3/14-3/18/16 Charts of the Week

For starters, we wanted to take a look at where we stand in the highly contested Republican presidential primary race…

Republican-primary-votes

Despite the vitriol surrounding Donald Trump, he has swept the South on the road to the Republican National Convention. It appears as if he is going to be the Republican nominee, undeterred by the GOP leadership’s attempt to halt him.

Equities had a strong week, and have turned positive for the year, however just barely. As you can see below, the Dow Jones Industrial Average has returned less than 2% since July of 2014, and there have been several volatile market swings during that time…

dow-positive

In spite of recent gains in financial markets, we remain hard-pressed to call the economy strong . For example, new car sales have been reporting solid figures, however those sales have been padded by subprime auto loans…

Much like the real estate market, subprime loans can inflate the prices of new and used cars as demand picks up, but these loans are often packaged and sold to Wall Street, if borrowers are unable or refuse to pay lenders, then those assets can become distressed. While we do not feel that the subprime auto market will behave like the 2008 housing crisis, we feel that these figures are important to note as the trend is clearly growing.

Manufacturing continues to perform poorly and has since the beginning of 2015…

mfg-index

While numbers are starting to pick up, the sector still has a long way to go regain stability. Manufacturing has strong implications for our economy, from jobs to the prices that we pay for goods. If the US economy wants to completely recover from the collapse in 2009, we must tackle the problems in our manufacturing sector.

Bond yields have been plummeting over the last several years, with a significant amount of global debt now trading at negative yields…

bonds-trade-negative

Central banks feel that they can utilize interest rate controls to manager their economies, however that clearly is not the case. If you look at the Eurozone, GDP has remained stagnant at sub-2% levels, while inflation has dropped consistently since 2012…

gdp-inflation

It seems as if negative rates are taking over globally. Even in Germany, 3 year government debt is now trading at a negative yield…

german-debt-negative

The Bank of Japan is now selling bonds at negative yields, which is significantly different than bonds trading with negative yields in the secondary market…

japan-negative-debt

All of this information led to a tightly watched Federal Open Market Committee meeting last week, where short term interest rates are discussed and set. The Fed not only cut the number of rate hikes that they anticipated for 2016 and 2017, but they also cut the target interest rate increase in half. Commodity markets responded swiftly and favorably to the news, as gold prices surged (the rate hike took place on March 16th, indicated by the red line)…

gold-responds-to-fed

As did silver prices…

silver-responds-to-fed

In our opinion, the market is beginning to lose faith in the Fed, as the labor markets remain relatively weak, manufacturing data reports are soft, our GDP remains low and inflation stays below 2%. Many have speculated that the United States will be the next nation to experiment with negative interest rates. Only time will tell, but we have not ruled out the Fed’s desire to experiment with unique monetary policies.

If readers have any questions on our economic outlook or our services, we encourage you to call or email us and schedule a free, no obligation consultation.

Happy trading!

Ben Treece is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and licensed with FINRA (www.Finra.org) through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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