3 Stories in the global economy that should not go un-noticed
Over the last 2 weeks, markets experienced the best winning streak since 1996, with ten days up in a row, while the S&P 500 inched within 10 points of its historical high before closing lower on Friday. We’re disappointed to report that lawmakers don’t appear to be making any headway on the sequestration front. President Obama met with House Republicans last week but made little progress in convincing them to accept tax increases as part of a deficit reduction plan. With criticism flying from both sides, it seems that they are still too far apart to hope for a deal. On a more positive note, the number of Americans filing new unemployment claims fell for the third straight week, indicating that the labor market is recovering steadily.
For the week, the S&P 500 gained 0.61%, the Dow gained 0.81%, and the Nasdaq gained 0.14%.
Here are the 3 stories this week that rose above the noise:
Workers Saving Too Little to Retire
The Employee Benefit Research Institute released a report today which showed that individuals and companies are both struggling to fund retirement obligations. Over the last 30 years the portion of private-sector U.S. workers covered only by defined-benefit plans has fallen from 28 percent in 1979 to 3 percent in 2011.
However, of late, pension obligations for all publicly traded companies based in the U.S. has risen from $1.6 trillion in 2008 to $1.93 trillion in 2012. This increase has been driven by low interest rates and longer life expectancies, two factors which also have the same effect on individuals who are having difficulty accumulating the funds needed for retirement.
Inflation: ‘What, Me Worry?’ Says the Fed
In a recent op-ed piece, Marketwatch’s chief economist Irwin Kellner argues that the Fed should start shifting more of its attention from concerns over unemployment to inflation. While U.S. employment has been improving, many of the measures the Fed has taken may be leading to the beginning stages of inflation.
The producer price index and the consumer price index both recently rose 0.7 percent for the month of February, which, if they remain at this pace, would lead to an annual rate of 8.5 percent. Stocks, real estate and metal markets have all risen considerably since the Fed started its low-interest-rate policy. Unless the Fed starts to focus more on the side effects of its recent policy moves, Kellner argues that consumers, especially savers, will continue to be hurt the most.
A Bank Levy in Cyprus, and Why Not to Worry
Global markets were roiled over the weekend when news broke that the European Union and the International Monetary Fund planned to take money directly from bank depositors as part of a bailout of Cyprus. Fears of a loss of confidence in the European banking system leading to widespread bank runs were widely discussed in the financial media in the immediate aftermath of the news. However, so far there has been little evidence of the banking crisis spreading beyond Cyprus.
Andrew Ross Sorkin of The New York Times wrote about why the reaction to the potentially shocking headlines has thus far been very muted. The author explained the unique circumstances of the country’s banking system that make it unlikely the terms imposed in Cyprus would ever be considered for larger European countries. There is still some concern that the situation in Cyprus could spread throughout the European banking system and this article provides a good argument for why that outcome should not be viewed as a high-probability event.
