Last week I got to attend an industry conference. I found it very helpful from the depth of analysis on the economic outlook. The advisory board included some of the best and brightest economic minds from around the world that helped to determine the Secular and Cyclical outlooks. The board included Ben Bernanke, former British Prime Minister Gordon Brown, Ng Kok Song (former chief investment officer of the Singapore Investment Corporation), Anne Marie Slaughter (President and CEO of New America, Former Director Policy Planning at US State Department) and Jean Claude Trichet (Former President of the European Central Bank). The perspectives presented were especially timely considering this week’s Brexit Vote and the ensuing market volatility. I would like to briefly summarize some important points on the cyclical and secular outlooks here:
From a cyclical perspective none of the following conditions exist that usually precede a recession:
- There is no overkill from government policy
- There is no shock from a spike in oil prices
- There is no overheating of the economy
- There has not been over-investment
- There is no over-consumption
The secular outlook does have some clouds on the horizon. These include:
- Debt overhang and savings glut
- Limits from central bank policies
- Populism and policy uncertainty
It is this last item that I found most relevant this week. The rise of populist ideas manifested itself in the U.K. vote to leave the E.U. No one with any understanding of the economic situation thought this was a good idea but the popular desire to take back control even if it harms the U.K. and the European economies won out.
This week had generally good economic news for the U.S. However the U.S. and global stock markets had steep selloffs following the outcome of the U.K. vote. Several opinion polls in the days leading up to the election indicated that “remain” would win over “leave” but “leave” ended up winning. While this will have long term consequences for the U.K. and Europe, I believe strongly that there will be little effect on the U.S. This is a typical market shock where something unexpected happens and markets sell off. While this may reverberate for a few days or possibly a few weeks in the financial markets this does not fundamentally change our outlook for the U.S. Economy or stock markets.
Bond prices surged causing yields to fall. Precious metals rose while other commodities fell. The British Pound and the Euro fell while the dollar rose.
In economic news this week
- Japan reported a 13.8% drop in imports and an 11.3% decline in exports in May.
- Fairs Isaac Corp or FICO reported that U.S. credit ratings have improved again for the sixth consecutive year with subprime credit scores now only 20.7% of adults.
- The National Association of Realtors reported that existing home sales rose 1.8% in May, the fastest in nine years.
- The International Monetary Fund cut its forecast for 2016 growth in the US from 2.4% to 2.2%.
- The Commerce Department reported purchases of new single family homes fell 6% in May from April but were still the second best month since the financial crisis. April’s increase was revised to 12.3%, the best month since the financial crisis.
- The Labor Department reported first time claims for unemployment fell 18,000 to 259,000. The four week moving average of claims fell 2,250 to 267,000.
- The U.S. Energy Information Administration reported in the prior week
- Crude oil inventories fell 900,000 barrels.
- Crude oil production fell 39,000 barrels.
- Gasoline inventories rose 627,000 barrels.
- Baker Hughes reported that the US oil drilling rig count fell 7 to 330 and gas rigs went up 4 to 90.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF® Erik Smith
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.