Déjà Vu – Magically Bad News Becomes Good News

September
08

Written by: Jon McGraw

It’s déjà vu all over again!

Last year, pundits and analysts tried to discern when the Federal Reserve might begin to end quantitative easing by reading economic tea leaves. For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs which might indicate when the Fed will begin to raise interest rates and, once again, bad news has become good news. Last week’s weaker-than-expected unemployment report helped push U.S. stock markets higher, according to Reuters, because it was interpreted to mean the Fed would not raise rates soon.

The week before, the Commerce Department announced household spending slowed during July. Consumer spending was up just 3.2 percent annualized through mid-summer which is the smallest increase in spending in five years. As it turns out, spending fell because Americans are saving more. During July, households set aside 5.7 percent of income, on average. While that’s good news with respect to American households’ financial security, it’s not such good news for U.S. gross domestic product, according to Barron’s:

“Unfortunately for the U.S. economy, a penny saved is not a penny earned. While the decision by Americans to cut back on their profligate ways isn’t necessarily a bad thing – it was spending beyond our means that helped spur the Great Recession in the first place – it’s only consumer spending, not saving, that counts when computing gross domestic product. So when consumers spent less in July than they did in June, it caused economists to ratchet down their third-quarter economic-growth forecasts which now sit below 3 percent.”

Some experts say slower growth is good news because economic expansion may last longer. While that’s all well and good, Robert Shiller, Sterling Professor of Economics at Yale, suggested in The New York Times that U.S. stock markets are looking a little pricey by some measures. He suspects the reason investors remain interested in buying highly-priced shares may ultimately be found, “…in the realm of sociology and social psychology – in phenomena like irrational exuberance, which, eventually, has always faded before.”

Data as of 9/5/14

1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 8.6% 21.3% 19.9% 14.4% 6.0%
10-year Treasury Note (Yield Only) 2.5 NA

3.0

2.0 3.5 4.3
Gold (per ounce) -1.5 5.4 -8.6 -12.6 5.0 12.2
Bloomberg Commodity Index -1.4 -0.7 -3.8 -8.2 -0.1 -1.3
DJ Equity All REIT Total Return Index 1.0 21.3 26.8 16.9 19.2 9.0

What is Your Liveability Ranking?

If you live in the United States, No matter where you reside, you are NOT in the top 10 when it comes to the world’s most ‘livable’ cities. The Economist Intelligence Unit’s Global Liveability Ranking and Report was published in August 2014. It relies on 30 factors such as safety, healthcare, educational resources, infrastructure, and environment to determine which of 140 cities around the world are the most livable. The burgs which top the rankings tend to be “mid-sized cities in wealthier countries with relatively low population density.” They include:

  1. Melbourne, Australia
  2. Vienna, Austria
  3. Vancouver, Canada
  4. Toronto, Canada
  5. Adelaide, Australia
  6. Calgary, Canada
  7. Sydney, Australia
  8. Helsinki, Finland
  9. Perth, Australia
  10. Auckland, New Zealand

The names on that list haven’t changed since 2011; however, the average global livability rating has fallen 0.7 percent since 2009. The change is due to a decline in stability and safety (down 1.3 percent) among other things. More than 50 of the cities surveyed have seen their ratings move lower during the past five years. This year, the cities that ranked worst for livability included Damascus, Syria; Dhaka, Bangladesh; Port Moresby, Papua New Guinea; Lagos, Nigeria; and Karachi, Pakistan.

The good news for Americans is Washington D.C., Los Angeles, and New York City remain relatively highly ranked and haven’t experienced any change in their livability rankings. None of these is the most livable city in the United States, though. The top honor, here at home, goes to Honolulu (26th) followed by Pittsburgh (30th).
Sunshine

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