Economic Insights

The Department of Energy's Energy Information Administration (EIA) monthly data on volume sales is several weeks old when it released. The latest numbers, through mid-November, are now available.

The US Federal Reserve (Fed) has gone back to expanding its balance sheet. Some claim that quantitative easing (QE) is back; the Fed denies it. What we call it isn’t the point, says Sonal Desai, Franklin Templeton Fixed Income CIO—what matters are the implications of this “permanently loose” policy stance for asset prices, investment strategy and market volatility.

The latest index came in at -1, up 4 from last month's -5, which indicates that activity was still weak and in contraction territory in January. The future outlook increased to 15 from 14 last month. Here is a snapshot of the complete Kansas City Fed Manufacturing Survey.

The US municipal market registered strong performance in 2019, driven by record demand from individuals and constrained supply of tax-exempt issuance. Both factors grew out of changes legislated in the 2017 Tax Act. As we enter 2020, valuations appear tight versus Treasurys and fair versus corporates and risk assets generally.

Our definition of value is to buy meritorious companies at a significant discount to intrinsic value with a high margin of safety. Since doing this is more art than science, the margin of safety is important.

This morning's seasonally adjusted 211K new claims, up 6K from the previous week's revised figure, was better than the Investing.com forecast of 215K.

2019 was a very good year for investors. Surprisingly, both offensive and defensive sectors did well, which is a marked about-face compared with 2018. We believe this is mostly due to a central bank shift to policy easing, especially in the U.S., coupled with a relatively steady economy.

In this piece, let’s do what Batista should have done – spend a few minutes focusing on the “stay rich” part of the equation. If you’re an investor who has already amassed great wealth and “won the game” what’s the right market approach that will help you keep (and potentially even grow) your wealth?

The GMO Asset Allocation team has released its latest 7-Year Asset Class Real Return Forecasts

Chief Economist Scott Brown discusses current economic conditions.

It has been a great year for equity investors. The S&P 500 index posted a 31% annual return, the Dow 25%, and the NASDAQ a spectacular 39%. More than $6T of equity paper wealth was created for domestic investors this year alone.

Although easing US-China trade tensions have renewed investor optimism about global economic growth, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer still see some potential geopolitical headwinds on the horizon.

The Federal Housing Finance Agency (FHFA) has released its U.S. House Price Index (HPI) for November. U.S. house prices were up 0.2 percent on a seasonally adjusted nominal basis from the previous month. Year-over-year the index is up 4.9% (nonseasonally adjusted). After adjusting for inflation and seasonality, the index is down 0.04% in November and up 3.44% year-over-year (seasonally adjusted).

This morning's release of the December Existing-Home Sales fell to a seasonally adjusted annual rate of 5.54 million units from the previous month's 5.435 million. The Investing.com consensus was for 5.43 million. The latest number represents a 3.6% increase from the previous month and a 10.8% increase year-over-year.

"Index points to slower economic growth in December." Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.35 in December from +0.41 in November. Three of the four broad categories of indicators that make up the index decreased from November, and three of the four categories made negative contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, moved up to –0.23 in December from –0.31 in November.

The price of Regular and Premium are down three cents each from last week. According to GasBuddy.com, Hawaii has the highest average price for Regular at $3.61 and Oklahoma has the cheapest at $2.16. The WTIC end of day spot price closed at 58.38, up 0.5% from last week.

Last New Year’s Eve, most would not have forecasted the extent of the gains experienced by the U.S. stock markets this year. On the heels of the worst December since 1931, the Federal Reserve’s (the Fed) 180-degree turn, from restrictive to accommodative policy, fueled the S&P 500’s roughly 30 percent surge and pushed the U.S. economic expansion into record territory.

Back in mid-November, the highly respected GDP forecasting model from the Atlanta Federal Reserve Bank (also known as "GDP Now"), estimated that real GDP would only grow at a 0.3% annual rate in the fourth quarter, which, if accurate, would have been the slowest growth for any quarter since 2015. At the time, we were forecasting economic growth at a 3.0% rate.

A strong economy will help U.S. consumers meet their financial resolutions in the new year, while residents of France and Australia have bigger worries.

2019 was a very unusual year. Domestic growth whipsawed from strong (over 3%) to concerning (just over 1%). This volatility was compounded by both domestic and global headline factors: a very public trade dispute and very weak global growth.

Advisor Perspectives has announced its Venerated Voices™ awards for commentaries published in 2019.

Of all the arguments put forth by market pundits and talking heads about the coming end of the current bull market, the weakest is that it is “long in the tooth.” I get this argument, but it doesn’t make sense. Other bull markets have lasted far longer than this one.

Navigating between the despotic extreme of authoritarianism and the unbridled liberty of anarchism is the challenge of society in its quest for good government. A new book looks at the choices facing policymakers to achieve the proper balance and to improve the prospects of those countries outside the “narrow corridor” of effective governance that lies between those extremes.

The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020?

Among the biggest contributors to the bitcoin rally is the hope that 2020 could finally see institutional investors move into the digital field en masse, prompted by growing client demand and more attractive ways to get exposure.

Let's take a closer look at recent activity in US Treasuries. The yield on the 10-year note ended January 17, 2020, at 1.84% the 2-year note ended at 1.28% and the 30-year at 2.29%.

Now is the season for forecasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models.

The publication this week of the U.S. — China trade deal and the final macro numbers for 2019 should set the stage for healthy economic performance and stronger market sentiment in China in 2020, but the risk of a return to tense relations between Washington and Beijing looms over 2021 and beyond.

The December Final came in at 99.3, up 2.5 from the November Final reading. Investing.com had forecast 99.2.

The problem with low interest rates for so long is they have encouraged the misallocation of capital. We see it everywhere throughout the entirety of the financial system from consumer debt, to subprime auto-loans, to corporate leverage, and speculative greed.

The latest JOLTS report (Job Openings and Labor Turnover Summary), with data through November, is now available.

Today's report on Industrial Production for December shows a -0.30% decrease month-over-month, which was worse than the Investing.com consensus of -0.2%. The year-over-year change is -1.01%, down from last month's YoY decrease.

Almost by definition, value investing rarely performs well in the short run. This is especially true when you are in a strong bull market like we’ve been in since March 2009. Most companies as represented by the S&P 500 are currently trading at fundamental multiples that are significantly above historical norms.

Emerging markets ended 2019 on a high note, but can the momentum continue? Our emerging markets equity team weighs in, highlighting the market news and events it has an eye on.

The Consumer Price Index for Urban Consumers (CPI-U) released Monday morning puts the year-over-year inflation rate at 2.29%. It is below the 3.76% average since the end of the Second World War and above its 10-year moving average, now at 1.77%.

Month-over-month nominal sales in December increased by 0.3% (0.33% to two decimal points). Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, increased by 0.1% (0.12% to two decimal points).

A brief monthly update on what's happening in the municipal bond market.

One of the biggest concerns some investors might have right now is that the U.S. business cycle is maturing and possibly reaching its “natural end.”

The latest Manufacturing Index came in at 17.0, up 14.6 from last month's 2.4. The 3-month moving average came in at 9.3, up from 5.9 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook came in at 38.4, up from the previous month's 34.8.

Every year, the markets provide us with lessons on prudent investment strategies. Many times, markets offer investors remedial courses, covering lessons it had taught in previous years. That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t yet know.

Central bank easing and the cooling China-U.S. trade war have set the scene for a global economic rebound in 2020. Our forecast pushes the risk of recession into late 2021, giving equity markets modest upside potential for 2020.

As Mark Twain once said, history never repeats itself, but it does often rhyme. The House vote to impeach President Trump coming in mid-December of 2019 certainly feels like a couplet with the Clinton impeachment, which occurred in mid-December 21 years ago. Indeed, there are similarities, but also key distinctions.

The 20th century Baby Boom was one of the most powerful demographic events in the history of the United States. We've created a series of charts to show seven age cohorts of the employed population from 1948 to the present.

Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past six months. Also included are the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components.

The many gloomy predictions for 2019 did not come to pass, but can we be more optimistic for 2020? Franklin Templeton Fixed Income CIO Sonal Desai draws the key lessons from last year and outlines what we should expect for the year ahead and her main concerns, with political uncertainty top of the list.

Forget those fears of a global “Population Bomb” and worldwide famine which were made popular several decades ago. While the world’s population is still growing, birth rates in most developed nations are falling, including the United States.

One of our favorite financial writers is Bloomberg’s John Authers. He recently wrote a tongue-in-cheek article about an investment company by the name of Hindsight Capital. In hindsight, or in the company’s case, Hindsight Capital, he talked about what the firm did and what you should have done over the last ten years to produce outstanding returns.

A new decade, seismic shifts and the importance of diversification.

Let's do some analysis of the Consumer Price Index, the best-known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U.

Today's release of the December Producer Price Index (PPI) for Final Demand was up 0.1% month-over-month seasonally adjusted, up from no change last month. It is at 1.3% year-over-year, up from 1.1% last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at 0.1% MoM, up from -0.2% the previous month and is up 1.1% YoY NSA. Investing.com MoM consensus forecasts were for 0.2% headline and 0.2% core.

This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at 4.8 was an increase of 1.3 from the previous month's 3.5. The Investing.com forecast was for a reading of 3.55.

Note: This commentary has been updated with the latest numbers from Friday's Employment Report. Consider: Today nearly one in three of the 65-69 cohort and one in five of the 70-74 cohort are in the labor force.

The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution).

At present, multiple jobholders account for just 5.1 percent of civilian employment. The survey captures data for four subcategories of the multi-job workforce, the current relative sizes of which we've illustrated in a pie chart.

We've updated this series to include the December release of the Consumer Price Index as the deflator and the December monthly employment update. The latest hypothetical real (inflation-adjusted) annual earnings are at $39,848, down 11.4% from 45-plus years ago.

Research Affiliates provides its outlook for 2020 and discusses where it sees attractive return opportunities across the globe.

The January edition of Macrogram highlights the current state of the economy. The chart-based newsletter shows the weakness in manufacturing, calls attention to the current slope of the yield curve and covers key macroeconomic indicators. Macroeconomic insights at-a-glance.

We've updated our monthly workforce analysis to include Friday's Employment Report for December. The unemployment remained at 3.5%, and the number of new nonfarm jobs (a relatively volatile number subject to extensive revisions) came in at 145K.

A restrained reprisal by Iran following the assassination of its top military commander has led markets to conclude that the latest threat to the global economy has been removed. But just because Iran and the United States have so far avoided a full-scale war does not mean that markets are out of the woods.

The Bureau of Labor Statistics released the December Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 2.29%, up from 2.05% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.26%, down slightly from the previous month's 2.32% and above the Fed's 2% PCE target.

The substantial economic calendar features inflation reports and housing, but also includes Michigan sentiment, the Fed’s Beige Book, and NFIB sentiment survey. We will also get the first earnings reports for the Q4 season.

What really is a bet? How does one make decisions under uncertainty and with imperfect information? In his latest memo, Howard Marks weaves his own life story to discuss the process of thinking in bets, parses the world of gambling, and draws parallels between investing and games of chance.

The headline number for December came in at 102.7, down 2.0 from the previous month. The index is at the 85th percentile in this series.

Awareness has become widespread that incomes before taxes of the bottom half – or more – of the American population have stagnated in the last 40 years, while incomes at the top rungs have soared. A new book shows that the divide is even greater after taxes.

Value investing is an active management strategy that considers company fundamentals and the valuation of securities to acquire that which is undervalued. But as Graham and Dodd defined it, passive strategies are not investing; they are speculating.

Let's take a closer look at Friday's employment report numbers on Full and Part-Time Employment.

For nearly three years we’ve been tactically recommending overweighting large caps (S&P 500) and underweighting small caps (Russell 2000)—time for an update.

Job growth slowed last year, partly reflecting a tighter job market. However, wage growth, while higher in 2019, has remained moderate, much lower than one would expect given the low unemployment rate.

With simmering trade tensions, sputtering growth worldwide and a historically long, but slow, U.S. economic expansion, investors will have to brace themselves for a challenging investment environment in 2020. Change, adaptability and diversification are the key words. Here are steps you can take early in 2020 to position your investment program well for the rest of the year.

The US economy is not in an economic boom, but growth has been consistently faster than during the Plow Horse phase from mid-2009 through the end of 2016. Real GDP has grown at a 2.6% annual rate since the start of 2017 versus 2.2% beforehand.

The latest monthly employment report showed a gain of 145K nonfarm payrolls, which consists of a gain of 146K service-providing jobs and a loss of 1K goods-producing jobs.

This is the year-end letter I sent to our clients. Feel free to adapt it for your own use.

In Part 1 of this forecast I described my relatively benign outlook for the next 12 months. The calm may last into 2021 and even beyond. But beneath the surface, pressure will still be increasing. It will grow slowly, almost imperceptibly, but eventually explode.

On Tuesday of this week, the U.S. dollar experienced a “death cross,” a bearish signal that takes places when an asset’s 50-day moving average crosses below its 200-day moving average. We haven’t seen this from the greenback since May 2017.

Will 2020 be more of the same? Our teams are encouraged by differences they see in the new year; but they remain alert for unexpected downturns.