One of the things we talk about in the Investment Survival Workshop is developing the mindset to think ahead. The point being is that when you have a regular exercise routine, you have goals in mind. When you are planning an investment strategy, it’s no different. What’s your time period? Are you a long-term investor or someone who is just trading week to week or even a day trader? As part of a routine, find time to anticipate what’s going to happen for some period in the future.Everyone’s time frame will be different. With that in mind, here are a few of my ideas for the following week, beginning September 16th.
Next week is likely to be one of the more interesting weeks in some time. September which was forecast by the pundits to be a miserable month has so far confounded the talking heads and has been one of the better months of the year for the bulls. That could come to a halt or even accelerate to new highs next week.
Monday September 16th USA Industrial Production, Capacity Utilization, and Manufacturing will provide some insight into why the Dow Jones Industrial Average just had its best week since January. Was this a head fake or is U.S manufacturing picking up? The news from China and Europe has been more positive of late and that might be telling for these sets of numbers.
8th Annual BMO North American Real Estate Conference 9/16/13 – 9/17/13 (2 day conference) We will probably listen in on this as its being webcast. There isn’t much insider buying going on these days but there have been a few insider buys in REITS and Mortgage Backed REITS. We have started buying them as yields can now be had from 4.5% to 7.5% and that probably is a good deal in a liquid play levered to an improving office market and rental market. There will also be a two day workshop conference hosted by NAREIT in NYC.
BioProcess International Conference 9/16/13 – 9/19/13 (4 day conference) 4 Day Conference 9/16-9/19/13. For more information, please call 800-390-4078. There hasn’t been much hotter action than in biotech capped of my Viropharma big sure today on the news they hired Goldman Sachs to shop the Company.
Storage Networking Industry Association starts a 4 day conference. Call 415-402-0006 for more information. This looks like a worthwhile event to attend as the future of Twitter, Google, Facebook and Apple’s Icloud all reside on massive arrays of servers and realms of storage. Who’s making hay here will be a good question.
| 4 Day Conference 9/16-9/19/13. For more information, please call 415-402-0006. |
Tuesday September 17th German economic sentiment numbers come out soon followed by U.S Consumer Price Index which will be watched closely for any signs of inflation or even deflation. There is a spirited debate right now amongst 5 star economists, some of who argue that the Federal Reserve’s easy money policies are sure to ignite inflation. Then there are others led by Alan Blinder, former Vice Chairman of the Fed and current economics professor at Princeton that argue the proof is in the pudding, that there are no signs of inflation and not likely to be any soon.
Adobe reports earnings after the close Tuesday.
Wednesday September 18th– This is the big day, maybe the biggest day of the year. Will the tapering be officially begun by Chairman Bernanke and cohorts? The Federal Reserve Open Market rate decision is a formality. The only thing that is important is the Fed’s outlook and their decision on tapering back QE. Will they stick to the plan of $10-15 billion of less stimulus and how will it be apportioned, MBS or Treasuries or some combination of the two. We probably wont’ have to wait too long as Bernanke has a press conference planned for later in the day.
This is the JP Morgan view on tapering:
Oracle reports earnings after the close on Wednesday. They had a rough go of it on the last earnings report.
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If next week’s FOMC meeting delivers the first tapering — as we expect — the Committee may feel compelled to do something in their communications to anchor rate hike expectations and prevent the market from conflating asset purchase decisions with overnight interest rate policy. Below we discuss some options. In summary, we think the path of least resistance is to include an inflation lower bound, though it is certainly feasible other options are exercised.
Lowering the unemployment threshold. We think this is inadvisable, and we don’t think the Committee will choose this option. While lowering the unemployment threshold would push back market expectations of the first rate hike, it also comes with some problems. First, as mentioned in the last minutes, it risks creating the impression that the threshold can be adjusted up, as well as down, which would defeat the whole purpose of the threshold as a form of commitment. Second, six Committee participants believe the natural unemployment rate is 5.8% or higher. These participants would likely view lowering the threshold as particularly risky, and would likely increase the number of dissents. Thresholds are only an effective communication device when they are viewed by the public as representing a committee consensus, thus more dissents could actually make this move counter-productive, particularly at a time when prospective Committee turnover is quite high. Third, lowering the threshold would provide additional easing, rather than merely reinforce communications regarding existing policy. Easing and reducing easing (through tapering) at the same meeting makes sense if the Fed explicitly admits that their thinking on asset purchases was faulty — and the Fed rarely likes to admit their previous thinking may have been flawed. Finally, lowering the threshold does nothing to address what the FOMC is seeing as the emerging communication challenge: guiding expectations for the path of policy rates after the point of lift-off.
Qualifying the unemployment threshold with other labor market indicators. One option, related to the one mentioned above, is to qualify the 6.5% unemployment rate threshold with participation rate or employment- to-population ratio variables. While these measures may be referenced again in the press conference, we think this will not make it into the policy statement. There is a large amount of uncertainty regarding the equilibrium path of the labor force participation rate and it would be extremely difficult — more so than the unemployment rate threshold — to cobble together anything even resembling consensus on a suitable threshold for this variable.
Adding an inflation lower bound. We believe this has a decent shot at the upcoming meeting: it probably wouldn’t do much to alter expectations, but it doesn’t come with much cost for the Committee either. Given the existing 2.5% upper bound on an acceptable inflation outlook, adding a 1.5% lower bound would serve to emphasize the symmetry around the Fed’s longer-run inflation goal. Another option, stating that the Fed wouldn’t raise rates if the inflation outlook was below 2%, would create an asymmetry we think the FOMC would want to avoid. Stating that the Fed won’t raise rates if the inflation outlook one to two years ahead is below 1.5% wouldn’t really convey much new information: even without such a statement it’s likely that few now believe a reasonable Committee would tighten with such an outlook. Because of this, an inflation lower bound probably wouldn’t face too much resistance in the Committee. Indeed, the July minutes reference to this option mentioned only positives, but no drawbacks. For this reason we see an inflation lower bound as a relatively cheap option to send a modestly dovish message, albeit an option that probably wouldn’t do much to change policy expectations.
Presenting a consensus or median interest rate forecast. Throughout the second half of last year the FOMC devoted considerable time to developing ways to simplify the presentation of the Committee interest rate forecast, in the hope of giving the market greater clarity regarding the Fed’s intentions. By the time of the January 2013 meeting it seemed that presenting the median forecast of the Committee was the preferred approach. Doing so at next week’s meeting would arguably reduce the uncertainty premium embedded in longer-term interest rates and clarify the implicit message in the Summary of Economic Projections (SEP) that policy rate normalization will be gradual. The argument against expecting this for next week is that presentational changes to the Fed’s forecasts have tended to be pre-announced to the public ahead of the meeting.
Presenting the forecasts of the voting members. The numerical thresholds, and before them the calendar-based guidance, were both voted on by the FOMC. As the unemployment rate falls, interest rate guidance will transition from the thresholds to the interest rate forecasts presented in SEP. If left unchanged that means that Fed communications — which essentially is monetary policy — will transition from being determined by the 12 voting members of the FOMC to the 19 overall participants in that Committee. Returning monetary policy to the hands of the voters would arguably be more in the spirit of the Federal Reserve Act, though might not be welcome by all participants. Given the policy tilt of the voters relative to non-voters, this change would send a more dovish signal. The argument against expecting this change is the same as the one above: presentational changes to the SEP have tended to be announced ahead of FOMC meetings.
Tying the exit sequence to the thresholds. The first step in the current exit sequence is to halt reinvestments on principal payments, followed by reserve draining, and then the first rate hike. The current threshold policy specifies the first rate hike will occur when the unemployment rate falls below 6.5%, subject to well-behaved inflation. The intersection of these two plans leave the timing of halting reinvestments ambiguous. One option to reinforce the message that rates will be low for long is to link the first step in the exit sequence — halting reinvestments — to the unemployment and inflation thresholds. Given that rate hikes are scheduled to come only after reinvestments have been halted, this could serve to push back somewhat market expectations for the first funds rate increase. As with most options that effectively reinforce a dovish policy message, this one does so in a way that constrains policy. The Committee’s hesitancy to constrain policy particularly as it relates to the balance sheet makes this option a long shot.
Emphasize tapering is not tightening, etc. Tapering isn’t tightening; Future tapering decisions will be data dependent; Purchases can be decreased or increased. All of these messages have been said in previous press conferences, and we expect the same thing at next week’s press conference. Something may be gained from repetition, but we don’t see it as particularly newsworthy if the Chairman reiterates these points.”
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Housing starts, building permits, and mortgage applications will provide some insight into the health of the nation’s housing market. This is bigger than life on Wednesday as the discussion will immediately lead to the impact of rising mortgage loan rates and its impact on home sales.
Thursday September 19th It won’t be long before the talking heads will be second guessing the Fed’s decision on Wednesday. They will have plenty of help from the bevy of economic stats coming out. Initial jobless and continuing claims will provide some insight in the nations’s employment picture. Philadelphia Fed , existing homes and leading indicators will confirm the Fed’s wisdom from the day before or provide fodder for the critics. It’s hard to say what will happen here as there will be plenty of economists arguing both sides of the coin as usual.
Friday September 20th Three Federal Reserve speakers are scheduled to opine. Market participants will be eager to learn something more than Bernanke’s bedeviling have your own cake and eat approach. Its ironic that the Chairman called for more transparency than his predecessor Alan Greenspan but in the end has ended his term at the Fed with his own level of obfuscation and Fed-speak. That’s it for the week and it will likely be an exhausting one and by Friday everyone will be ready to put a lid on it. Let’s hope that Obama saves his choice for Bernanke’s replacement to another week. All that in one week could be unsettling.
Check with us throughout the week as we update this list throughout the week as events develop. The timing looks a bit uncertain but the next really big thing after tapering is the chubuki dance between Democrats and Republicans.
With the pause button pushed on the congressional debate over Syria, the House is turning its attention back to the issue that is expected to dominate the fall: the budget.I found the following article on NPR’s website:
The long-running fight over spending and the debt is back. The House was supposed to act this week to avoid a government shutdown at the end of the month, and leaders had hoped to avoid drama. But the vote has been delayed, and drama is brewing.
Conservatives who oppose the president’s health care law, Tea Party groups and others have been trying all year to get Republicans in Congress to take a stand, and to use one of the various cliffs and budget deadlines as leverage to defund or otherwise destroy Obamacare.
They spent the August recess arguing that this month’s budget deadline presents the last best chance to undo the law. But on Tuesday, House Republican leaders unveiled a plan to keep the government funded without any real likelihood of defunding the law.
The idea is sort of convoluted and full of congressional procedure. There would be a single vote in the House on a measure to fund government operations through December, while separately defunding Obamacare. Then once the bill was sent over to the Senate, senators would be forced to first vote on funding for Obamacare — before taking up the government funding language.
House Majority Leader Eric Cantor, R-Va., explained the idea at a press conference:
“The House has taken a stand numerous times on its opinion of Obamacare,” Cantor said. “It’s time for the Senate to stand up and tell their constituents where they stand on this atrocity of a law.”
It probably goes without saying the Democratic-controlled Senate would vote to uphold one of the president’s signature accomplishments, making this just another show vote.
Cantor has suggested the next debt ceiling fight, expected in October, would present a better opportunity to attack Obamacare.
You have to love it. No sooner than you think you have the market figured out, it throws you news you didn’t anticipate. Larry Summers dropping out of the Fed Chairmanship received a cheer on the futures Sunday night sending the markets almost 1% higher.