Once again, it is all about central banks.
Last week, the Swiss National Bank shocked everyone by abandoning its three year effort to keep the franc from appreciating against the euro and slowing its export-oriented economy. Its rationale for doing so was perfectly understandable. In light of the ongoing weakness of the euro, the cost of suppressing the franc was becoming increasingly expensive. And in light of expectations that the European Central Bank (ECB) is about to launch a program of quantitative easing, the Swiss strategy threatened to become even more expensive.
Central banks change their minds. It happens. But recent statements from officials at the Swiss National Bank strongly suggested the strategy would continue. As a result, many investors were caught off guard, and on the wrong side of the rise in the value of the franc, which surged 20 percent versus the euro immediately following the announcement last Thursday. Even International Monetary Fund Managing Director Christine Lagarde expressed surprise at the news, saying policy coordination is preferred.
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• Overall, consumers still have a lot going for them in the current environment and unless we’ve suddenly become a much thriftier society, people will eventually spend those extra dollars.
• Excluding gasoline sales, retail trends in general are healthy.
It would be a mistake, in our opinion, to look at the December retail sales report as an indication of deteriorating consumer trends. Consumers still have a lot of positives flowing in their favor, from rising incomes, to better balance sheets, to much lower energy costs.
Unless we’ve suddenly become a much more frugal society, people will eventually spend their extra dollars as their incomes grow, their costs moderate, and their confidence levels rise, all of which have clearly been occurring.
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With a few notable exceptions, stock markets around the globe have started the year with a pervasively negative tone. Through last Friday, the S&P 500 was fractionally lower, as were the Nasdaq Composite and the Russell 2000. Utility and healthcare stocks have bucked the trend, as have REITs and precious metals, but there are few bright spots elsewhere.
Stocks are also generally lower in Europe, although slightly less so in local currency terms, as the dollar continues to strengthen, or perhaps more accurately in the case of the continent, the euro continues to weaken. In Asia, the picture is a little more mixed. Stocks are slightly higher in Australia, Hong Kong, South Korea and India, but lower in Japan, Taiwan, Singapore and Malaysia.
The rally that drove equity prices higher between mid-October and early December, arguably triggered by expectations of continued central bank largess, has given way to a litany of worries that cumulatively call into question just how effective central banks can and will be.
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Now that the slate has been wiped clean and return comparisons have been reset to zero, one question that remains from 2014 is, how important will central bank policy be in determining investment outcomes in 2015? If we ask ourselves – seven years after the start of the Great Recession, and almost six years into the recovery – are the major developed world economies any less in thrall to the influence of central banks, the answer seems to be, no.
Certainly strides have been made across the global economy in the aftermath of the financial crisis, but at varying speeds, and central bank policies are consequently at varying stages. But at the start of 2015, it seems we are as preoccupied with central bank policy as ever.
In the U.S., the question revolves around if and when the Fed will first raise the overnight rate, and at what speed will subsequent increases occur? A strong case is to be made that the domestic economy no longer needs the extra stimulus of a zero bound official rate, even if inflation is a little too low for comfort. And if the Fed does initiate rate liftoff, presumably sometime around June, how will markets react? The end of the third round of quantitative easing (QE3) last fall caused barely a ripple.
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Ameriprise Financial and Its Employees and Advisors Give $12 Million and 66,000 Volunteer Hours to Nonprofits in 2014
Ameriprise Financial Announces Schedule for Fourth Quarter and Full Year 2014 Investor Conference Call
Ameriprise Financial Chairman and Chief Executive Officer to Present at the Goldman Sachs US Financial Services Conference
12,000 Ameriprise Financial Volunteers Turn Out at Nonprofits Across the Country to Help Fight Hunger on Nov. 14
Minneapolis – (Nov. 13, 2014) – For the fifth year in a row, a surge of volunteers from Ameriprise Financial (NYSE: AMP) will turn out at food banks, warehouses and kitchens all over the U.S. to package and prepare meals for families in need. Beginning at 9:00 a.m. EST tomorrow, Friday, Nov. 14, nonprofits across all 50 states will open their doors to Ameriprise employees, advisors and clients who will roll up their sleeves and get to work at more than 500 events. By the end of the day, the company expects to easily exceed its goal of assembling more than 1 million meals for people in communities from coast to coast.
Citing falling energy prices and rising consumer confidence among other factors, energy prices have certainly captured a lot of attention recently. Between late June and early November, the price of West Texas Intermediate (WTI) crude oil fell from $107.00 a barrel to $77.00, a decline of 28 percent. During that time, the national average price of a gallon of regular unleaded gasoline has fallen from $3.66 to $2.93, which is the first time the price has been below $3.00 since 2010. Between mid-June and late-October, the price of natural gas fell from $4.76 per (mmBTUs) to $3.56, a 25 percent decline.
The beneficiaries of these moves are not hard to find. Consumers are saving money every time they fill up. It is estimated that each day consumers are collectively saving $100 million compared to one year ago.
Energy intensive industries are big savers as well, including airlines, truckers and other transports. The country’s retailers are also hopeful that some of these savings will be directed their way during the current holiday shopping season. The National Retail Federation estimates that sales will grow this year by 4.1 percent, compared to last year’s rise of 3.1 percent.