Let’s call it a holiday gift. When investors unwrap the inflation reports scheduled for release later this week, hope and even joy may be the initial response.
Consumer prices for November are expected to fall by 0.4%, according to the consensus estimate, although Briefing.com advises that even that dose of cheer underestimates what’s coming, and so forecasts a slightly steeper 0.5% decline.
SLICING, DICING, AND OTHERWISE ACCUMULATING DEBT
Debt is in vogue these days. From the government budget to Joe Sixpack’s personal finances, there’s no shortage of red ink. The question, of course, is whether the mounting liabilities threaten or are merely a reflection of a wealthy nation indulging in what other economies can only dream of: borrowing to the hilt with no immediate consequences.
VIVE LA DIFFERENCE!
When we last discussed the pending demise of the M3 series of money supply, as per the Fed’s announcement last month, there was suspicion swirling that a devious plot was underway to censor a monetary smoking gun. Several weeks hence, conspiracy theorists will find no reason to abandon the fear that the central bank’s trying to pull a fast one on matters of money supply data.
GOLD OR STOCKS? HOW ABOUT BOTH?
Worker productivity rose at the fastest pace in two years in the U.S. in the third quarter while labor costs fell, the Labor Department said yesterday. For the dismal science, the trend suggests that inflationary pressures will stay contained.
ALL EYES ON THE FED
Gold prices moved above $510 an ounce in Asian trading today, touching the highest price since 1980. Embedded in this ongoing bull market for the precious metal is the not-so-subtle message for the Fed at its meeting next week to keep hike rates.
NIMBY AND ENERGY CLASH AGAIN
High oil and gas prices may have shocked, shocked Joe Sixpack and his compatriots, but when it comes to building new refineries and other plants a solution for increasing supplies of natural gas, well, let’s not go overboard.
TIPPING EVERY WHICH WAY
Is this the long-feared wake-up call for the bond market? Maybe, but the bond ghouls don’t give up so easy. But there’s at least reason to sit up and take notice, if only to keep things interesting and provide a change of pace for a day or two. Indeed, this week’s economic data was unmistakably positive, and in some cases far stronger than the consensus expected. The fixed-income set responded, but only modestly so far, selling the benchmark 10-year Treasury to the tune of lifting its yield to 4.52% as of yesterday’s close. That’s up about 10 basis points from the end of last week.
NOVEMBER EQUITY SCORECARD
November 2005 Performance
(Ranked in descending order)
Russell Capitalization/Style (total returns)
Russell 2000 Growth 5.66% <--Growth continues to rebound…
Russell Midcap Growth 5.43<--In midcaps too…
Russell 2000 4.85
Russell Midcap 4.44
Russell 1000 Growth 4.31<--And in large cap growth
Russell Microcap 4.31
Russell 2000 Value 4.06<--Small value looks tired…
Russell 1000 3.81
Russell Midcap Value 3.53<--Ditto for midcap value…
Russell 1000 Value 3.29<--And large cap value
Morningstar Equity Sectors (total returns)
Energy 30.81%<--Still rockin'
Utilities 12.02<--Interest-rate sensitive--Not
Business Services 11.14
Financial Services 8.36
Healthcare 8.01
Industrial Materials 7.39
Hardware 3.86
Consumer Goods 3.24
Consumer Services 2.75
Software 1.12
Telecommunication -3.29
Media -8.06<--Ouch!
International (price change, US$)
MSCI EMERGING MARKETS 8.19%<--The global hot spots…
MSCI LATIN AMERICA 7.93<--The spicy south
MSCI CHINA 7.01<--More of the same
MSCI EASTERN EUROPE 5.75
MSCI JAPAN 4.26
MSCI WORLD 3.14
MSCI PACIFIC Ex JAPAN 3.00
MSCI EAFE 2.25
MSCI EUROPE 1.44<--Rate-hike blues?
Sources: Frank Russell Co., Morningstar, and MSCI
THE EUROPEAN RATE DEBATE
The dollar has found a reprieve in the last three months, in part due to the stillness that has characterized the monetary policy of the European Central Bank. The ECB has kept the Continent’s benchmark rate at 2% for the last 30 months while the Fed has incessantly raised the price of money since June 2004 to the current 4.0%, thereby creating a tidy premium in dollar assets over euro-based counterparts. Although that premium isn’t about to evaporate any time soon, the ECB may start lifting rates, giving dollar bulls new reason to worry.
IN CORE WE TRUST?
The divergence between core and headline inflation has divided pundits for some time, on the one hand giving hope and rationalizing low interest rates, and on the other giving cause for buying gold and selling bonds. The optimists say that the relatively low core rate of inflation, which excludes energy prices, is the true measure of price trends. The pessimists say otherwise, claiming that the higher headline rate of inflation, which factors in energy, more accurately depicts the real world.