Economists See Fed Moving Faster on Rate Increases
(…) Some expect inflation to pick up on its own. Some say President-elect Donald Trump’s tax and spending plans could boost price pressures. Others see Mr. Trump’s Fed nominees advocating a more hawkish path for interest rates.
The economists’ predictions for the benchmark federal-funds rate averaged 1.26% by December 2017, which implies four rate increases of 0.25 percentage point each between now and the end of next year. The economists overwhelmingly said the Fed will raise rates at its Dec. 13-14 meeting, which suggests they expect three moves in 2017.
In the November survey, the economists’ estimates averaged 1.17%.
Fed officials, in their September economic projections, penciled in one quarter-percentage-point rate increase this year and two in 2017. (…)
Other economists surveyed see inflation picking up steam in the coming years, which would could lead to more Fed rate increases than currently anticipated. (…)
Why Odds May Be Fading for a Near-Term U.S. Recession
(…) the odds are gradually declining, having dropped to 17% in The Wall Street Journal’s latest monthly survey. That’s still about one-in-six odds over the next year, which is somewhat higher than we’ve seen in recent years. But it’s accurate to say that many economists are slowly lowering their warning flags.
(…) economists are now forecasting higher rates and inflation than they were before the election. But many share the assessment that inflation, in particular, has been too low in recent years, and that somewhat higher inflation would be a welcome development. (…)
Typically, the wealth effect of rising stock prices provides some lift to consumption and should provide some pep for the economy. (…)
CEOs and CFOs See Greater 2017 Risks Than Other Executives
(…) Nearly three quarters of 735 executives surveyed, or 72%, said developments around the world had created a riskier business environment than in previous years.Of those surveyed, 78 were CEOs and 100 were CFOs. (…)
Protiviti and the university surveyed executives and board members in a variety of industries globally this fall, before the U.S. presidential election. (…)
Respondents cited economic conditions most frequently as constituting a risk for 2017—with 72% of executives saying they expected conditions to have a “significant impact” on their businesses in the new year. (…)
In last year’s survey, by contrast, executives most frequently cited regulatory changes as a risk that they would face in 2016.
This year, regulatory changes are the second most frequently cited risk: 66% of the executives cited such changes as likely to have a “significant impact” on their businesses in 2017.(…)
OECD LEIs Tick Ever So Slightly Higher as the OECD Trumpets Gaining Momentum
The OECD itself reports the following analytical assessment of its release this month:
* Signs of growth gaining momentum have emerged in the CLIs for the United States, Canada, Germany, and France. In the United Kingdom, there are also signs of improvement in the short term, although uncertainty persists about the nature of the agreement the U.K. will eventually conclude with the EU.
* Growth is expected to gain momentum in China and India, in particular, and also in Brazil and Russia, albeit from low levels.
* In the OECD area as a whole, Japan, and the euro area as a whole, the CLIs point to stable growth momentum.
* In Italy, the CLI show signs of easing growth.
But Haver Analytics’ Robert Brusca is less enthused:
On balance, the OECD CLI indicators can be construed to be showing some improvement or gain in momentum as the OECD has chosen to do, but when placed of a scale of truth the real story is how meager and nascent this improvement is and that weak the growth continues to be in train. In the case of the U.S., the CLI has ticked up by a net of 0.2 points in the course of two months after being stuck at a reading of 99.1. The ratio of the current U.S. CLI to its value of six months ago is higher by just 0.1 and that is a very sour note on which to hang a song of improvement.
The OECD is a membership organization. I very much get the impression that members are trying to put the best spin possible on the interpretation of these readings. I do not find the OECD report encouraging in the least and find the ‘improvements’ posted this month as in the range of normal variation and unconvincing as yet as to the ongoing nature of improvement.
Household Net Worth Hit Record $90.2 Trillion
Stockholdings—both directly and through retirement accounts like 401(k)s—climbed by $494 billion last quarter while real estate, which is primarily people’s homes, rose in value by $554 billion, according to a Federal Reserve report released Thursday.
The report shows that U.S. households, in aggregate, had tremendous assets at their disposal, about $105 trillion against about $15 trillion of debt. That wealth has likely grown since the report was released because the stock market has rallied dramatically over the past month. (…)
OPEC’s Historic Deal Won’t Be Enough to Drain Oil Stockpiles
(…) Bloomberg News calculations based on OPEC data show that across the whole of 2017 there will be little overall reduction in record oil inventories — even if the group convinces non-members to join supply curbs at a meeting on Saturday.
“Even with 100 percent compliance from both OPEC and non-OPEC producers global stocks are unlikely to fall in the first half of 2017,” said Tamas Varga, analyst at brokerage PVM Oil Associates Ltd. in London. “That should keep oil prices in check.” (…)
OPEC’s track record shows the group only delivers 80 percent of promised cuts. While Russia has pledged to come to the party and lower output by 300,000 barrels a day in the first half of 2017, other non-OPEC producers, such as Mexico, Azerbaijan and Colombia, are likely to dress up involuntary production declines, already factored in by traders, as cuts. That scenario would leave largely unchanged the 300 million-barrel global stockpile surplus Del Pino and his colleagues are targeting. (…)
The Dream Stock Market
It’s the season when Wall Street strategists dust off their crystal balls and predict what markets will do for the year ahead, while conveniently forgetting what they said 12 months ago. (…)
History suggests investors should ignore these year-ahead guesses. The average strategist hasn’t started a year predicting a stock-market drop in any of the surveys carried out by Bloomberg since 2000, while shares fell one year in three. (…) Strong gains were forecast in 2008, when the market had its worst year in generations. Strategists then became cautious, making their lowest forecast in 2009 since the survey began, only for the market to rebound 23%. (…)
Insiders Send Wrong Signal on Bank Stocks The rally in bank shares has coincided with insider selling that is on pace to set a record.
Bank and industrial stocks have been among the biggest winners in the postelection stock rally, but some are swimming against the tide.
Corporate insiders in these industries have been selling into the rally at an unusually strong pace, according to research firm InsiderScore. At first glance, it is easy to view this as bearish. If high-ranking executives are unloading stock, perhaps investors should consider doing the same. (…)
Some insiders could be locking in profits or exercising options that are close to expiration. Many banking executives in particular have held underwater options in the years following the financial crisis. Bank of America Corp. and Morgan Stanley, for example, have rallied back to mid-2008 levels. If this postelection rally was the first chance to sell, it is hard to argue against doing so no matter how they feel about the future. (…)
The recent banking rally might be overdone for a number of reasons. Insider selling isn’t one of them.
If you missed the Dec. 5 Edge and Odds, you missed this:
(…) A total of 3,500 insiders at Russell 3000 companies have unloaded their own stock in the last three weeks, while 467 purchased shares, according to data from The Washington Service, a Bethesda, Maryland-based provider of insider trading data and news. The number of sellers was higher than the monthly average of 1,832 sellers this year through October. Sellers have also increased from the comparable year-ago period, and buyers have decreased. (…)
Insider buying and selling doesn’t necessarily presage gains or declines in a given firm’s shares, of course. But Wall Street watches the data because insiders are understood to have the best information about their companies’ prospects, and are also typically veterans of their industries with longer-term horizons.
While they have historically tended to sell more than buy, their behavior since the election diverges from investors, who have exhibited a rapid shift in sentiment and poured money into equities. (…)
“The big increase in insider selling makes sense because we’ve been making all-time market highs,” said Aaron Jett, the Los Angeles-based vice president of global equity research at Bel Air Investment Advisors, which oversees about $8 billion. “A huge portion of their wealth could be tied up with that one stock so they could want to sell to diversify.”
It is normal for executives to sell into market strength, according to Mr. Jett. That said, a prolonged period of outsize selling by insiders would be concerning, he noted.
(…) in the last month, 891 insiders of U.S. financial companies sold shares, compared with 425 executives who added, data from The Washington Service show.
Both Mr. Clissold and Mr. Jett said it is more valuable to pay attention to a pickup in executive buying rather than selling, since sales can occur for personal, idiosyncratic reasons, while stock purchases tend to indicate confidence in the company. (…)
Where the big increase in insider selling makes much less sense is that it is occurring at the end of 2016:
- why not wait just a few weeks to defer tax payments by 12 months to April 2018?
- why not wait just a few weeks to potentially avoid the 3.8% Obamacare’s net investment income tax which the Trump camp wants to eliminate?
- why not wait just a few weeks to potentially benefit from lower capital gains tax rates promised by Republicans?
Insiders’ use of the trading window following quarterly earnings reports has been rising as the year progressed. Sellers steadily increased while buyers became fewer and fewer. Note that the November data on the chart only includes trades after the election.
