Tags: Robert Feinberg | GDP | Headwinds | Economy

GDP Update Shows Headwinds Remain for the Economy

By    |   Friday, 31 July 2015 08:09 AM

As speculation continues over when and whether the Federal Reserve will raise interest rates, Patrick Chovanec, chief strategist of Silvercrest Asset management, listed several headwinds revealed in updated GDP figures, including the drop in oil prices, the strong dollar, and the skittish consumer, as headwinds for the economy that have diminished but not gone away.

Chovanec told CNBC that it doesn’t matter when the Fed raises rates in the fall, but he is in the camp that this will be a symbolic action “just to get above the zero bound.”

He referred to statements by Fed Chair Janet Yellen that the Fed is still looking for evidence of tightening in the labor market.

He recommends diversification within and among markets, because he sees valuations as “stretched globally.”

This writer would remind readers that Democratic senators have told Yellen that they’re not seeing strong labor markets in their states, and they don’t want the Fed to raise rates.

If investors consider diversifying globally, they must consider the state of the Chinese stock market, as the government intervenes to halt the decline.

Mutual fund managers remarked that as more retail investors have taken part and have used margin financing, they seem to assume that the government will back up the market. Many observers have noted the effect QE has had on stock prices.

This writer has predicted that with the government promoting mutual funds as the default choice for rank-and-file workers, this government would also step in to prevent a crash.

SEC Commissioner Daniel Gallagher decries the fact that the SEC is scheduled to take up a regulation mandated by the Dodd-Frank Act to require companies to report the ratio of the compensation of top executives versus the workers.

He called the rules “just another political agenda item for labor that will be extremely costly for companies and shareholders.”

Prompted by Kelly Evans, who suggested completion of the Dodd-Frank regulations could take years more as the Act passes its five-year anniversary, Gallagher estimated the commission is about half done with its share of the workload.

He mentioned market structure and the bubble in the fixed-income market as issues the SEC must put aside in order to work on projects like the pay ratio and conflict minerals disclosures, while the fixed-income market remains opaque and antiquated.

Options Action trader Mike Khouw notes that 5% of all options trading is in Apple (AAPL), with puts outpacing calls, led by the September 115 put, trading at $1.50. He explains that buyers of these puts are looking for another 7% decline in Apple, which would bring the stock under at 10 multiple outside of its huge hoard of cash.

He concluded, “Obviously, people are thinking that there is some kind of a real problem going on here.”

Finally, the discussion returns to the Fed’s rate hike plans, as CNBC’s Steve Liesman and Kelly Evans interview Dennis Gartman, publisher of The Gartman Letter about the latest GDP numbers.

Gartman says the inflation numbers are nowhere near what the Fed is looking for, and bonds are rallying, “So the Fed, by all accounts, certainly amongst the voters (on the FOMC),” sentiment is “overtly dovish.”

He told Evans, in contrast to the predictions of most other pundits, that a rate hike is unlikely for the rest of the year.

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Robert-Feinberg
As speculation continues over when and whether the Federal Reserve will raise interest rates, Patrick Chovanec, Chief Strategist of Silvercrest Asset management, listed several headwinds revealed in updated GDP figures, including the drop in oil prices.
Robert Feinberg, GDP, Headwinds, Economy
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2015-09-31
Friday, 31 July 2015 08:09 AM
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