Happy Veterans Day to all of you!  May all of us take time to remember those who have served and fought for our Country as well as all who serve in our armed forces today protecting our freedoms!  Sam and I were fortunate last week when we attended the annual conference at the Trust Company of America to hear a keynote speech by General Stanley McChrystal, a retired four star general and former commander of U.S. forces in Afghanistan as well as leader of the Joint Special Operations Command.  His insight to the modern military and comments gave us a whole new appreciation for those that do serve and protect our Country from the terrorist threat on a daily basis.

Defying expectations, job creation accelerates in October

The Fed’s super-accommodative monetary policy is still providing a fertile ground for the markets.  We do not believe this can last indefinitely.  Despite last month’s government shutdown, which was supposed to temporarily dampen job growth, a better-than-forecast October payroll number was just enough to push the major stock indices higher on Friday after a sharp drop last Thursday.  The Standard & Poor’s 500 stock index has now been basically in a sideways pattern since October 29th.

In a release that was delayed by one week due to the partial government shutdown, nonfarm payrolls rose 204,000 in October (see Figure 1), besting the estimate offered by Bloomberg of 120,000. The overall unemployment rate on the other hand, rose to 7.3% from 7.2%.  Among the unemployed, the number who reported being on temporary layoff, however, increased by 448,000. (Source: Bureau of Labor Statistics)


The number of “underemployed” came out on November 10th as still as high as 16.6% of the workforce.  The underemployed are those who are working only part-time but want to work full time. (Gallup)

Although limited at this point, October economic data has for the most part been coming in at a better-than-expected pace, surprising analysts who had forecast a temporary slowdown in response to the D.C. drama last month.  It’s possible that the delay of October’s survey of the employment landscape may have upwardly skewed the data.  One thing that is certain, we’ll see additional revisions to October’s report, which, along with November’s numbers, could play a key role in how the Fed responds at its December meeting.

The report was enough to put a December reduction in the Fed’s $85 billion in monthly bond buys back on the table. The bond market reacted in such a way after Friday’s release, with the yield on the 10-year Treasury rising 0.14 percentage points to 2.77%, the highest yield in almost two months (U.S. Treasury Dept data).  This was another knee jerk reaction for one day to a “what if” scenario.  The current rate for a 30 year fixed rate mortgage is 4.37% and the 15 year fixed rate stands at 3.40% today.  (Bankrate.com)

In the meantime, the government reported that Gross Domestic Product (GDP – the largest measure of goods and services for the economy) grew at an annual pace of 2.8% in Q3, according to early data.  That exceeded the forecast of 2.0%. The upbeat headline wasn’t greeted with that much enthusiasm since a build-up in business inventories accounted for 0.8 percentage points of the rise, helping to mask the slowest increase in consumer spending in over two years (Commerce Dept.).  Overall, the economy has been stuck in a very slow growth pattern since the 2008-2009 recession relative to previous economic recoveries.

Overseas, the European Central Bank (ECB) surprised some investors by cutting its key lending rate last week from 0.50% to 0.25%, a record low. In our view, the rate cut is mostly symbolic and won’t solve what ails the euro-zone’s economy.  Inflation has fallen to uncomfortably low levels in Europe, which sparked the rate cut from the normally conservative central bank.

Why does all of this matter? Simply that aggressive central bank action around the world, including the U.S. Fed, the Bank of Japan, and the Bank of England, has played a role in boosting equity prices. We’ll see if the ECB eventually decides to join its counterparts.  All of this global stimulus could be very inflationary at some point in the future.

We hope you all have a great week ahead, and please don’t hesitate to call if we can be of further service in any way.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

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