An Alice in Wonderland Week in the World Market

March
02

Written by: Jon McGraw

“Well, I never heard it before,” said the Mock Turtle, “but it sounds like uncommon nonsense.”

It was an Alice in Wonderland week in the marketplace: European countries, companies and entrepreneurs were getting paid to borrow money, and ordinary Joes with money in European banks got letters stating that banks will now be charging them to hold their money. The New York Times reported:

“The most profound changes are taking place in Europe’s bond market which has been turned into something of a charity, at least for certain borrowers. The latest example came on Wednesday when Germany issued a five-year bond worth nearly $4 billion with a negative interest rate. Investors were essentially agreeing to be paid back slightly less money than they lent.

“Bonds issued by Switzerland, the Netherlands, France, Belgium, Finland, and even fiscally challenged Italy also have negative yields. Right now, roughly $1.75 trillion in bonds issued by countries in the eurozone are trading with negative yields which are equivalent to more than a quarter of the total government bonds …”

At the end of February, many European stock markets were showing high single-digit to low double-digit gains for the year.

Meanwhile, back in the United States, the background report that supported Fed Chair Janet Yellen’s semi-annual testimony before Congress highlighted the effects of the Fed’s EAT ME cake—also known as quantitative easing—which left its balance sheet at about $4.5 trillion (up from about $1 trillion in 2008). Barron’s speculated that the effect of an unexpected rise in interest rates could negatively affect the Fed’s bond holdings with maturities greater than 10 years:

“If long-term rates do rise faster than anyone now anticipates, the Fed may run into difficulties of navigation that could prove a tad destabilizing to the economy.”

Data as of 2/27/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.3% 2.2% 13.5% 15.5% 13.5% 5.8%
10-Year Treasury Note (Yield Only) 2.0 NA 2.6 1.9 3.6 4.4
Gold (Per Ounce) 0.5 1.2 -8.9 -11.8 1.7 10.8
Bloomberg Commodity Index 0.7 -0.9 -22.4 -11.5 -4.9 -4.1
DJ Equity All REIT Total Return Index -1.2 2.9 22.8 15.0 17.2 9.2

A Manufacturing Renaissance in America … Really?

In the 1950s, manufacturing accounted for 30 percent of America’s gross domestic product (GDP), which is the value of all goods and services produced in the United States. Today, it comprises about 12 percent of the GDP. It was a big change that was accompanied by a big shift in employment. In its heyday, manufacturing companies employed about 20 million people in America. Today, that number has fallen to about 12 million.

For decades, companies moved production facilities away from the United States to countries such as China, which offered lower manufacturing costs. Now that trend is beginning to reverse. Lower energy prices and rising wages in emerging countries have companies moving manufacturing back to the United States. However, they’re now running into a new stumbling block: a shortage of skilled American labor. A BBC report asked:

“… will Americans really contemplate going back to work on the factory floor? The companies all worried about a shortage of skilled workers. So, I went to meet students from the University of Tennessee. They told me they didn’t see their future in manufacturing. Some wanted to finance those plants while others said that they weren’t good enough at mathematics to work in advanced industries.”

The 2015 Manufacturing Institute and Deloitte Skills Gap study confirmed the shortage of skilled manufacturing labor in the United States and reported that little is expected to change over the next decade. Close to 3.5 million manufacturing jobs will open in the next 10 years, but only 1.4 million will be filled since there are not enough workers with the necessary skill sets. The study found the following:

  • 60 percent of available skilled production positions remain open.
  • 80 percent of manufacturing companies are willing to pay more than the going rates in order to attract skilled workers.
  • 82 percent of executives believe that the skilled labor shortage will affect their ability to meet customers’ needs.

The Economist was skeptical about a renaissance in U.S. manufacturing. It reported that in order for the industry to flourish, America needs to invest in research and development, improve schools and colleges, and make changes to the tax system.

We’re Hiring!

Buttonwood Financial Group is currently seeking a Wealth Management Strategist and a Portfolio Technical Specialist to join our professional team. If you have experience in the wealth management industry and would like to learn more about becoming a member of our team, please contact us at 816-285-9000.

Weekly Fun—Think About It

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”

Albert Einstein, theoretical physicist