Monthly Archives: March 2017

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The Fed thinks the economy is doing well

Is it really?

The week in review

Just as was expected last week, the news focused on Ms. Yellen’s press conference.  The announcement of a 0.25% increase came on Wednesday afternoon and the markets reacted favorably.  The S&P 500 almost made it back up to its high set at the beginning of the month but is still down a bit for the month and appears to be stuck in a fairly narrow range at the moment. Of course, Ms. Yellen said that the economy is improving and used that as the rationale for the increase.  The Fed left unchanged the expectation that we will likely see a couple more increases this year, but the language is contingent enough to leave some wiggle room. It is important to recall that the Fed has a mandate to  control inflation (and they usually raise rates to trim inflation) but in recent years have been working hard to try to get it up to 2.0%.  That remains their target.

I turn our attention to four other indicators of the economy: the dollar (measured by Symbol:UUP), Gold (measured by GLD), Oil (measured by USO), and longer term treasuries (measured by TLT).  So how did each of these react to Ms. Yellen’s comments? The dollar dropped by 1% within an hour of her press conference implying that the currency market doesn’t think the economy is doing a lot better. In response, the price of Gold was up 2.56% by Thursday’s open. This could have been caused by the fear that the Fed will actually let inflation go to levels well above 2%; or simply a reaction to increased uncertainty. Oil had actually already seen a sharp decline in the previous week and continued to float sideways.  Finally, we saw a bit of rally in the price of bonds as the long term rates ticked lower after the Fed’s announcement–the prices of the bonds went higher. TLT, the 20+ year Treasury ETF, has perhaps found some support this week after falling a bit. The difference in short term rates and long term rates, referred to as “the spread,” had begun to widen in the fall, indicating that the bond market felt that the economy was improving. That appears to no longer be the case as we have seen spreads between 2 and 10 year Treasuries begin to narrow. Maybe the Fed committee can see things that we cannot, but none of these other factors indicate a strengthening economy in my book.

As also expected, news pundits focused last week on job creation and were quick to point out that “wages are on the rise.” But where?  On Wednesday, the Bureau of Labor Statistics reported that real average hourly earnings were unchanged from February 2016 to February 2017. That combined with a decrease in the average workweek spells a 0.3% decrease in real average weekly earnings. Finally, the Atlanta Fed reported a drop in its first quarter GDP forecast to 0.9% from 1.2%.

On Friday, I visited The HomePlace at Midway and enjoyed a delightful St. Patrick’s Day luncheon with some wonderful people there. I believe that the HomePlace is a clear example of how long term care should be provided.  It is a Green House Community and worth your look if you or a loved one will need long term care. Sadly, the waiting list is long.

A look ahead

This week enjoys a fairly light week of economic reports. We will see some real estate reports on Tuesday, Wednesday, and Thursday. Durable goods orders will be reported on Friday.  Many managers are looking toward the end of the quarter and are already making adjustments to their portfolios in anticipation. The stock market begins the week looking to find some direction, having been in a narrowing up-trend in recent weeks. The 50 day exponential moving average is above the 200 day on all the major indices, but momentum seems to struggling a bit.  We will watch these things as they unfold this week.

Later in the week, I plan to release a bit of research that I have been doing on the lack of wage growth and how that relates to spending as inflation picks up. Since the largest percentage of the GDP is comprised of consumer spending, I think this can be a significant macro development, but it affects us all very personally and has implications for our financial plans. I will let you know when it is ready.

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Want to stay in your house, not a nursing home?

Check out my interview with Tom Martin

Aging gracefully doesn’t just happen, but it is possible. Where we live throughout elderhood is a major contributor to how well we age. In more than 30 years of professional practice, I have had one client tell

me that she actually wants to go to a nursing home when she reaches an advanced age. All the rest want to stay at home and age-in-place.  Many of our boomer clients are concerned about where their parents will live.  It takes flexible planning ahead of time, or crisis management at the moment of need, to achieve this important goal.  I was recently interviewed by Tom Martin for the Lexington Herald Leader on Aging in Place.  Click here for the article or here for the podcast of the entire interview.

In the interview I refer to a book by David Solie, How to Say it to Seniors, Closing the Communication Gap with our Elders.  I found it very helpful and can recommend the book to anyone who needs to communicate better with their seniors.

Scroll down and leave a comment about what concerns you the most about a long-lived life; yours, or someone you care about.

 

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No time for complacency

Investment Update 3-13-2017

The week in review

 

The Dow Jones rose 0.21% on Friday but ended the week down 0.49%. The S&P 500 rallied 0.33% on Friday but also posted a weekly loss, losing 0.44%. The stock market is close to where it was a month ago after hitting a new high at the beginning of March. It has attempted to move higher, but has failed. As we all know, it can move aggressively up or down from here. The rally seen since the election has been largely riding on the expectation of tax cuts and infrastructure spending–both viewed as stimulative to the economy. See my post from November on Trump-o-nomics.

On Friday, the official February jobs report from the Labor Department showed that non-farm payrolls rose by 235,000 last month from January. The consensus was looking for 200,000, so this was interpreted as a positive and gives added impetus to the Fed to raise rates next week. The unemployment rate ticked down to 4.7%, on both increased employment and an increase in the workforce participation rate. Oil had another bad day on Friday, with crude oil futures dropping 1.6% to below $49/barrel. OIL (the ETN) has been very volatile for the past year.

Real estate, as marked by the REIT ETFs (VNQ and IYR), have fallen this month to levels that give concern, but we have been here before, as recently as the end of January. The dividend rates (4.94% and 4.43% respectively on these ETFs) help investors to maintain interest in real estate.

The week ahead

 

This week is chocked full of economic reports. Inflation for February will be reported by the producer’s price index on Tuesday and the consumer price index and retail sales on Wednesday. Crude oil inventories are also due out on Wednesday.  Undoubtedly, much of the news this week will focus on the Federal Reserve meeting and whether they will raise interest rates.  Fed-funds futures now peg the chance of a rate increase at the FOMC meeting next week at 93%.  The announcement is scheduled for 2:00 PM on Wednesday. A small increase (probably 0.25%) has likely been priced into the market already. They could raise rates even more which would upset the markets, but that is not likely. It is helpful to remember that the Fed only controls short term rates. The bond market controls longer bond rates.  (In fact, I have recently remarked that someday President Trump will learn that the bond market is truly the one in charge, not him.)  I expect that we will find out more about Trump’s budget proposals later this week. He is expected to cut many government programs; except military spending, which could see a substantial increase. Other programs are likely to be cut to keep the proposal revenue-neutral. Expect an increase in activity from special interests that want to protect their favorite program, but their efforts might fall on deaf ears. We will also likely hear more turmoil as Congress continues its attack on the Affordable Care Act.

As noted above, the market is riding on the expectation of infrastructure spending and tax cuts. Since clarity on either is not likely to be forthcoming, markets could be disappointed on many fronts. This week could be pivotal. Alert levels should have been moved up in the recent rally. Close scrutiny is a must in this market. This is not a place or time for complacency.

I make an effort to be clear, but our industry is full of jargon. Be sure to let me know if I use terms with which you are unfamiliar. Let me know if there are financial planning or investment topics that you would like to see covered in this blog.  Scroll down and leave a comment.