Never cut a tree down in the wintertime. Never make a negative decision in the low time. Never make your most important decisions when you are in your worst moods. Wait. Be patient. The storm will pass. The spring will come. Robert H. Schuller
As people meander down the path of their journey in life, most are encountered with choices about different aspects of their life? What educational possibilities should they go after? What profession do they want to pursue? What is their preferred choice of religion? Who might they find attractive as a life partner? Should they try and have kids? What choice of political party should they make? Oops, ignore the last one, as the two candidates for president have rendered the question one between terrible and catastrophic. Anyway, making decisions becomes increasingly important as the stakes become higher, especially when one is talking about the subject of money. Yesterday, the widely anticipated June jobs report came out with a much greater than expected number of 287 thousand jobs created (expectation of 175k). It now creates a situation where investors and regulators have to analyze the economic conditions both domestically and globally to make informed decisions about how to proceed for the rest of the year and beyond.
For regulators like the Federal Reserve Board, the strong jobs number has to be considered in the context of previous results, so a three, six, and twelve month moving average smooths out the single month outlier figures. In this regard, the average of job growth is relatively weak versus the past few years as the three month trend comes in at about 140k. The probable policy path will be the status quo with the hope job growth improves towards the 200k level as the year winds down. If this is the case, then higher interest rates can be part of the consideration. For bond investors, the choice between a 10 year Treasury bond of 1.39% or the negative yields in Japan and Germany is similar to currently choosing Democrat or Republican, no real difference in either (generally bad and worse). If you are an equity investor, it may be the case of the best kind of environment of ultra low interest rates, a slow growing economy of 2% ish but not falling off the table by any means, and solid consumer spending. Banks have hope interest rates may yet go higher, and energy companies can feel encouraged by the strong chance the dollar will remain weak. You only have to look at how gold and silver have rocketed higher since Brexit to see metals are finding love because of a profound distaste of central banking policy and a distrust of fiat currencies. The currency volatility of the pound, which fell to a touch below $1.30 has placed the Bank of England on notice to stay vigilant and provide whatever policy pill is necessary to keep the the UK economy out of recession. In general, Europe remains the eye of the storm as questions about bank exposure to sovereign bonds and poor loans, as well as debt levels, is front and center politically for potential upcoming referendums across the continent.
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