Chugging Economy; Turning Japanese; Taper In September?
Recapping the day's news and newsmakers through the lens of CNBC.
Train Coming 'Round the Bend?
The economy keeps chugging along, with numbers showing that it expanded at a 2.4 percent annual rate during the first quarter. That's down a tenth of a point from the government's initial estimate last month but still solid, as reflected in Thursday's stock market gains.
We have yet to feel the full pain of the federal sequestration and rising payroll taxes, stimulus money is all but spent, and we're still in a huge unemployment hole that it will take a long time to dig out of—even with an encouraging job-creation rate. The initial jobless claims at 354,000 were a little worse than expected, but consistent with slow, steady improvement.
And, of course, once the government decides we've turned the corner, it'll begin slowing its bond-buying and rates will rise, perhaps sidetracking economic growth.
"We're at a very interesting spot down here now. The Fed gave us a clue that maybe they're going to taper, maybe they're not. Everything's got to be focused hard. The stock market rejected highs when the whole story came out. We're kind of caught in a flux here, we're looking for information to knock us out of it, and this is not good enough to do it."
—Jim Luorio of TJM Institutional Services
With the Nikkei seeing two big plunges in the past week and reports that Japan's public pension fund wants to shift to stocks over volatile bonds, Pimco CEO Mohamed El-Erian talked central bank intervention, bond yields and what to expect in the coming months. He thinks that not far down the road we'll reach the conclusion that such robust intervention is ineffective and a step-down is necessary.
Eventually, the markets must transition from assisted growth (help from central bank policy of liquidity) to genuine growth (when fundamentals take the wheel). The risk for stocks is if that transition is made before fundamentals step up.
"I think in order to answer the bond market you also have to have a view on Japan. Why is that important? Because let's remember that the last bit of the rally has been very much induced by Japan and more generally by indications that central banks are all in. And what's happening in Japan is either a blip or—and this is important—could be an indication of something more fundamental. If it's an indication of something more fundamental, we should be paying a lot of attention to it."
KKR Signs On Ex-CIA Chief Petraeus
If you needed more proof that business is war, leveraged buyout firm KKR & Co. has named former CIA chief and four-star Gen. David Petraeus to helm its new KKR Global Institute, which will study the investment implications of global macroeconomic, social and geopolitical issues. Petraeus will also help KKR with due diligence.
Petraeus is known for being instrumental in pulling Iraq back from the brink of civil war and being President Barack Obama's go-to guy to lead forces in Afghanistan before moving him to the CIA in 2011. He resigned as CIA chief in November after his affair with his biographer came to light.
"A guy like him clearly is going to help open a lot of doors, help make some deals, but I don't know to what extent he's going to be involved in managing portfolios."
—Ben White, Politico chief economics correspondent
Taper in September?
Yes, more taper speculation, but CNBC's Steve Liesman makes it especially easy to digest, lining up some key Fed officials and analyzing their recent comments about paring back the $85 billion a month bond-buying program. There are some hawks and a few doves, but the key theme is jobs. Liesman concludes that if you take the officials at their word and we have no surprises, tapering could happen as soon as September.
"I would expect given what they are saying and the spread of opinions that it would be like a September taper, but remember, a taper is not an end. It would still mean the fed is adding to its balance sheet."
Doug Cubberley, Special to CNBC.com