you are a sharkChoose Your Own Adventure Inflation!

“Japan’s factory output unexpectedly fell in February at the fastest pace in eight months, leaving the economy in a precarious position as an impending sales tax hike threatens to choke consumption and undermine the government’s revival plan.  Analysts say that with the national sales tax rising to 8 percent from 5 percent on Tuesday, the Bank of Japan will probably need to inject more stimulus to safeguard a recovery amid a recent loss of momentum…while a consumption-boost is expected to support growth in the current quarter, the economy is seen contracting in the April-June quarter as consumer spending dips after the sales tax hike.”  Also, evaluating the success of Abenomics may be an obsession, but here’s some of the latest: “while the Abenomics period has shown only mildly above-average growth in GDP, it has shown stellar growth in GDP per working age adult.  That is, much of the success of Abenomics has been masked by demographics.  Japan’s working age population is in sharp decline and increases in output have to be cast in light of that strong headwind.”  And while currency depreciation typically means an increase in real exports, we have not seen this happen in Japan due to “Japan’s practice, unique among wealthy countries, of pricing to market.  For example, automobiles are a major Japanese export.  Yet while the price of Yen has fallen 25 per cent, the price of Japanese cars in the US has not fallen 25 per cent.  Instead, Japanese car manufacturers are booking much higher profit margins.”  Hence, a booming Nikkei in 2013.  Also, here are the three lines of defense meant to protect Japan from a wilting economy: 1) “supplementary budget and corporate tax rebates will return the entire amount to consumers and producers this year,” 2) “special zones where regulation on land, labour and product markets will be made,” and 3) expanding the Bank of Japan’s “already-large asset purchase programme.”  Meanwhile, the deflation monster in Europe is raising his head again or something like that: “the annual rate of inflation [for the Eurozone] fell to 0.5%, down from 0.7% in February and weaker than most economists were expecting.  Inflation is now at its lowest level since November 2009…Prices are now falling in five eurozone countries.  But ECB President Mario Draghi and other officials have said they see no evidence of deflation across the region as a whole.  Still, they have warned of the risks of an extended period of low inflation and have said that the strength of the euro at around $1.40 is contributing to pressure on prices.”  Which brings us back to Japan: could Abenomics be pushing Europe toward deflation?  “A falling yen comes at the expense of a rising euro, which both drives down imported prices in euro-zone economies and makes producers in the single currency region less competitive.”  Also, the economist is pro-choice on inflation: “The Fed is choosing low inflation because it perceives (with or without justification) that a higher rate of inflation would be too financially risky.”

The One Percent Don’t Like Paying One Percent, Do Like Endowment Models

Do the old rules for asset allocation really make sense for today’s super-affluent?  Ascent Private Capital Management, a unit of U.S. Bank that caters to folks with $25 million or more, think is has a better way…Ascent calls the strategy “purpose-based investing,” and it’s aimed at aligning a client’s assets with a psychological theory known as Maslow’s hierarchy of needs…Ascent aligns clients’ money along this hierarchy with four separate portfolios — security, lifestyle, wealth expansion, and social impact.”  This strategy is very similar to asset allocation, yet it is perhaps even more similar to the endowment model popularized by Yale with its “significant tilt toward hedge funds and private equity.”  Meanwhile, add rich people to the list of “people who don’t like fees”: “nearly half of those over the age of 65 — and 61 percent of those between the ages of 48 and 54 — who hold at least $5 million in assets said financial services from their adviser were ‘very expensive’ in 2013…only about one-third of affluent investors said they were satisfied with their fees, even if their assets grew.”  Meanwhile, the smaller you dice the one percent (e.g. 0.1%, or 0.01%!), the richer they are.  Fascinating stuff.

Your Taste In Financial Literature Is Rigged

Michael Lewis has a new book out called Flash Boys and it’s about the “high-tech predator stalking the equity markets.”  Mr. Lewis believes “the stock market is rigged” thanks to high-frequency traders, however I think there’s an even more compelling argument for “the book business is rigged” thanks to financial media.  Here’s the debate… For: “As long as you plan to buy and hold, you don’t need to worry about the shenanigans of the high-frequency traders…high-frequency traders have helped cut costs for everyone.  [HFT] act like ‘market makers on amphetamines.’…Fifteen years ago, some spreads between buying and selling prices could be at least a quarter; today, it often is a penny…ignore the momentary vibrations in a company’s stock price and go right back to analyzing the value of its business.”  Against: “How is it possible that one of the largest high-frequency trading firms executes millions and millions of orders for four years without ever having a down day?  The short answer is what they do is not trading — it is skimming…the ability of high-frequency traders to see other people’s orders, jump ahead of them, and then sell that exact same stock to them, at a higher price.”  So go buy his book and figure it out for yourself, OK?

USA: Yellen Strongly Defends Easy Fed Policies, Cites U.S. Labor Slack

“I think this extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy-makers at the Fed.”  Her speech in Chicago this morning revealed four reasons she believes there is still slack in the labor market: 1) the “partly unemployed”, 2) low wage growth, 3) the long-term unemployed, and 4) overall low participation rate.  Cue over-analysis.

USA: 260,000 Graduates In Minimum Wage Jobs

 

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