Perspectives from Above the Noise -- Week of July 6, 2015

U.S. equity averages finished slightly lower last Thursday, ending an Independence Day shortened week as an uninspiring June payrolls report gave investors pause ahead of a key Greek referendum vote. The economy added 223,000 jobs last month, shy of economists' consensus projection for 230,000, while government revisions to April and May subtracted 60,000 jobs. A decline in the labor force participation rate, falling to a 1977 low, contributed toward driving the unemployment rate to a seven-year low at 5.3%.

On Sunday, more than 60% of Greeks voted "no" to further austerity measures, increasing the likelihood of the country's exit from the Eurozone. This would push Europe to uncharted territory, as no country has left the single currency since its inception.

For the week, the S&P 500 fell -1.14%, the Dow Jones Industrial Average lost -1.15%, and the MSCI EAFE (developed international) dropped -2.64%.

Here are the 3 stories this week that rose above the noise:

Slowest, "No Respect," US Recovery may become longest ever -- Bloomberg

"It may not seem like much of a recovery to most Americans, but the current economic expansion has many of the makings to become the longest in more than 150 years.

Low inflation, healthy consumer finances and pent-up demand for housing all argue that the recovery is well-positioned to withstand any fallout from the Greek crisis and has room to run as it enters its seventh year on Wednesday."

Greece Defies Europe on Austerity Overwhelmingly Votes "No" -- Reuters

"Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country's euro zone membership into further doubt and deepening a standoff with lenders.

Stunned European leaders called a summit for Tuesday to discuss their next move after the surprisingly strong victory by the 'No' camp defied opinion polls that had predicted a tight contest."

Why Congress Should Allow Puerto Rico Bankruptcy -- The New Yorker

"It hasn’t exactly been a quiet week in the world’s debt markets. Not only has Greece defaulted on a loan from the International Monetary Fund but on Monday Puerto Rico’s governor, Alejandro Padilla, announced that the island’s seventy-two-billion-dollar debt load was, on its current terms, “not payable,” and warned that, in the absence of debt relief, Puerto Rico could enter a “death spiral.” Padilla was essentially calling on Puerto Rico’s creditors—which include not only hedge funds but also municipal-bond funds that have been busy buying up the island’s debt—to restructure its obligations.

It was a reasonable and, in terms of what’s best for the Puerto Rican economy, eminently sensible request. But it’s still unclear if it will have any effect. Puerto Rico’s dilemma boils down to a couple of simple facts: its debt is enormous relative to the size of its economy, and that economy has been stuck in recession for almost a decade."

Articles chosen and summarized by the Tower Square Investment Management team. Tower Square Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Tower Square Investment Management individuals who provide investment management services are not associated persons with any broker-dealer.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

Perspectives from Above the Noise -- Week of June 29, 2015

Stocks ended mixed last Friday, as investors sought the relative safety of the sidelines ahead of critical weekend negotiations between Greece and international creditors. Troika creditors, including the European Central Bank, the European Union and the International Monetary Fund (IMF), proposed a five-month loan extension, offering to unlock up to €15.5B (US$17.3B) in Greek aid in exchange for required reform measures. Negotiators were said to be at odds over measures valued at approximately €2B. Greek Prime Minister Alexis Tsipras rejected the offer and called for a referendum vote on July 5th. A possible debt payment default may occur this week, which could threaten Greece's continued membership in the Eurozone.

 In highlights of U.S. weekly economic data, existing home sales jumped 5.1% in May, bringing YTD sales soaring 9.2% to the second strongest 12-month gain in two years. The first quarter GDP shrank less than earlier projected as a Wednesday final revision came in at -0.2% versus the -0.7% previously estimated.

For the week, the S&P 500 and the Dow Industrials each fell -0.4%, and the MSCI EAFE (developed international) gained +0.9%.

Here are the 3 stories this week that rose above the noise:

The Modern Greek Tragedy -- The Washington Post

"Even if there is an agreement this week that allows Greece, through yet another loan, to make its June 30 IMF installment, a major restructuring or default has to be in the offing soon.

Consider just a few reasons this is true. For one, as Harvard economist and financial crisis scholar Carmen Reinhart notes, the private and public sectors are already behaving as if a default and exit from the euro are imminent, with actions that could well become self-fulfilling. Greeks are hoarding cash and sending their savings abroad; by a conservative estimate, Greek bank deposits have fallen by about 45 percent since their peak in 2009."

China's Shanghai Correction; MS Says Don't Buy the Dip -- Bloomberg

"Chinese stocks sank the most in five months, leaving the benchmark index on the cusp of a bear market, after leveraged investors cut holdings and Morgan Stanley joined a chorus of analysts warning that shares are too expensive.

The Shanghai Composite Index fell 7.4 percent to 4,192.87 at the close, bringing its drop from this year’s high to 19 percent. Chinese stock-index futures tumbled by the 10 percent daily limit as investors rushed to hedge their positions, while the benchmark gauge for China’s smaller exchange in Shenzhen sank 20 percent from this year’s peak. A measure of equity volatility jumped to the highest level since 2009."

Fed’s Williams: Fed Should Raise Rates Twice This Year -- The Wall Street Journal

"The first Federal Reserve official to speak in the wake of this week’s central bank monetary policy meeting said Friday the Fed should raise interest rates twice this year.

'We are getting closer and closer to the time to raise rates,' Federal Reserve Bank of San Francisco President John Williams told reporters following a hometown speech. 'My own forecast would be to raise rates two times this year, if the economy performs as I expect.' He added he would like to see those initial increases at 25 basis points each. As he has on many occasions, Mr. Williams cautioned that whatever happens with a policy that now has short-term rates pegged at near-zero levels will be driven by how the economy performs."

Articles chosen and summarized by the Tower Square Investment Management team. Tower Square Investment Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. Tower Square Investment Management individuals who provide investment management services are not associated persons with any broker-dealer.
 
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.