Perspectives from Above the Noise – Week of May 20, 2013

3 Stories in the global economy that should not go un-noticed

Markets experienced some volatility early last week as stocks pulled back amid worries that the Fed may be tapering off its bond-buying program soon. However, investors soon regained their positivity after realizing that the Fed would not slow its quantitative easing activities without a simultaneous improvement in economic growth. In other good news, data showed that consumer sentiment is on the upswing, reaching its highest level since July 2007, according to the Thomson/Reuters University of Michigan inde.

For the week, both the S&P 500 and Dow Industrials hit new highs—the S&P 500 gained 2.07%, the Dow increased 1.56%, and the NASDAQ added 1.82%.

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

Gross to Buffett Omens Disregarded as Bond Sales Soar

A recent Bloomberg article details the very robust corporate credit markets, with sales of corporate bonds in the U.S. heading toward a record for the month of May. With yields still near historical lows and investor appetite for bond deals extremely strong, corporate issuers are aggressively acting to shore up any potential liquidity concerns with the majority of recent issuers citing refinancing among their use of proceeds. As noted in the article, the number of junk-rated companies that are under liquidity stress is now very low, an indication of the extent that corporations have been able to shore up any near-term liquidity concerns by accessing credit markets.

Japan Inc. Should Take a Look in the Mirror

Japan has been one of the strongest stock markets this year as new Prime Minister Shinzo Abe has implemented aggressive monetary and fiscal policies in the hopes of devaluing the yen and spurring economic growth. A recent Bloomberg op-ed piece by William Pesek argues that for these policies to work, Japanese leadership at the corporate and political levels must make some drastic changes. Specifically, Pesek writes about "willful blindness," which can be understood as the refusal to admit to mistakes in the past and lay the groundwork for future relationships with Japanese trading partners. Examples of this at the government level include nationalistic comments regarding World War II which provoke and incense China. At the corporate level, there is much resistance to restructuring meant to produce a more transparent environment. While a weaker yen may boost the Japanese economy in the short run, there are many structural issues that need to change for Abenomics to reap long term rewards.

Economists Predict Increase in Consumer Spending

The National Association for Business Economics surveyed 49 economists at the end of April and the results show increased optimism for accelerated consumer spending this year, helping offset a contraction in government spending. Economists elevated their consumer spending growth forecast to 2.3% for 2013 from their prior prediction in February for growth of 1.9%. Overall, economists predict solid growth in auto sales, housing and corporate profits. The consensus view among economists is for auto sales to increase to 15.4 million units in 2013 compared to 14.4 million units sold in 2012, home prices to increase by 4.4% in 2013 and 4% in 2014, and for corporate profits to improve by 5.3% this year and 7.5% in 2014. The consensus view remains for the U.S. economy to grow by 2.4% this year and 3% in 2014.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.