Daily Bullets......For April 29, 2014

·         PIMCO changing its tune on “new normal”……..We note that PIMCO, a large bond fund manager is now claiming the end of the “new normal”. Since 2009, PIMCO has been a loud proponent of the “new normal” thesis (meaning a period of sustained very low growth). PIMCO is now calling for a “new destination” economy, which means moving from sub-2% real GDP growth to above-2% growth. What’s the point? It was pretty clear months ago that conditions were coming together for an acceleration in the economy in 2014. Improving economic growth potential has positive implications for corporate earnings and also implies rising interest rates, which we expect. Link: http://www.bloomberg.com/news/2014-04-25/pimco-s-mather-sees-clear-departure-from-new-normal-economy.html

 

·         Low wage job growth still problematic….The article in link below points up one of the problems with the current economic recovery: a majority of the new jobs created in this recovery have been of the temporary and lower wage variety. What’s the point? The fact that much of the job creation in this recovery is lower wage has been a meaningful factor contributing to this unusually slow economic recovery. It is has contributed to below average consumer spending and low inflation so far in this recovery. Link: http://www.cnbc.com/id/101620663

 

·         Expansionary economy supports further market gains……In an interesting analysis out today, and an RBC strategist makes the case that the stock market should not see a serious correction until we enter a recession. What’s the point? We agree that 1) U.S. economy still has considerable room for further growth, perhaps several more years, and 2) there is further room for expansion in both earnings and stock valuations. We believe economic and earnings fundamentals support higher equity prices over the longer term. We would not be surprised to see the stock market up 10% both this year and next. Link: http://blogs.marketwatch.com/thetell/2014/04/28/bull-market-wont-die-until-a-recession-hits-rbc/

 

·         Sanctions not having much impact……The E.U. today followed the U.S. in imposing further sanctions on Russian officials and companies following recent Russian incursions into Ukraine. What’s the point? With the market up about 90 points today, investors do not seem to be overly concerned with either the new sanctions or their potential economic impact. It appears investors believe Ukraine is a fairly small factor in overall global economy and if Putin actually moved to annex Ukraine with force, there would not be significant longer-term economic fallout. Link: http://www.bloomberg.com/news/2014-04-28/u-s-aims-at-putin-s-inner-circle-with-latest-sanctions.html