09/24/12: Here is a “look ahead” at a few items that we will be tracking carefully. These are just a few opinions that we have, and as with life, nothing is certain about them.
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First of all, here’s a “week-at-a-glance” view of what’s coming up over the next five market days.
Leading off today, French President Hollande begins a visit to the United States. Tuesday brings release of the S&P/Case-Shiller home price index and The Conference Board surveys consumer confidence nationwide. On the international front, world leaders are meeting in New York for the United Nations General Assembly debate. Numbers on August new home sales will be released on Wednesday, while on Thursday the National Association of Realtors produces its index of pending home sales from August. Also on Thursday, The Commerce Department reports on durable goods orders for August and issues its third estimate of second-quarter GDP growth. The market week ends Friday with data on personal income and spending scheduled for release along with The University of Michigan’s consumer sentiment index.
What does this mean for investors?
As a reminder, U.S. markets are primarily driven by the consumer. As a matter of fact, 70% of GDP is produced in that way, as opposed to 30% from manufacturing and other businesses. How confident consumers are feeling, both about their personal net worth (where real estate value is most often the major component) and how much they can spend is the real “driver” of the market in this country. A considerable amount of data is being released this week that will be taking this pulse.
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China’s economic growth, by historical standards, continues to be anemic.
China’s recent publication of their version of The Federal Reserve’s Beige Book shows that the effects of China’s monetary easing over the summer is having a limited impact, with banks increasing the availability of loans but companies borrowing less. Manufacturers and retailers were less optimistic than they were in the previous report, while increasing numbers of firms are reducing staff. The findings are in line with other data from China showing the economy continuing to slow, with the current 7-8% GDP growth rate being well below the “double digit” levels that have been produced in recent years.
What does this mean for investors?
A less-than-robust China is certainly not helpful in the current market climate. With Europe continuing to contract and the U.S. growth at levels that is not driving down the unemployment rate here, a slowing China does not help matters, particularly as it concerns purchase of U.S. capital goods. Also, just as in the United States, cheaper credit in the money system has a muted impact when sales are not as robust and companies are not as confident.
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France, Italy and Spain are beginning to overhaul labor laws in an effort to be more competitive.
Taking a page from the German “playbook,” these three countries appear to finally be confronting their bloated labor costs in a meaningful way. Italy has already passed measures this year that allow companies to lay off individual workers for economic reasons only. Also, Italy has established a “one time” severance package level for dismissed workers to a maximum of 15 months of salary. Further, a universal unemployment insurance program has been created. The Spanish government has lowered severance payments to 33 days per year worked from 45 and relaxed collective bargaining rules. Though no new regulation has been passed in France so far this year, several proposed changes are up for consideration that would make it much easier for companies to hire and fire employees.
What does this mean for investors?
Solving the European crisis continues to be a matter of execution, and inefficient labor costs really are at the heart of the matter. Germany in the past decade has painfully unwound parts of its welfare state. As a reward for that effort, they are in a much better economic place than their neighbors, specifically as it pertains to growing exports and the easier navigation of the 2009 recession. In our opinion, “exporting” the German model to the rest of industrialized Europe would go a long way to getting the Eurozone back on track and buying additional American goods and services.
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If they haven’t already, get ready for your banking fees to go up.
According to Bankrate, Inc., which analyzed data at 247 banks, the average minimum daily balance that must be kept by the consumer to avoid a fee is up 23% over last year. Banks have raised fees on checking accounts, overdrafts and ATMs as a continuing slow economy and increasing regulations are squeezing bank revenues. The fees come as the banking industry looks to lose more than $10 billion a year in revenue through federal restrictions on debit cards and overdraft policies.
What does this mean for investors?
This is just one example of how regulations can impact business, and in turn, influence the “main street” American consumer. Regulations coming out of Washington can many times seem “far away” until they’re not. It is increasingly important for the investor to be politically aware and engaged as it concerns market and portfolio impacts. In short, the saavy investor should be heavily invested in studying regulatory trends and what they may mean.
Please call me at (205) 989-3498 or email me below if you have any comments or questions about this blog post or if you would like to discuss your current investments.
Ashley Page
Senior Vice President
Wealth Consultant
Sources: The Wall Street Journal and Seeking Alpha
Note: The opinions voiced in this material are for general information and are not intended to be specific advice. Any indices such as the S & P 500 can’t be invested into directly. Past performance is no assurance of a future result.
