Daily Bullets…..for September 5, 2014

·         Surprising job numbers not a big deal……Labor Dept reports this morning that non-farm payrolls grew by 142k in August, much lower than expected and down 33% from July. The unemployment rate fell to 6.1%.

What’s the point? The jobs numbers are a key datapoint that investors watch to provide a gauge of the strength of the economy. Characteristics of this economic recovery have been both a) its relative weakness compared with other post WW-2 recoveries, and b) the unevenness of virtually all the data we’ve seen since 2009, whether it be job growth, capital spending, industrial output, etc. The August weakness fits in with the overall pattern of this recovery: uneven. We don’t see it as a harbinger of slower growth but rather more of the same: a moderate, uneven recovery. That said, we do expect some acceleration in economic growth from the 2% range to about 3% in 2015.

Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140905&id=17908118

·         ECB to pump Euro economy: European Central Bank chief Mario Draghi announced this week that the ECB will implement a form of quantitative easing (QE) by purchasing up to $1 trillion in private asset-backed securities.

What’s the point? The ECB’s QE program is designed to provide additional liquidity to the Eurozone credit markets, and thereby help accelerate the economic recovery in Europe and drive inflation higher. The current state of the Eurozone economy is akin to being in the “intensive care unit”: essentially zero growth and mild deflation with a very real risk that deflation could worsen. This, of course, is Draghi’s major concern. We do not see the Eurozone condition improving any time soon, and we expect the recovery will be a very gradual process that could take many years. This has broader implications for the global economy: to the extent the Euro economy remains in a deep funk, it slows potential growth rate for other major economies, such as the U.S. and China. It also implies that both inflation and interest rates could remain low for longer than most investors now expect. This has both positive and negative implications for financial assets. On balance, it probably remains more positive for stocks than bonds. We do not expect the rate of gains in stocks going forward to be a high as we’ve experienced in the last five years, but returns for stocks could still be healthy, barring exogenous shocks.

Link: http://www.bloomberg.com/news/2014-09-04/draghi-sees-almost-1-trillion-stimulus-with-no-qe-fight.html