Daily Bullets……for September 29, 2014

·         Steady outlook for economy……..The latest National Association for Business Economists (NABE) forecast was released today. The results point to continued steady economic growth led primarily by business and government investment and growing export trade activity.

What’s the point? The NABE survey is a good one because it reflects the views of private sector economists at large businesses, and not Wall Street economists. This is good, in our view, because NABE economists are closer to what is really happening in the economy through their businesses. The article in the link discusses the outlook for various sectors, but a key point is there appear to be no big surprises in the general outlook, which is in line with our view: moderate real GDP growth of 2.5%-3%, with inflation of around 2% (what we’ve dubbed the “3+2” economy). In general, this scenario remains a positive backdrop for financial assets, particularly stocks, and is probably more neutral for bonds.

Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140929&id=17967495

 

·         Evans comments assuring on Fed policy……Chicago Fed president Charles Evans spoke this morning at a meeting of economists and reiterated his belief that the Federal Reserve will remain patient and restrained in raising interest rates, even if it involves the risk of inflation running modestly above the Fed target of 2% for period.

What’s the point? We think Evans’ comments most likely reflect the current majority view of the FOMC, and echo recent comments of Fed Chairwoman Janet Yellen. While the U.S. economic growth does appear to be accelerating somewhat, as the above comments on the NABE survey indicate, moderate growth is still expected and Europe remains in a severe funk with deflationary implications. The Fed thinking is probably that the economy gives them the latitude to keep monetary policy more loose than they otherwise might at this point in an economic recovery and, in fact, this may still be of necessity. The point for financial markets is essentially “more of the same”: an accommodative Fed policy is positive for stocks, in particular. The big questions concerning investors now are “how fast does the economy accelerate?” and “to what extent does the Fed accelerate the reduction of accommodation?” Our thought is gradualistic changes in policy accomodation, which we expect, should not be overly disruptive to the financial markets. Under this scenario valuations should hold up if not increase somewhat.

Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140929&id=17968890