Markets Quiet as ‘Earnings Season’ Gets Underway

July 9, 2014  11 am

Overall the markets are quite quiet today after yesterdays stock sell off.  As we scan the U.S. economic calendar for the balance of the week we see nothing that will likely move markets—-it seems that only when the monthly employment report is released do we have market moving potential.  We do have earnings season getting under way and once we get numbers in from many of the major corporations we have the potential to have stocks move up or down based on the overall results.

As we have had a little time to do some reading lately and we dug deeper into some of our recent questions we have hade on our mind.  We have on occassion compared the U.S. economy to the Japanese economy–and we really think it may be the blueprint (not necessarily in a good way) for our economic future. Japan’s economic growth has been totally anemic for many years–in fact it has average .52% since 1980–essentially no growth. Most recently their GDP growth has perked up (to 1.6%) as their central bank ‘pumps’ like crazy.  We also note that inflation in Japan has seldom breached the 2% level for the last 20 years, but NOW has jumped up to 3.7% (May, 2014).  Checking further we see the central bank discount rate (the discount rate is the rate charges banks for overnight lending) in Japan has essentially been at 0% (although it did pop to .4% a couple times before falling back) since 2000 (14 years).  No real point to be made here, except it is interesting that inflation is starting to flare up in Japan with interest rates at 0%–we will follow this closely.  Is this the future of the U.S.? Very low interest rates for more than a decade?  Demographically we are looking more like Japan–growing older rapidly, although we have immigration (legal or otherwise) which Japan does not have to help stimulate demand.

Additionally we have done some reading on Europe and any improvements in their economy are extremely limited.  Unemployment remains very high—27% in Greece, 25% in Spain, 14% in Portugal, 13% in Italy and 12% in Ireland.  This is happening while Debt is worsening in every single country except Germany.  We would be surprised to see any quantum economic leaps in Europe anytime soon.

Domestically things are supposedly looking up—while the employment number was bullish last week we struggle to find tangible evidence that the American consumer is ready to run out and spend all their money.  All the spending we see is by those in the upper income brackets–this includes home buying.  Upper end properties are in short supply in many areas as the cost of building is high and the incomes required to buy upper end properties is beyond the middle class in many cases–but those in the upper income brackets are snapping up existing properties.  The lower end properties that are being sold are almost exclusively being financed by VA, FHA and Rural Development loans (at least in the midwest) with 2.5% down–this is a disaster waiting to happen (again) as there is no ‘skin in the game’.

The bottom line is that no matter how hard we try we can’t find solid economic reasons for interest rates to head higher anytime soon.

For those wanting to check all the numbers out here are some of our favorite sources.

Bloomberg Economic Calendar

Bloomberg European Debt Crisis Site

Trading Economics (a huge economic database)