security trust funds and to several retirement programs. All in all the deficit is between $100 and $200 trillion! No one really knows. We will never be able to pay it. Obama has won and got us right where he wanted us.
God Bless! JCH
Mike
Your co league at Weiss is talking up gold and commodities.. Where do you stnd on these asset classes ?
The economy can’t make up its mind if it wants to grow or shrink or do both at the same time. However many manufacturing jobs are tied to overseas sales. There are things that this country does better than anyone else on the planet. If you want a big,big power shovel to gouge out a couple of dozen tons of earth, you go to Bucyrus International in Chicago. Cat and GE provide most of the powertrain for locomotives or the whole thing. Construction equipment is another big seller. But when foreign economies falter we get bite in the end. Of course we do stupid things too. The new bridge across the San Francisco Bay was built with the steel roadway from China, and they are finding problems faster than they can fix them. Think about how many Americans that left unemployed.
Just a correction, Bucyrus is Cat as of 2011.
The euro is going down it is just a question of how far down. If the fed raises rates, what will that number do to the interest paid to the national debt holders? That’s why the rate won’t raise. The fed has already done QE 4. They quietly did it through the Japan bond market. Do some research and you’ll find out. Stay tuned to the collapse of the world economy as we know it.
No way no how Yellen will raise rates. This is all a Fed ruse, and the only way they will raise rates is if the dollar starts to slide horribly. Otherwise, it will be one excuse after the other why rates will stay at zero or even go negative. And QE 4 is probably right around the corner.
TIME TO HEDGE WITH INSURANCE FOR UNPLEASANT OUTCOMES
See what happens next time the stock market takes a major correction. Then the FED will print like never before. The FED’s balance sheet is currently $4.2 Trillion. Alot of it is bad debt instruments that can not be liquidated at cost. When they panic, figure they print 4 X + $ 12 Trillion = $ 16 Trillion more dollars.
M3 money supply is about $ 12 Trillion ( this is deposits and checking accounts less than $100,000). It will increase to $16 Trillion. Then M3, currently $16 Trillion, will go way up to $20 Trillion. National Debt up to $22 Trillion. Get the picture. First deflation, then high inflation and the end of our 40 year roller-coaster ride.
System reset. Good bye dollar, hello Yuan. Better diversify with some gold bullion or coins just in case and store securely. Buy some ‘insurance’, as you might actually need it ten years from now. Better Safe than Sorry.
A rate hike would collapse the global economy and drive down reported profits for US multinationals that get more and more revenue from overseas. But its not Yellens fault, rates should have gone up 2 years ago. Instead bernanke chickened out leading to massive amounts of capital flowing to bad investments.
A rate hike would collapse the global economy and drive down reported profits for US multinationals that get more and more revenue from overseas. But its not Yellens fault, rates should have gone up 2 years ago. Instead bernanke chickened out leading to massive amounts of capital flowing to bad investments…
Yellen has to raise rates or confidence will be shattered in the fed mandate, ntm apocalypse for savers and pension funds need new skin I the game
I do hope Mark Zukerberg and his family will follow the Bill & Melinda Gates Foundation model. To date, these huge resources, harnessed with Rotary International’s human skill sets, have all but eliminated Polio, world-wide. 35 years ago about 385,000 unfortunate children contracted this horrible disease every year. It’s time for the conquest of Malaria, Dengue Fever, River Blindness, Leprosy and many other debilitating tropical diseases that blight the developing world. Disease and its effects are the greatest impediment to eliminating world poverty. As Ghandi said: “Poverty is the deadliest form of violence”. A $46 Billion fund, wisely administered, can yield $3 to $5 billion/year for decades. These funds, in the hands of Rotary International or Medicines Sans Frontieres/Doctors Without Borders, can do an immense amount of good; ameliorating human suffering and poverty. Government taxes are no substitute!