The Baker Group
Crossroads 2016: Solutions for Managing Interest Rate Risk, Liquidity and Investments
Surprises to the upside are almost always well received. Like getting a Baker’s dozen at the Crispy Creme, or finding a good parking spot downtown. [Last] week’s slate of economic releases contained a few upside surprises of its own. Nothing quite on the same order as discovering there’s an extra glazed donut in the box, but still some pretty good news. [Friday] morning, in the Bureau of Labor Statistics’ monthly employment report, we learned that the Unemployment Rate fell to 7% from October’s 7.3%. That’s a five year low.
It might very well be that the most significant, market-moving event of the week actually happened last month. With [last] Wednesday's release of the FOMC's minutes from their July meeting, the Fed disappointed many, if not most, market participants who thought they would be getting some clarity about Chairman Bernanke's tapering intentions. Well, if they'd been thinking, they wouldn't have thought that.
Edward Snowden is not the only one for whom [last week] was a big week. For those not seeking political asylum, [last] week was filled with market-moving statistics and events. Just [Friday] morning, the always much anticipated Employment Report from the Bureau of Labor Statistics (BLS) was unleashed on a marketplace expecting to see a 185k increase in Non-Farm Payrolls. What they got was a less-than-robust gain of 162k new jobs along with a downward revision of last month's figure. The 195k jump in new jobs that was reported in July was actually only 188k.
Information received since the Federal Open Market Committee met in June suggests that economic activity expanded at a modest pace during the first half of the year. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth.
With [Friday] morning's release of the University of Michigan's Index of Consumer Sentiment showing a rise to 85.1 from 83.9, one wonders if survey takers might have taken a detour around Detroit. Apart from the financial maladies that plague that beleaguered municipality, a rosier outlook was also manifested by the 8.3% rise in New Home Sales, which more than made up for the 1.2% decline in Existing Home Sales. As far as prices are concerned, the FHFA House Price Index rose by .7% in May.
In his two days of Congressional testimony this week, Fed Chairman Ben Bernanke, excluded from Fifth Amendment protection, used the legislative forum to continue to downplay the perception that it is the FOMC's intention to begin a "tapering off" of their $85B monthly bond purchases. Mr. Bernanke took the opportunity to assure market participants that monetary policy will be "highly accommodative for the foreseeable future." The question then becomes, just how far can Ben foresee? He also reiterated that the future direction of monetary policy is not...
For those who were lucky enough to be a teenager during the 70's, you may recall the urban myth surrounding everybody's favorite rock band, Led Zeppelin. It was rumored that if one played "Stairway to Heaven" backwards, at high speed, hidden messages could be detected. Well, coming from one who tried to find those hidden messages, they were never discovered and all I succeeded in doing was scratching up my favorite album. Now, I realize that some readers won't know what a record album is, but that's beside the point.
From a galloping horse, one might be hard pressed to see what Ben Bernanke and Paula Deen have in common. Both, it seems, have had difficulty lately in being understood by their respective followers. For Ms. Deen, the problem may lie with her message; for Mr. Bernanke, the problem may lie with his audience. Ben’s audience, which is pretty much everybody, seems to have heard things that were never actually said. So, it’s been an interesting week as a veritable Murderer’s Row of Fedspeakers have gone to great lengths to clarify the Chairman’s previous clarification.