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Friday, September 18, 2015
Markets tumble on uncertainty about interest rate hikes
Dow sank 291 (closing near the lows), decliners over advancers 5-2 & NAZ was off 66. The MLP index fell 3+ to the 334s & the REIT index lost 1+ to the 305s. Junk bond funds gained & Treasuries rose.Oil slumped to the 44s on worries about lower demand around the globe & gold gained, seen as a safe haven investment during troubling times ahead.
US household wealth climbed in Q2, a sign consumers will help growth in the economy. Net worth for households &
non-profit groups increased $694B in Q2,
up 0.8% from Q1, to $85.7T, the
Federal Reserve (FED) reported in its financial accounts
report, previously known as the flow of funds report. Americans’
finances got a boost from rising property values & a
strong job market that is sustaining their spending, which makes up
about 70% of the economy. Low borrowing costs are also a help,
with policy makers deciding to keep interest rates near
zero yesterday. The value of financial assets owned by
households, including stocks & pension-fund holdings, increased $256B. Household real-estate assets
climbed $499B. Owners’ equity as a share of total household
real-estate holdings increased to 56.3% from 55.6% in Q1. Gains
in household wealth are giving Americans more confidence to borrow. Household debt increased at a 3.9% annualized
rate in Q2. Consumer credit, including auto &
student loans, climbed at an 8.1% pace, while mortgage borrowing
advanced at a 2.2% rate. Total
non-financial debt advanced at a 4.4% annualized pace & business borrowing showed an 8.3% gain. State & local
gov debt increased at a 1% pace & obligations of federal
agencies rose 2.4%.
As Greeks prepare to return to the polls this weekend, hope the
election will lead to a break from their 6-year economic crisis has
turned into fear that the result will just deliver more of the same. Weariness is a common theme in Athens as the capital gears up for what’s
now a grindingly familiar ritual: The Sun vote will be Greece’s 6th
national election in as many years, including this summer’s surprise
referendum on the conditions for a 3rd euro bailout. In
the central Syntagma Square, workers on Fri were assembling the
temporary stage for a planned evening rally by Syriza. Politicians from
other anti-austerity will appear alongside Tsipras
who was hailed as a hero by other left-wingers when he first took power.
Syriza has a wafer-thin lead over New Democracy in the polls. Both
parties say they will support the terms of the bailout deal that Tsipras
struck in Jul with creditors. In exchange for €86B ($98B) of emergency aid, Greeks must submit to further
sharp budget cuts & tax rises, measures that led to a split within
Syriza in Aug & triggered new elections.
Where
things get more complicated is what the next governing coalition might
look like. It’s likely neither Syriza nor New Democracy will win an
outright majority in the 300-seat parliament, giving significant
influence to smaller parties & opening the door to further political
turmoil. If the winner can’t achieve a governing majority either alone or with
smaller parties, "a Syriza or ND-led minority government would be
short-lived," potentially requiring yet another election this year if it
loses the confidence of parliament.
The House of Representatives voted to block federal payments to
Planned Parenthood for a year, though the action didn’t satisfy some
Reps who are prepared to shut down the gov over
the issue. Some conservatives criticized the vote on the defunding
measure as little more than a symbolic gesture with no chance of
advancing. Those members have been willing to force a shutdown if
defunding isn’t linked to a federal spending bill. The bill, HR 3134, would bar federal funds for Planned Parenthood & its affiliates for a year unless they certify that they won’t
perform abortions. The House also passed a 2nd measure that
would impose criminal penalties on doctors who fail to provide medical
attention to live babies delivered during abortions (bill HR
3504). The votes represented efforts by House Speaker John Boehner & other
Rep leaders to satisfy conservatives who are outraged by
undercover videos purporting to show Planned Parenthood officials
discussing reimbursement to
researchers. Boehner is trying to get enough support from
rank-&-file Reps to pass a stopgap spending bill to prevent a
partial gov shutdown when the new fiscal year starts Oct 1. If
the conservatives can’t be brought along, Boehner might have to seek
votes from House Dems. As has become common in recent years, confusion reigns.
Unemployment rates fell in 29 states in Aug & held steady in 11 as hiring remained solid nationwide. The Labor Dept says rates rose in the remaining 10 states. Employers added jobs in 32 states & shed them in 18. Job cuts continued in states with oil & gas drilling as oil prices
remain sharply lower compared with a year ago. Falling demand for
coal has devastated West Virginia, which has the nation's highest
unemployment rate at 7.6%, up from 7.5% in Jul. South Dakota, which has seen a rise in oil & gas drilling, reported
the largest percentage decline in jobs. Texas shed 14K positions. US employers added 173K jobs in August, while the national unemployment rate fell to 5.1% from 5.3%.
Today's sell-off was a reflection of chaos around the globe. The China situation is difficult to understand. Europe is trying to figure out how to deal with waves of new immigrants. The Greek election doesn't help matters. The US economy sort of is advancing, but not in a convincing way. Then there is the threat of a federal shutdown. Additionally, finally there is awareness that extending low interest rates should come to an end & soon. Dow is down 200 in Sep & the selling may not be over.
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