A market priced for perfection will start to wilt when investors realize things aren't particularly perfect.» Read More
The Federal Reserve is putting some of its post-crisis actions under a magnifying glass and not liking everything it sees.
In a white paper dissecting the U.S. central bank's actions to stem the financial crisis in 2008 and 2009, Stephen D. Williamson, vice president of the St. Louis Fed, finds fault with three key policy tenets.
Specifically, he believes the zero interest rates in place since 2008 that were designed to spark good inflation actually have resulted in just the opposite. And he believes the "forward guidance" the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors. Finally, he asserts that quantitative easing, or the monthly debt purchases that swelled the central bank's balance sheet past the $4.5 trillion mark, have at best a tenuous link to actual economic improvements.
Williamson is quick to acknowledge that then-Chairman Ben Bernanke's Fed, through liquidity programs like the Term Auction Facility that injected cash into banks, "helped to assure that the Fed's Great Depression errors were not repeated."
The drumbeat of disappointment is continuing for the U.S. economy, with the latest numbers showing the third quarter looking a lot like the first quarter.
While economists continue to search for signs that domestic growth is finally loosening the shackles of the financial crisis, the data suggest otherwise. An initial reading Monday for the third-quarter manufacturing outlook was bleak, and the spending outlook both for consumers and businesses does not suggest rapid improvement anytime soon.
Hence, the result: The Atlanta Federal Reserve's GDPNow tracking tool, which has been a pretty reliable rule of thumb lately, indicates third-quarter advancement of just 0.7 percent, with the momentum to the downside. The indicator has dropped 0.3 percentage point just in the past week as the model adjusts for a likely decline in inventory build for the three-month period. (The CNBC/Moody's Analytics Survey has GDP growth at a comparatively lofty 2.6 percent.)
That lower reading also reflects conditions before the plunge in the Empire State manufacturing index released Monday morning, which showed that activity in the New York region contracted considerably. Gross domestic product increased 2.3 percent in the second quarter—a number economists are revising up due to a sharp but likely unsustainable inventory build—after rising just 0.6 percent in the first quarter.
Peter Boockvar, chief market analyst at The Lindsey Group., called the Empire reading "awful" and said it was the worst for the data point since April 2009.
Donald Trump's raucous presidential campaign won't be the only thing lighting the political fires this fall.
A handful of significant deadlines and policy decisions loom for Washington and Wall Street that could bring volatility to the financial markets, though perhaps not on a fiscal cliff-type level.
Among the big events to remember:
1. The Iran nuclear agreement: Congress has 60 days to review the pact between the White House and Iran, and it could end up as an impasse wherein lawmakers pass a resolution rescinding the agreement that President Barack Obama vetoes.
2. The end of the fiscal year: Sept. 30 concludes the budgetary cycle and could bring with it more of the same tango between the warring Washington parties. "There is a greater risk of a federal government shutdown from Oct. 1 than at any point since the last one occurred two years ago, though a shutdown this fall is not quite our base case," Goldman Sachs economist Alec Phillips said in a note.
Ash Kamel wanted to expand his skills and be more marketable in the corporate world. But he didn't choose to do it by enrolling in an expensive and time-consuming business school program.
Kamel, who graduated with an electrical engineering degree nearly a decade ago and became an entrepreneur, enrolled instead in a three-month, classroom-based "boot camp" at General Assembly, a four-year-old startup that offers short-term intensive courses in design, business and computer programming. He saw it as the quickest and most efficient and inexpensive way to learn coding—a skill which has become vital to multiple industries.
"In retrospect, this was quite a gamble," said Kamel. "[But] it turned out great for me."
He credits the program with helping him secure a full-time software engineer position at DegreeCast, a startup search engine company in New York City.
Boot camps like the one Kamel chose have become increasingly popular over the past few years, as students weigh the cost and time involved in going back to school—particularly for skills like coding that are immediately marketable and don't require a graduate degree.
The biggest trouble sign for stocks may be bonds.
High-yield bonds, specifically, often are seen as an effective proxy for movements in the equity market. If that's the case, trends in junk are pointing to a rocky road ahead.
Average yields for low-rated companies have jumped to 7.3 percent and spreads between such debt and comparable duration Treasurys have widened dramatically, according to David Rosenberg, chief economist and strategist at Gluskin Sheff.
History suggests that fallout in stocks is not far behind.
"If you think the equity market is heading for a spot of trouble here, the high-yield bond market is having a coronary," Rosenberg said in his daily market analysis Thursday.
In the course of just a couple of days, things have gotten a lot more complicated for the Federal Reserve.
Late last week, when the July jobs numbers came in right around market expectations, expectations surged that the U.S. central bank in September would enact its first rate hike in more than nine years.
Now, things have changed.
Darkening global deflation clouds have begun to form while China has moved to devalue its currency just as the Fed apparently was about to strengthen the U.S. dollar. Meanwhile, flatlining productivity at home has caused economists to ruminate over growth that may not be anywhere near the 3 percent aspirations held by the Fed and Wall Street experts.
Consequently, traders who bet on the movement of fed fund futures have changed direction. A week ago, the CME Group FedWatch tool had assigned a better than 50 percent chance of a rate hike next month. However, the latest wagering has the probability down to 39 percent, with the strongest chance of liftoff in 2015 not coming until December, which now has a 66 percent chance.
The U.S. has an economic crisis on its hands that one economist thinks is worse than the Great Recession.
Over the past year, productivity has increased just 0.3 percent and a mere 0.5 percent over the past five years, during which the economy has struggled to escape the clutches of the financial crisis and the recession that supposedly ended in mid-2009.
The result has been growth in job creation but little corresponding rise in wages and, subsequently, living standards. It's essentially been the economy's dirty little secret even as Wall Street forecasters continue to project breakout growth that never seems to come.
"This topic is still getting almost no attention—particularly among presidential candidates—but there is a case to be made that the stagnation in productivity has been more damaging to the real living standards of Americans than the Great Recession," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients. "Productivity growth is the primary driver of gains in real wages." (Tweet this)
Indeed, wage growth has been stuck around 2 percent or lower for pretty much all of the post-recessionary period. So while stock market investors enjoy the fruits of never-before-seen easy monetary policy—with the S&P 500 up about 210 percent since March 2009—it's been a different story for much of the labor force.
"The longer this slump goes on, the harder it is to believe that the economy will just snap out of it," Ashworth said. "For all the talk of secular stagnation and permanently weak demand, it may be supply-side problems that are the bigger problem."
Investors continue to pull money out of Bill Gross' new bond fund, though the exodus slowed somewhat in July.
Despite comparatively strong performance against its peers, the Janus Global Unconstrained Bond Fund saw $2.4 million in outflows for the month, bringing its total assets to $1.47 billion, according to data Morningstar released Tuesday.
As a percentage of total assets, the monthly outflows amount to less than two-tenths of a percent—essentially a rounding error—but are part of a recent pattern of flight from the fund. Gross started the Janus offering after his highly publicized departure from Pimco in September 2014.
Silicon Valley is taking on Wall Street right where it lives: in financial services that big banks either have ditched or haven't latched onto yet.
Tech-focused venture capital firms poured some $12.2 billion into financial services start-ups in 2014, more than triple the amount in 2013, according to numbers from Accenture and CB Insights that Wall Street brokerage Convergex cited in a note Monday.
The "fintech" interest is broad based, from mobile payments to peer-to-peer lending to cryptocurrencies and a handful of areas in between. At the root of the interest is an effort to capture the way millennials want to do banking in the future.
Surveys repeatedly have shown that this cohort, generally identified as those who came to young adulthood around the turn of the century, is avidly looking for alternatives to traditional banking. One in 3 would switch banking in the next 90 days, according to a survey from Viacom's Scratch. Earlier this year, SNL Financial reported that 1 in 4 millennials changed banks solely because of an institution that offered a better app.
It's all led to money sniffing out opportunities in the burgeoning $75 trillion shadow banking industry.
Tighter regulations and increased costs have pushed traditional banks out of some services. In other instances, banks simply have been slow to respond to changing customers demands.
"Financial services will dramatically evolve over the next 10 years as millennials age and use more banking services compared to the last 50, enabled by advancements in technology. No doubt traditional banks remain entrenched and there's a plethora of regulatory hurdles standing in the way of this industry and new entrants," Convergex said. "Numerous startups, however, have created more efficient, cost effective, and tech-savvy versions of the verticals currently on offer."
Consequently, investors including Google Ventures, Andreesen Horowitz and Sequoia Capital have become players in exploring new opportunities. Convergex analysts identified seven key areas:
A month away from the debut of Symphony's instant messaging system, CEO David Gurle plays down talk that his company could be the one to topple "The Bloomberg."
"I don't think so," Gurle (pronounced gehr-LAY), told CNBC. "You know, we are not building a Bloomberg terminal. We are building a communication platform."
Symphony's platform is backed by $66 million from 14 blue chip financial firms, including Goldman Sachs, JPMorgan Chase, Citadel and BNY Mellon. Gurle said he is lucky in that his investors are also his clients, as their input helped shape the service.
"We know what they want and how they use the products," he said. "So from that perspective it was very helpful. What they want us to do is to simplify the way they communicate internally and externally."
Still, some speculate the firms are expecting Symphony to do more than simplify the way they communicate, and that they want the company to build a more private and less expensive alternative to the Bloomberg or Reuters services they use.
For example, Bloomberg's service is rich with proprietary data and analytics. This justifies its hefty annual price tag of close to $20,000 per subscription.
For most users though, the most popular Bloomberg function is its instant messaging system.
Ray Dalio's fund slumped in August and some investors blame the strategy of such funds for the volatility that slammed stocks and commodities.
For all the talk about the 250,000 jobs a month the economy is creating, workers' real wages are going backward.
Volatility could probably last anywhere from three to four months, Brian Jacobsen of Wells Fargo said.