10/3/11
Friends and Colleagues
The Fed recently unleashed “Operation Twist” with the hope of providing some stimulus to the economy.
Did we need additional stimulus? Was this the right move?
Please read on to see what our friends at Wells Fargo Securities (WFS) have to say about the current and future state of the economy.
Consumers Remain Cautious
· Consumers’ view of current economic conditions dropped for the 5th month in a row to 32.5.
· Consumer expectations for economic conditions 6 months ahead improved modestly, to 54.0.
· Consumers continue to worry about diminished prospects for job and income growth.
· Households reporting that jobs were hard to get rose to 50%, the highest level since May 1983.
· Households expecting their income to increase over the next 6 months fell to just 13.3%.
Personal Income and Spending
· Total personal income fell 0.1% in August, the first decline since October 2009.
· Gains in personal income since the recession have been largely transfer (ie-government) payments.
· Those gains are now fading as government budgets are under pressure.
· Tighter requirements for unemployment insurance and Medicaid cutbacks have led to substantial declines in transfer payments.
· Spending for non-durable goods (eg-groceries, clothing, toiletries & medicines) fell in July and August, which is unprecedented outside of recession periods.
Business Fixed Investment
· In a positive trend, non-defense capital goods shipments (excluding aircraft) increased at a 16.2% pace in August, up from 14.2% in July.
· This suggests that growth in business fixed investment during Q3 should be stronger than Q2, providing a boost to Q3 GDP.
Employment
· Unemployment claims fell below 400,000 to their lowest level since early April.
· Much of the drop reflects seasonal factors; nevertheless, last week’s drop was more pronounced than usual.
· On a not-seasonally-adjusted basis, unemployment claims fell to their lowest level since May 2008.
· WFS projects however, that this improvement will be short lived, and that future reports will reflect continuing weakness in employment.
Impact of the Recent Move by the Fed – “Operation Twist”
· In theory, the recent Fed move was intended to push down long-term interest rates and push up short-term interest rates, resulting in a flatter yield curve.
· If the Fed is successful, this will reduce the spread between what banks pay for deposits and what they earn on lending, resulting in a lower net interest margin.
· As a result, financial institutions will likely be less willing to lend, due to reduced interest margins.
· Thus, the Fed’s intended easing policy could be partly offset by reduced lending activity.
· Additionally, with a flatter yield curve, inflation could exceed long term yields, which would further dampen long term lending activity.In the meantime,
As always, our story continues to evolve.
So keep focused, work hard, and stay tuned…..
THOUGHT FOR THE WEEK
Introspection and Atonement
Last week was Rosh Hashana, the first of the Jewish High Holy Days, which marks the beginning of a ten day period of introspection and atonement. In our frenetic world, we would all do well to consider these themes.
Introspection:
What have we done wrong in the year gone by?
Who have we hurt? Who have we failed to help?
Could we have listened more carefully when our loved ones needed our attention?
Did we choose to be right when we could have been kind?
Did we visit the sick?
Did we eat healthy food? Get enough sleep? Get regular exercise? Put on sunscreen?
Are we holding on to a grudge?
Atonement:
Now is the time to right the wrongs of the past year.
Each of us can reach out to those we have hurt and do our best to heal the wound.
We can carve out time for our loved ones and truly listen to them.
We can commit to choosing kindness over being right.
We can visit a relative or friend who is sick or infirm.
We can fill our bodies with healthy food, give ourselves the gift of a good night’s sleep and get some exercise.
We can let go of grudges that poison our relationships.
In the weeks ahead, may each of us take time out of our busy lives to reflect on our choices over the past year.
May we be honest with ourselves about the choices we have made.
May we take some action to heal the hurt we have caused.
By doing so, we will make our load lighter, and we will make the world of our loved ones shine a bit brighter.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
8/4/11
Friends and Colleagues
This week our representatives in Washington finally reached agreement on the debt ceiling; thus, averting an economic catastrophe just in the nick of time.
How fortunate…How dramatic…How unconscionable that they stretched out the process for so long!
And we complain when our kids are scrambling to get their homework done at the last minute…….
So what does the compromise mean for the economy going forward?
Please read on as our friends at Wells Fargo Securities (WFS) share their thoughts and make some projections about what lies ahead.
Economic Impact of the Debt and Budget Compromise
The just-enacted Budget Control Act (BCA) of 2011 raised the debt ceiling and cut $2.1 trillion in federal spending over the next 10 years.
Per WFS, this should reduce economic uncertainty and alleviate some of the recent pullback in hiring and consumer spending.
How Does This Impact Short-Term Economic Projections?
Economists at WFS tell us their short-term outlook has not changed dramatically.
They continue to project the following:
- Sub-par economic growth through Q2 2012 with a moderate drag from state and local governments.
- Q3 & Q4 of 2012 should also be negatively impacted by a drag on growth from federal government outlays.
Bottom Line - WFS projects the BCA should have little impact on their already weak economic growth forecast through 2012.
What About the Long-Term Economic Impact?
WFS contends the long term implications of the BCA will be more significant.
They now project the federal government will be a drag on U.S. economic growth through 2021, due to:
- Spillover effects of a cutback in federal expenditures that will continue to put:
- Pressure on state and local budgets, resulting in:
- Further spending reductions at lower levels of government.
How Will This Impact the Financial Markets?
According to WFS, the BCA is no resolution to the core issue:
Too much spending growth and not enough economic growth to support the spending.
They caution us to watch for the following possible outcomes:
- Credit rating agencies could still downgrade US Government debt.
- Projected subpar economic growth could lead to easing monetary policy in order to support future growth.
- That prospect increases inflation risk for longer-term assets.
WFS continues to project creeping inflation that will gradually erode relative returns on financial assets.
In fact, with nominal yields so low, they project that real, after-tax returns on financial assets could be negative.
The economic landscape continues to be filled with twists and turns and risks.
The challenges are real and they are large, and there is no way around them…so we must go through them.
Together we will see better days ahead.
In the meantime, keep focused, work hard, and stay tuned…..
THOUGHT FOR THE WEEK
Telling the Truth…
“A half truth is a whole lie”– Yiddish proverb
“The cruelest lies are often told in silence.”– Adlai Stevenson
“I’m not upset that you lied to me; I’m upset that from now on I can’t believe you.”– Friedrich Nietzsche
Too often we value getting ahead over telling the truth.
And where has it gotten us?
We don’t trust our elected officials.
We don’t trust our financial markets.
We don’t trust each other.
What message are we sending to our children?
Is it really better to get ahead at the expense of the truth?
Just ask Richard Nixon…or Bill Clinton…or Pete Rose….
We can choose to send a different message…
It’s human to mess up…we all do it, and it’s OK…as long as we tell the truth and embrace the consequences.
Our family, friends and clients are probably more understanding and resilient than we might expect…when there is a foundation of trust.
In the days and weeks ahead, may each of us cultivate the habit of telling the truth.
May we practice taking ownership for our actions, and embracing the consequences.
And by doing so, may we send a message that being worthy of trust is the highest level of success.
Make it a great week!
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
5/16/11
Friends and Colleagues
Our ride through uncharted territory continues, as we see how the economies of the U.S., China and Europe are faring in the current environment of uncertainty. This week our friends at Wells Fargo Securities share with us what’s happening now and what they project for the rest of 2011.
U.S. Economy – A mixed bag
Inflation?
This month, prices were up on all fronts:
- Import prices up 2.2%
- Export prices up 1.1%
- Producer prices up 0.8%
- Consumer prices up 0.4%
- Core rate was up 0.2%
However, WFS says the Fed’s position that these increases are transitory will prove valid if commodity prices continue to fall.
Current Account Deficit?
- The U.S. trade balance was higher than expected at $48.2 billion in Mar. vs. $45.4 billion in Feb.
- This will put more pressure on the U.S. dollar.
- Surprisingly however, most of the increase was due to a 20.9% increase in the volume of oil imported.
- Higher oil prices also contributed to the higher deficit; however, the largest contributor was an increase in volume not price.
- Good news - U.S. exports increased 4.6% vs. Feb. and 14.9% vs. Mar. 2010.
Employment?
- Initial jobless claims remained above 400,000 for the 5th consecutive week.
- This is casting doubt over the ability of the economy to grow employment above 200,000 per month.
Consumer Spending?
- Housing-market-related purchases (e.g.- furniture & home appliances) were down 1.1%.
- Gasoline sales were up 2.7% due to the surge in gasoline prices.
- Food and beverage sales were up 1.2%.
- Good News - Oil and overall commodity prices continued to drop during this week.
- Question – Will these pricing declines be sustainable given rising global demand?
China Not Satisfied With Progress on Inflation
- China’s consumer price inflation was 5.3% in April.
- Food inflation was 11.5% in April!
- Non-food inflation was 2.7%, the highest rate since 1997.
- The Chinese have set an inflation target of 4.0% for 2011; thus, they have much work to do.
- The Chinese central bank just raised their reserve requirements for the 5th time this year, to a record 21%!
- China is using multiple approaches to attack inflation: raising interest rates and reserve requirements, limiting loan growth and accelerating appreciation of the Yuan.
- Aggressive monetary tightening in China has helped push commodity prices lower as markets begin to anticipate slower growth for China while authorities try to address inflation pressures.
Europe - Weaker Manufacturing Growth
- Eurozone industrial production fell 0.2% in Mar.
- Declines were seen in capital goods, non-durable consumer goods and energy.
- Eurozone growth vs. 2010 slipped to 5.3% from 7.7% in Feb.
- Production growth fell in Germany, France, Ireland, Greece, Spain and Finland.
- Weak demand from non-European developed countries and slowing growth in emerging markets is expected to hurt Europe’s export and manufacturing performance.
- At the same time, fiscal austerity measures in many European countries are limiting domestic demand.
- The Bank of England projected that consumer inflation could hit 5.0% by year-end.
- BOE also revised down their growth outlook, highlighting risks of weaker growth and higher inflation.
WFS Predictions for the U.S. Economy for the rest of 2011:
- A modest rise in rates.
- The Fed will complete QE2 in the next month and not pursue a QE3 policy.
- The Treasury debt ceiling issue will be resolved in August.
- Growth will average 2.5% with gains in consumer and business investment spending.
- The federal government will cut spending as budget restraint begins to take hold.
- Core Inflation will rise modestly at a ~1.3% pace, and overall CPI will rise at a 3.5% pace.
- The Fed is unlikely to raise the Fed Funds rate.
- Two-year Treasuries should rise from 0.65% currently to 1.1% in Q4.
- Ten-year Treasuries should rise from 3.4% currently to 3.7% in Q4.
- Over the longer term, interest rates will rise given budget and current account imbalances.
Overall a week with no major crises and trend lines continuing.
Have we reached bottom, or is there another shoe yet to drop?
Since we don’t really know, the best thing we can do is to stay informed….so stay tuned…..
THOUGHT FOR THE WEEK
Go to the Doctor….
It’s just a red spot on my arm….nothing to worry about.
It’s just a twinge in my chest….probably heartburn.
We are so busy…and we are indestructible…at least in our own minds.
Despite our best intentions, we are ageing….
Our bodies, those vessels that carry us around every day, need regular care and maintenance.
We make the time to service our cars...can we say the same about our bodies?
Sure, we know we should… but we have deadlines to meet, and we are just so busy.
Well here is some sobering truth…true stories about friends of mine over the past few months:
- A neck ache that turned out to be lung cancer
- A red spot on the nose that was skin cancer
- A twinge in the chest after playing tennis that was really 3 clogged arteries
- A dark spot in the field of vision that turned out to be a detached retina
OK, that was them…..so how does this apply to me?
Each of us has family and friends who love us and rely on us.
For their sake, if not for ours, we have an obligation to go to the doctor annually for regular checkups.
We have a responsibility to get the screening colonoscopy, to see the dermatologist, to have an EKG or a mammogram or whatever applies.
In the days and weeks ahead, may each of us choose life.
May we each make an appointment with the doctor that we have been putting off.
May we make the care and maintenance of our bodies a priority, so that we may live long, and live well, and be here for those who care about us the most.
Make it a great week!
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
3/18/2011
Friends and Colleagues
Oh what a week this has been.
Much of the world is still in shock over the situation in Japan, and much of the So Cal real estate community is still in shock over the tragic passing of our good friend Bruce Krall.
Our thoughts and prayers are with all those in Japan and with Bruce’s wife and two sons.
Their lives have been turned upside down and forever changed.
We wish them all a healing and a future that can make some sense of these tragedies.
With this as our backdrop, we look forward to see where the economy stands in light of recent events.
Our friends at Wells Fargo Securities (WFS) give us their views on the impact of the Japan situation on the domestic and global economic stage.
First Some Good News – Per WFS, the Economic Expansion Is Still Underway
Despite uncertainty overseas and market volatility, WFS tells us that economic indicators continue to suggest economic expansion.
- Manufacturing output increased for the 8th consecutive month.
- Regional manufacturing surveys in New York and Philadelphia surged in February.
- Strength in the factory sector is being led by robust growth in the auto sector.
- Weekly first-time unemployment claims fell by 16,000 to 385,000 in the week ending March 12.
- However, housing starts plunged 22.5% in February to a 479,000-unit pace, the 2nd lowest level on record.
- WFS does not expect a genuine recovery in housing starts to occur until the pace of foreclosures slows significantly.
Economic Impact of the Tragedy in Japan
- The bulk of industrial capacity in the three most heavily damaged areas of Japan is located far from the coastal areas hardest hit by the tsunami.
- Implications for the rest of the world are probably not dire, as Japan had not been contributing much to global growth before the earthquake and tsunami.
- While the short-run implications of the Japanese disaster will put downward pressure on growth, the Japanese recovery from the disaster will have a larger positive impact on global economic performance.
- WFS suggests that this may be the event that will finally take the Japanese economy out of a two decade long depression, as the Japanese administration puts out a fiscal policy package to reconstruct the affected parts of the country.
- U.S. exports to Japan, which account for only 5% of total U.S. exports, will be weakened in the near term, but should rebound in subsequent quarters.
- The effect on the United States should be marginal and temporary.
Japan, US Fed Policy & Interest Rates
- Prior to the Japanese earthquake there was very little chance that the Fed was planning to hike rates in the near term.
- Per WFS, recent events in Japan reduced that probability even further.
- The market had looked for approximately 100 bps of Fed tightening by the end of 2012; however, it currently anticipates a bit less than that now.
- Unless the crisis suddenly spirals out of control, WFS doubts that the disasters will have any lasting effect on Fed policy.
- On the other hand, the Japanese have been large buyers of U.S. Treasuries and this could put some added pressure on U.S. Treasury yields.
Thus say economic experts on the cost and economic implications of the tragedy in Japan.
Let us never however lose sight of the human cost….the suffering and pain…and the courage of those living in the midst of the madness.
Our hearts are with you as you work to pick up the pieces………
THOUGHT FOR THE WEEK
Dealing With Loss
Earthquake…Tsunami…Nuclear Fallout…
Capital markets crises…Economic woes…Mountainous Government Debt…
In the past week and in the past several years, we have all been touched by loss.
Loss of loved ones…loss of innocence…loss of confidence…loss of optimism in a better tomorrow.
So how have we responded to our losses?
We of the golden generation, who always had it all…
Our bright and shiny world has changed….and we have been given the gift of finding out what we are made of.
Have we been whining and complaining and running for cover?
Have we looked for someone to blame for our losses?
Or have we been digging deep, and strengthening ourselves to meet the challenge?
Have we embraced the new reality and found ways to build toward a better tomorrow?
Have we reached out to those around us to offer support?
Each of us has our own way of dealing with our losses…every day we get to choose.
In the days and weeks ahead, may we choose to be the solutions we seek.
May we find inner courage and strength to brave this new world.
May we focus our intentions and our efforts on helping others to build a better tomorrow.
And at the end of the day, may we find moments of peace and give thanks for the blessings we still have.
Make it a great week.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
1/31/2011
Friends and Colleagues
The New Year has brought with it the opportunity for hope of a better economy to come.
A nice thought to be sure…but what do the pundits have to say about where we are and what lies ahead?
This week, our friends at Wells Fargo Securities (WFS) share some enlightening thoughts about where we are and where we are headed in the economy.
Sound Bites on the Economy from WFS:
Good News:
Real GDP grew at a 3.2% annual pace in Q4.
Consumer spending surged 4.4%...the best in 5 years.
Net exports increased, far outpacing imports, and contributing 3.44% to economic output.
The true strength in the economy can be found in real final sales, which jumped by 7.1%!
Consumer confidence rose 7.3 points in January to 60.6, the 4th increase in 5 months.
Bad News:
Inventories pulled back significantly, shaving 3.7% off real GDP.
Consumers’ assessment of current economic conditions is only marginally higher today at 31.0 than it was two years ago at 29.7.
Unemployment has remained above 9.0% for the past 20 months.
WFS Projections:
Increasing private sector job growth in 2011.
Not much improvement in overall unemployment.
Housing Market:
New home sales rose 17.5% in December but from historically low levels.
Builders continue to face tough competition from foreclosures, which limit price flexibility.
Credit conditions remain tight.
Mortgage applications for purchase fell 8.7%, the 4th consecutive weekly drop.
WFS projects housing activity will likely remain weak until the backlog of foreclosures and short sales is cleared.
Consumer Saving and Spending
Consumer spending grew 3.8% in November, the strongest growth rate since May.
Personal income growth was also strong, up 3.4% in November.
As consumption has grown faster than income, the saving rate has declined from 6.3% in June to 5.3% in November.
However, savings are still nearly 4 times higher today than at the dawn of the recession!
WFS projects that with savings high, consumer spending will remain strong in the medium-term.
Higher savings and lower levels of consumer debt will strengthen the economy for the next round of sustained economic growth.
Interest Rates
The FOMC stated that they will keep rates in the target range of 0 to ¼ % for “an extended period of time.”
The FOMC reported that economic growth is not sufficient to bring greater improvement to the labor market.
It reported continued declining inflation.
It does not perceive rising commodity prices as a sign of future upward inflation pressure.
WFS projects inflation will remain below 1.6% over the next two years.
Monetary Policy
Citing continued high unemployment, the FOMC elected to continue the second round of quantitative easing (QE2), which began in November 2010.
The FOMC signaled its intent to complete the purchase of $600 billion in long-term Treasury securities through Q2 2011.
WFS projects the FOMC will complete the entire QE2 stimulus through the spring; thus, short-term rates should remain low over the near term, and long-term rates should remain stable.
WFS projects interest rates will gradually begin to rise and increase more rapidly toward the second half of 2012.
Fiscal Policy
The Congressional Budget Office (CBO) just released its long-term projections for the U.S. budget deficit.
The CBO projects the U.S. deficit will likely reach $1.5 trillion in the current fiscal year.
Over the long term, the CBO projects the U.S. deficit as a % of GDP will decline to 3.0 to 3.5% by the middle of this decade.
WFS predicts this continued deficit spending and the need to finance it will put upward pressure on rates over the next few years.
Overall, more good news than bad, and certainly a much brighter picture than this time last year.
In the coming months our story will continue to evolve, so as always...stay tuned……
THOUGHT FOR THE WEEK
What We Think About
“A man is what he thinks about all day long.” Ralph Waldo Emerson
A powerful and daunting concept…our very thoughts define who we are.
So what do we think about?
Our problems and frustrations and what is wrong or not working in our world?
Or do we think about our blessings and joys and all the good and beauty that surround us?
A powerful corollary is that whatever we think about will grow in our lives.
If we focus on our problems, then we become our problems.
They cloud how we act, what we say, and what we do.
They expand…they grow…they define us.
If we dwell instead on our blessings, then we will find our lives filled with blessings.
Appreciation…joy…love and abundance.
These too expand and grow when we choose to dwell on them and share them.
A beautiful sunset happens every day…whether or not we choose to see it.
In the days and weeks ahead, may we choose to see the good in our lives.
May we look for and appreciate the many blessings we have been granted.
Make it a great week!
Have a good week.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
11/15/2010
Friends and Colleagues
After two years of economic madness, our friends at Wells Fargo Securities (WFS) currently are projecting “a little less uncertainty and a little more growth”.
While nothing seems to happen quickly these days, at least there is a hint of optimism in the air.
Read on to see the specifics behind the WFS projection.
WFS Comments on the Political Front:
Republican gains in Congress increase the odds of tax cuts being extended.
They also imply a slower pace of regulation.
Efforts to repeal or scale back healthcare reform and financial regulation will likely soften some key provisions in both. Overturning enacted laws will prove extremely difficult.
Success of the Tea Party on Election Day should lead to more fiscal restraint, which may help curb the budget deficit but will also restrain government spending.
The Fed’s announced plan to expand its balance sheet by $600 billion by purchasing Treasury notes sent commodity prices soaring.
It also stirred up a firestorm overseas, just ahead of the G-20 meeting.
The resulting harsh criticism will make it more difficult for the Fed to do additional quantitative easing.
Good News - Employment Reports Look Optimistic
October’s employment numbers were stronger than expected, with private-sector payrolls rising by 159,000 jobs.
Private-sector employers have added more than 100,000 jobs during each of the past 4 months and have added jobs in 11 of the past 12 months.
Job gains have been fairly broad based, hours worked have increased and hiring in temporary services has turned up.
WFS projects that hiring should remain solid in the months to come.
WFS has raised their expectations for 2011 job growth to an average of 135,000 new jobs per month, up from 91,000 in 2010.
Bad News - Continuing High Unemployment
Continuing high long-term unemployment remains a drag on economic growth.
The average duration of unemployment is 33.9 weeks.
The median duration of unemployment is 21.2 weeks.
Layoffs remain way too high; recent weekly first-time unemployment claims were ~ 450,000.
Mixed News - Consumer Spending and Housing
WFS projects improvement in consumer spending and housing, but these recoveries will be constrained by high unemployment.
WFS projects consumer spending to rise 2.1% in 2011, up from 1.7% in 2010.
They also project home sales and new home construction will improve, but disposition of foreclosed properties could delay a full recovery until late 2011.
Inflation?
Given the Fed’s massive stimulus program, WFS contends that worries about inflation are understandable but a bit premature.
An immediate impact of the recent quantitative easing was to weaken the dollar against other major currencies and raise commodity prices.
WFS projects that higher commodity prices will boost the Producer Price Index but should have less of an impact at the consumer level.
They contend that demand is not strong enough for businesses to pass their higher costs on to consumers.
The result is tighter profit margins for consumer products companies.
As a result, WFS says companies will have to find new ways to cut costs, which will limit hiring, capital investment and spending.
Overall, some reasons to be optimistic, tempered with some stark realities that remain a drag on recovery and growth.
As always, our saga continues, so stay tuned……
THOUGHT FOR THE WEEK
“Us” and “Them”
When we share something in common with others, we connect with them.
Same college…same fraternity…same hometown…same religion…same political beliefs…
All of these breed familiarity and can create a sense of “us”… “our” people.
On the flip side, those who are different too often become “them”.
We learn to put up barriers to “them” because they are not like “us”.
We distrust them…we speak ill of them…we tell jokes about them…we keep them out of our clubs and our schools and our neighborhoods.
But why must we live in a world of “us” and “them”?
Why must we so often fear and distrust others who are different?
As we approach next week’s Thanksgiving holiday, let us be aware of how we each segregate the people in our world.
Let us consider that everyone we would classify as “them”, has a Mom and a Dad, and hopes and dreams, and joy and pain, and success and failure…just like we do.
May we open ourselves up to hear the stories of “their” lives.
May we listen and learn enough to realize that there is no “them” in this world…there is only “us”.
When we sit down to our Thanksgiving feast next week, may we break through our own walls of intolerance and celebrate with our loved ones the blessings of diversity and understanding.
Make it a great week…and a great Thanksgiving!
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
BACK TO TOP
9/22/2010
Friends and Colleagues
The recession is dead, or so the NBER tells us.
It died of unnatural causes in June 2009 at the peak of the Federal Stimulus programs.
Then why do we still feel so bad? Why are so many of us still out of work? What does the future hold for us?
This week we look at instant reactions to yesterday’s meeting of the Federal Reserve, and we see what our friends at Wells Fargo Securities (WFS) tell us about the numbers in our “post recession” world.
Yesterday’s Meeting of the Fed
The Federal Reserve met yesterday and suggested the following:
· Their concern has moved from inflation to deflation.
· They will hold steady the current rock-bottom interest rates.
· They may begin buying US Treasuries again.
Here are some instant reactions from various pundits (as published on Market Watch):
· “A shootout between hawks and doves on the FOMC has resulted in a draw and the officials have decided to take no concrete action for now.” -- Sung Won Sohn, professor of economics and finance at California State University.
· “This sets the table for QE (Quantitative Easing) in November or December should it be necessary.” -- Eric Green, chief U.S. rates research and strategy at TD Securities.
· “More asset purchases (by the Fed) would lower long-term interest rates, but this is not the problem. Instead, a need to deleverage and a chronic lack of confidence are preventing households and firms from boosting borrowing and spending more.” -- Paul Dales, U.S. economist at Capital Economics.
· “Gold is making a new record high in the wake of this policy statement, which suggests that there is growing market discomfort with the idea of additional QE.” -- John Ryding and Conrad DeQuadros of RDQ Economics.
· “Three times in today’s statement the Committee claimed the Fed needed to maintain inflation at levels consistent with its mandate. In so doing, Bernanke and Company have morphed the Fed’s actual mandate, which is to maintain price stability, into a mission to create what they believe is the optimal level of inflation.” -- Peter Schiff, president of Euro Pacific Capital.
It seems the Fed pronouncements are as clear as mud in the marketplace.
So now let’s look at the numbers in our “post recession” economy and what they mean according to WFS.
Sounds Bytes on the Economy (from WFS)
First Some Good News
· WFS tells us that recent economic reports mostly came in ahead of expectations which further alleviated fears of double-dip recession.
· Retail sales rose solidly in August, with overall sales rising 0.4%.
· Weekly first-time unemployment claims declined for the third week in a row but remain relatively high at 450,000.
· Factories are awash in excess capacity, which means inflation is unlikely to accelerate in a big way anytime soon.
· Consumer spending appears to be holding up at around a 2% pace for the 3rd quarter.
· Industrial production rose 0.2% in August, roughly in line with expectations.
Taken together, recent economic reports show the economy continuing to grow at a modest pace in the third quarter.
Now Some Not-So-Good News
· September surveys from the Federal Reserve Banks of New York and Philadelphia both point to some slowing in coming months.
· The level of unemployment claims remains high, and is consistent with sluggish job growth.
· Housing starts have declined in each of last three months and are now down 23.3% since the end of the homebuyer tax credit.
· The collapse in single family starts more than erases the two months of incentive-induced gains.
· Permits for new single family homes are running slightly below the current pace of construction, suggesting little to no improvement in construction over the next few months.
· Residential foreclosures by banks were up 25% from a year ago, the most since the start of the mortgage crisis.
· Leading Economic Indicators rose just 0.1% in July after falling 0.3% in June, pointing to sluggish economic growth, but according to WFS, no double dip recession.
What is Happening in Other Countries?
· Canada’s consumers, unlike their American counterparts, have been aggressively tapping consumer and mortgage credit to help fuel their current spending.
· Taiwan’s industrial production is clearly slowing down. Industrial production for July came in slightly below market expectations, rising 20.7% from a year ago!
· Strong readings from German manufacturers point to solid growth in German GDP in 2010. German GDP rose 2.2% in Q2, the fastest rate since reunification.
Is it Much Further?
According to the following quote from WFS, yes it is.
“Well, here we are, two years after the devastating bankruptcy of Lehman Brothers, and we still have a long ways to go to reach our ultimate destination, which is a return to normal levels of unemployment, delinquency and foreclosure rates, bankruptcies, household debt, bank lending and so on. “
As always, our best defense is to stay informed….so stay tuned……
THOUGHT FOR THE WEEK
Embracing Change
The only thing that remains constant in our world is change.
Last week my family honored the one year anniversary of my Dad passing away.
A year ago he was with us in person, and now he is here only in our memories.
Three years ago many of our readers were gainfully employed, and now many are still looking for work.
Nine years ago the US had a budget surplus, and now we have the mother of all deficits.
Like it or not, our world continues to change around us…as it always has and as it always will.
We may try to fight the change and wish for things to be as they were….but the past is gone.
My Dad once said, “I haven’t spent my life analyzing everything. I spent my life living.”
He was a very wise man.
We can choose to live…to embrace what is….to accept the changes that are thrust upon us.
In the days and weeks ahead, may we see our lives as they are, not as they were.
May we embrace and celebrate what we have….before it too is gone.
May we choose to truly live our lives, and by doing do, may we bless our lives and the lives of those around us.
Make it a great week.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
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6/15/10
Friends and Colleagues
Our “recovering” economy continues to roll ahead at a modest pace, with some bumps looming in the road ahead.
This week our friends at Wells Fargo Securities (WFS) share with us some insights on the economy today and in the months and year ahead.
First, Some Thoughts from Fed Chairman Bernanke
- “The recovery in economic activity that began in the second half of last year has continued at a moderate pace so far this year.”
- Momentum continues in consumer and capital spending.
- Restraints exist in housing activity, non-residential construction outlays and state & local budgets.
- The Fed expects real GDP to grow at a ~3.5% annual pace in 2010 and at a somewhat faster pace in 2011.
WFS Has Similar Ideas
- WFS projects real GDP to grow at a ~ 3.0% annual pace in 2010.
- They also project real GDP to grow at a ~ 2.2% annual pace in 2011 as weak job growth and high unemployment will likely hold down discretionary spending.
- Economic indicators continue to suggest a moderate recovery is underway.
Details under the Headlines (cited from WFS)
- Retail sales fell a disappointing 1.2% in May.
- Building materials fell 9.3% on the month, due to give-back from stimulus-induced appliance spending and lower winter storm-related spending.
- Gasoline and motor vehicle sales also fell in May.
- Core retail sales (which exclude autos, gasoline & building materials) rose 0.1% in May, and are up 3.5% from a year ago.
- The nominal and real U.S. trade deficit for goods and services widened in April.
Employment - No Change
- Initial jobless claims remained stubbornly in the 450,000 range, falling by 3,000 to 456,000.
- Small business hiring was positive for the first time since September 2008.
- Per WFS, the biggest obstacle for small business hiring continues to be access to credit.
Prices - Inflation…or Deflation?
- The CPI fell 0.1% in April, the first decline in more than a year.
- The Core CPI (which excludes food & energy prices) remained flat at 0.9%, a 44-year low!
- WFS projects CPI to fall again in May, led lower by energy prices.
- Housing rental indexes have exerted downward pressure on core prices.
- Goods prices continue to rise faster than service prices, but the pace is slowing.
- Core goods prices are being pulled up by stronger global economic growth, whereas weak domestic demand continues to restrain core services prices.
- WFS projects that substantial slack in the economy should continue to put downward pressure on core consumer prices.
What’s Happening With China?
- The $40.3 billion trade deficit incurred by the United States in April, was the largest monthly trade gap in more than a year.
- Chinese exports increased by 48% (vs. prior year) which contributed to their $19.5 billion trade surplus in May.
- The U.S. bilateral trade deficit with China shrank from $268 billion in 2008 to $227 billion in 2009!
- Why? The deep U.S. recession caused the dollar value of American imports from China to decline by 12% while U.S. exports to China held steady.
- Now that the American economy is in recovery mode, imports are starting to grow again.
- U.S. imports from China (Jan-Apr) were up 14% relative to 2009, and the bilateral trade deficit is widening again.
What Can We Do About the Trade Deficit?
- America runs a trade deficit because it saves “too little” while China has trade surpluses because it saves “too much.”
- U.S. policymakers cannot encourage lower savings in China, but they could implement policies that would increase the low national savings rate in the United States.
- Unfortunately we live in a political society where it is difficult to build political support for policies that would involve pain.
- WFS says to watch for rhetoric about the U.S.-Sino trade deficit to escalate in the months ahead.
So fasten your seatbelts....it looks like the bumpy road may be with us for a while.
The best way to keep up is to keep informed...so stay tuned.
THOUGHT FOR THE WEEK
Personal Connections
Every day we interact with someone at the other end of the line.
Whether the line is the phone or e-mail or Linked-In or Facebook, we are still connecting with a real person.
Real people have good days and bad days.
They have families who depend on them.
They have health issues and worries about their jobs or their loved ones.
Real people sometimes need a shoulder more than a sound-bite.
They may need understanding and support more than a tweet.
Real people are nourished by human connections with those who really care about the person at the other end of the line.
In the days and weeks ahead, may we do our best to make our connections real and personal.
In business and in private, may we remember to honor the person at the other end of the line.
By truly connecting with one another, may we learn to see each other not as human-doings, but as human-beings.
Make it a great week.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
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04/26/10
Friends and Colleagues
The economy continues to move forward….with some Good News and some Bad News.
This week our friends at Wells Fargo Securities (WFS) share their insights to help us to make some sense of it all.
First Some Good News:
- Currently the economy is growing with low inflation.
- Consumer spending is exceeding expectations.
- Equity prices are up, providing a boost through the wealth effect.
- The WFS outlook remains one of positive growth based on leading indicators.
And Some Bad News:
- Job and wage growth remain slow relative to trend.
- Consumer confidence is low.
- There are reasons to be cautious about future consumer spending.
Employment: Not-So-Good
- WFS remains bearish on employment growth for the following reasons:
- Strong capital expenditures despite no job growth suggest fundamental changes in production with more capital and less labor supporting a rebound in profits.
- There is a structural shift in labor demand toward higher educated, tech-savvy workers and away from low and semi-skilled manufacturing jobs.
Housing: Cautiously Troubling
- WFS is very cautious about the housing recovery beyond the end of the tax incentives in June.
- In their view, the housing recovery has been on a very shaky foundation of tax incentives, artificially low mortgage rates and unprecedented assistance to struggling homeowners, none of which are sustainable.
- Three fundamental problems may plague the housing market going forward:
- Home sales were too strong during the boom years, and demand was effectively pulled forward.
- Credit underwriting has tightened considerably, effectively shutting out many potential buyers.
- The deep recession has led to a sharp reduction in household formations and fundamentally reduced the demand for housing.
- There is no quick fix to any of these problems, and WFS predicts that the recovery in housing is likely to be longer and more arduous than many expect.
Consumer Spending: Surprisingly Good
- The rebound in retail sales growth the last few months has been stronger than expected.
- Fundamentally it seems that consumers should not be spending as they due to the following:
- Unemployment remains near 10%
- Foreclosures are still rampant
- Credit is still extremely tight
- Real wages are stagnant
- But consumers are spending……So what is driving this improvement in consumer spending? Our friends at WFS suggest the following:
- The housing market is stabilizing, thanks primarily to the homebuyer tax credit. (Will this continue after the rebate expires in June?)
- The stock market has rallied roughly 70% since the March 2009 low, lifting the wealth effect.
- There are preliminary signs that the labor market may finally be entering the early stages of recovery.
- Individual tax refunds are running ahead of 2009, which is padding consumer's wallets.
- Perhaps after a long winter, warmer weather is drawing consumers out of the house and into the stores.
Interest Rates: More Good News
- If the U.S. economy continues to post above trend growth rates, then the Fed may begin to tighten policy before most investors expect.
- However, WFS believes growth will slow somewhat over the next few quarters as the temporary boost from the inventory cycle fades.
- Therefore, they predict that the Fed will be on hold until late this year.
So that’s the news on the economy for this week.
As always, our story continues to evolve…..so stay tuned.
With great pride, I am pleased to share that my wife Betsy has just had her third children’s book released.
This one is a picture book for young children entitled, “Which Shoes Would You Choose?”.
Please visit her web site at: www.betsyrosenthal.com for more details on this and her prior books.
You can purchase this book in local book stores, or on-line at Amazon or Barnes and Noble.
Betsy will be holding a book signing next Saturday, May 1 from 2:00-4:00 at Village Books, 1049 Swarthmore, Pacific Palisades, CA.
THOUGHT FOR THE WEEK
Over-Committed……
“Sure, I’ll be there.”
“Yes, I can do that.”
“Count me in!”
We have so many opportunities to commit our time….to work, to family, to friends, to good causes.
But our time is a finite resource.
“Looks like another late night at the office.”
“I need to re-schedule our meeting.”
“Lunch at our desk...again.”
Sometimes our plates get too full.
Our commitments pile up.
Our time and attention are squeezed.
Did we schedule in some unencumbered time along the way?
Did we leave ourselves some slack time to relax and recover from the hectic lives we lead?
The world we live in makes so many demands of us…and it is up to us to carefully choose the things we commit to.
Do we really have the room to take on that next challenge?
In the days and weeks ahead, as those around us make demands on our time, may we each take a moment to weigh carefully the commitments we choose to make.
May we remember that the road ahead is a long one, and we need to maintain our balance along the way.
May we be kind to ourselves, and make room in our busy lives to carve out some time to appreciate the moments of wonder around us.
Make it a great week.
David Rosenthal, MAI, FRICS
President & CEO
Curtis-Rosenthal, Inc.
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2/22/10
Friends and Colleagues
Last week the Fed raised the discount rate by 25 bps, citing "continued improvement in financial market conditions."
Why did they raise rates now, and what does it mean for businesses and consumers?
What are the latest economic fundamentals? What's happening with credit availability and demand?
This week we address these and other key issues with some help from our friends at Wells Fargo Securities (WFS).
Why Did the Fed Raise the Discount Rate?
- Just a week ago Bernanke stated that "before long" the Fed would raise the discount rate and return it to the spread over federal funds that existed before the crisis.
- WFS believes this quick move indicates the Fed intends to stay very close to the script Bernanke laid out to reverse the extraordinary actions the Fed put in place to fight the financial crisis.
- Those actions contributed to an enormous expansion of the Fed's balance sheet.
- They also led to concerns about whether the Fed could adequately reverse this stimulus without putting the recovery at risk or creating inflation.
- Bernanke noted that returning the discount rate to its normal relationship to the federal funds rate should not be seen as a tightening move but rather a return to a more normal monetary policy.
- Specifically the Fed noted its policy actions were "not expected to lead to tighter financial conditions for households or businesses and do not signal any change in the outlook for the economy or monetary policy."
- It does however look like the beginning of the end of an era of extremely cheap money.
What are the Latest Economic Fundamentals?
- Industrial Production rose 0.9% in January, with solid gains across most categories.
- Manufacturing Output rose 1.0%, with consumer goods and business equipment rising solidly.
- Production of IT equipment remains a bright spot, climbing 1.7%.
- Utility output, which surged in December, rose a more moderate 0.7% in January.
- Inflation data were mixed: the Producer Price Index climbed 1.4%, while the Consumer Price Index rose 0.2%.
- Consumer Confidence rose 2.3 points to 55.9 in January, its highest level in nearly 1½ years.
- Consumers' ongoing concerns about current conditions reflect worries about the labor market.
- Employment - Layoffs appear to have topped out, but hiring remains sluggish.
- WFS projects consumer confidence and spending will likely remain constrained through early 2010.
Availability of Credit
- The WFS Senior Loan Officer Survey shows that the "net percentage of banks tightening standards" in Q1 actually fell to -5%, meaning more banks were easing, not tightening, credit.
- The net % of banks increasing spreads declined to 9% compared to 100% during last year.
- TED spreads (LIBOR - Treasuries) have returned to pre-Lehman levels.
Consumer Spending and Credit Demand
- Continued weakness in the job market is bringing further delinquencies and charge-offs.
- Private sector jobs (not counting construction) are up, and there have been gains in the average workweek and temp help.
- However, the absolute loss in jobs and continued high unemployment are putting stress on households that will struggle paying bills and will continue to fall further behind.
- Saving rates have moved up since April 2008 which means the pace of consumer spending and credit demand will be lower than in prior recoveries.
- The dynamics of household credit usage are changing and with them the pace and character of growth.
So what can we expect and how can we plan for the months and years ahead?
As always, stay tuned.....
THOUGHT FOR THE WEEK
To See Ourselves As Others See Us
In our ultra-connected world we touch scores of people daily, but so many of the connections are fleeting...and often trivial.
What do we really learn from knowing who just got back from the gym, or who remembers "My Favorite Martian"?
Yet each of us has a great gift available, if we would only embrace it.
It is the gift of people who know us well enough to see our blind spots, and care enough to give us candid feedback.
When was the last time we asked for and embraced constructive criticism?
"How am I doing?"
"How can I do better?"
These are powerful...and sometimes scary questions.
Asking them means opening ourselves up to critique, and acknowledging that we are not perfect.
It also means accepting that we are human and we have much yet to learn.
In the week ahead, may each of us seek out someone who knows us well.
May we create a safe space for them to give us honest feedback on how we are doing and how we can do better.
May we embrace the great gift of their perspective, and by doing so may we each grow to be a better version of ourselves.
Have a good week.
David Rosenthal, MAI
President & CEO
Curtis-Rosenthal, Inc.
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1/25/10
Friends and Colleagues
The government and the press keep telling us the recession is over....so why does it still feel like a recession?
Bernanke said last Sept. that "from a technical perspective the recession is very likely over at this point," but he also acknowledged, "It is still going to feel like a very weak economy for some time."
This week with some help from our friends at Wells Fargo Securities (WFS), we look at some good news and some bad news in the economy to help us understand where we are and where we are going.
We also look at what is happening in China, since the state of their economy is becoming more and more relevant to our world.
First some Good News:
- Q3 real GDP was positive and the WFS forecast looks for growth to pick up substantially in Q4 2010, at a torrid pace of more than 5%.
- The Leading Economic Index (LEI) has posted gains in each of the last 9 months, and has already returned to pre-recession highs.
- Multi-family starts jumped another 12.2% in December after a steep 70% increase in November.
- Housing permits have risen for two consecutive months, gaining another 10.9% in December.
- Total housing permits are now up 15.8%, with single-family permits up 37.3% vs. Jan 09.
- The Conference Board's Leading Economic Indicators (LEI) rose 1.1% in Dec after gaining 1.0% in Nov. Per WFS, this signals continued expansion and growth in the second half of 2010.
- Core PPI has only increased 0.9% over the past 12 months.
Now some Bad News:
- Per WFS, recent gains in the LEI are more reflective of government efforts to kick start the economy (yield spread, increase in the money supply) than they are of strong domestic demand.
- WFS does not project a huge spike in consumer spending or big business fixed investment spending.
- Businesses are not yet hiring in earnest...which continues to be a problem for the 10.0% of Americans who cannot find work.
- Housing starts took a step backward in December dropping 4.0%.
- Rough weather seems to have hampered single-family starts, which dropped 6.9%.
So what does it mean?
- While GDP and LEI may seem to overstate the strength of the U.S. economy, WFS tells us the recovery is gradually taking hold.
- According to WFS, a bottom seems to have formed in residential construction, industrial production is picking up steam, consumers are starting to loosen purse strings, and jobless claims are coming down.
- While the recovery may look better than it feels, WFS contends it is a recovery nonetheless.
WFS Economic Projections for 2010:
- The Fed will continue its current target federal funds rate at 0-25 bps for an "extended period"... likely through Q2.
- The Fed will then hike rates by the end of the year.
- As the Treasury continues to issue debt, long term rates should rise...10 year Treasuries projected to hit 4.40% by the end of the year.
- Inflation will remain below 2%.
- Unemployment will remain above 10%.
- The real test for policy and the markets will be if/when the Fed ends mortgage-backed securities purchases currently scheduled for March 31st.
- Overall, WFS projects slow and steady growth ahead.
Enough about us....What's Happening in China?
- Chinese real GDP growth rose from 9.1% in Q3 to 10.7% in Q4!
- Growth in retail spending strengthened from 15.4% in Q3 to 16.5% in Q4!
- Fixed investment spending rose 30% last year!
- China's exports appear to have risen significantly in Q4.
- The overall rate of CPI inflation jumped from 0.6% in Nov to 1.9% in Dec.
- Based on strong growth and mild inflation, the Chinese government is scaling back some of the emergency stimulus measures that were put in place more than a year ago.
- Two weeks ago the central bank raised reserve requirements by 50 bps to 16%.
- This week, the Chinese government announced that it is directing the nation's banks to scale back the pace of new lending.
- WFS predicts that in the months ahead:
- The Chinese government likely will raise reserve requirements further, hike interest rates & slow loan growth.
- GDP growth will slow from 10.7% currently to 9.0% by late 2010/early 2011...a slowdown but not really a "hard landing."
So the US economy is on simmer while the Chinese economy is boiling hot.
What impact will that have on the US property markets in the months and years ahead?
As always, stay tuned.....
THOUGHT FOR THE WEEK
Taking Ownership
We are all very good at owning our achievements.
Our shelves are filled with trophies from sporting victories and our walls hold diplomas and certificates from our academic successes.
But what about owning our mistakes?
Making mistakes is part of being human.
Owning our mistakes is what makes us adults.
As children it was so easy to say, "It's not my fault".
Excuses abounded as we looked for ways to avoid the pain of disapproval.
But now we are adults...and being an adult means taking ownership for our actions...both good and bad.
Being an adult means saying, "I made a mistake and I am sorry".
Being an adult means understanding that owning our mistakes allows us to earn the respect of others.
In the days and weeks ahead, may we each choose to be an adult when we mess up.
May we let our colleagues and spouses know that we are responsible for our own actions.
May we remember that we earn trust and we earn a good name when we take ownership for our mistakes.
Have a good week!
David Rosenthal, MAI
President & CEO
Curtis-Rosenthal, Inc.
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