Well, so much for the utility of the ADP number as a predictor of the gubment number.The report was really bad, weak growth plus a high increase in wages. This report of course now means that the Fed absolutely, positively will--wait, it probably means nothing.
Whatever the report indicates for the Fed could easily be reversed by some other number that comes before the next Fed meeting.
The last time I wrote about the Fed being data dependent a reader left a comment asking whether the Fed is always data dependent, implying that the newness of the term is silly. The reader was of course correct.
I have tried to encourage a line of thought that is not so obsessed with each data point and the Fed. I think it is important to follow and try to understand the data and the Fed but there are not too many investment decisions that need to be triggered as a specific reaction to the Fed.
History tells us they will go a little too far and then stop. They are probably very close to the end but that could change, I suppose. Someone on TV today will bring up stagflation as a possibility; maybe it will be Peter Bookvar.
I think we are a long way from that being conclusive but it makes sense to being on the lookout, higher wages (ie inflation), fewer jobs (ie less growth), just be aware is all I am saying.
6 comments:
While I fear the FED going to far also, I challenge that this will occur as frequently in the future.
1. They have virtually eliminated 0.5% rate hikes
2. Increased telegraphing FED intentions
3. Are unlikely to significantly invert the yield curve
These are the keys to a soft landing IMO and I believe the FED now recognizes them. No guarantees mind you, but a significant improvement on the past.
If the FED has figured it out that means better overall average growth in the future. This is very positive, although there will always be various rough patches, inflation concerns etc.
If what you say pans out I would agree. They have "eliminated" 50 beep hikes because they haven't needed them. I have no doubt that they would do more than 25 if they felt it was warranted. The expansion has been fairly mild so no need for nore than 25 at a time. Why are they unlikely to invert the curve significantly? Inflation containment is a priority over causing a recession, without ambiguity.
The dollar index value jumped down...see second link below. Is this an indication/continued validation that an entry into bonds, domestic or foreign is indeed a good idea. Now, infact, to start wading in and gaining exposure. The second link is a bond chart; there's clearly positive divergence. While the equities gyrate, bonds may offer a feel good sanctuary with profit potential.???? What ya think Roger?
http://stockcharts.com/h-sc/ui?s=agg&p=D&yr=1&mn=0&dy=0&id=p02907027153
http://quotes.ino.com/chart/?s=NYBOT_DX&v=s
The part of the curve that makes the most sense to me is the short end. The curve will normalize at some point. Investors buying ten year paper today at 5.2% will be bummed in a couple of years if/when ten year yields go to a historically normal level, maybe the mid sixes or low sevens?
My fixed income allocation is heavier to treasuries and TIPS these days. 5.2% for a year or two, "risk free," looks pretty good.
I am, and has always been a fan of foreign exposure in all asset classes. I would tell anyone with zero exposure to get some regardless of timing.
Generally I expect foriegn assets to outperform. Being US based I still have US assets but perhaps will have less in the future.
"Inflation containment is a priority over causing a recession, without ambiguity."
On this we can agree. I am not predicting nirvana. I am just predicting more soft landings, less frequent inversion of the yield curve.
Once in a while we will experience tough times. But I forsee the FED pushing things to a relatively flat yield curve instead of just forcing an inversion if they can.
If they can control things by using finess (flat yield curve) as oppossed to brute force (inverted yield curve) it will be very beneficial to both our markets and our economy. Hopefully they will suceed more often than not.
This is really a very positive step forward IMO.
from your keyboard to Ben's IM software?
I hope you are correct.
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