LSA Connect

(+) The most heavily-looked at report last week, retail sales, registered a stronger-than-expected result for February, up +1.1% versus a consensus estimate of +0.5%. The headline figure was aided by a +5.0% gain in gas station sales (in line with higher gasoline prices). Auto sales and building materials, both cyclical and choppy month-to-month, were up +1.1% and helped the overall results. The next level of ‘cleaned-up’ data, retail sales ex-autos, gained a still-respectable +1.0% that beat the expected +0.5%. Lastly, the ‘core/control’ retail sales number (which excludes autos, gasoline and building materials, and represents the figure that corresponds most closely to the consumer spending segment of the quarterly GDP report) gained +0.4%, double the expected +0.2% increase. In addition, increases were broad, with strong results in ‘general merchandise,’ food/beverage and online sales. What this tells us is that purchasing activity continues to improve—despite some fears of slowing due to this year’s payroll tax increases. While still fairly low, this remains a tailwind in our favor. Continue reading →

Join Brad Kasper, Dean Barber and Bud Kasper as they discuss the recent market rally and what to keep investors focused on moving forward.

To listen to FANN radio, simply visit the LSA website and login. The show is posted under the “Resources Tab”. If you are not a member but would like to listen to the show e-mail us at support@lsaportfolios.com .

(+) The ISM Non-Manufacturing Index for February came in better than the expected 55.0 level with a small increase to 56.0. New orders and business activity were higher, while employment deteriorated a bit (although still in expansionary territory). Inventory expansion was also slightly higher. Interestingly, anecdotal comments in the survey responses were optimistic with a general theme that business was ‘picking up’ in several industries in a more diversified way.

(+) Factory orders for January fell -2.0%, which was a touch better than the forecasted decline of -2.2%. A large decline in aircraft orders (defense and non-defense—both of which are a ‘choppy’ series) accounted for a good portion of the result. While ‘core’ (non-defense, non-aircraft) capital goods shipments fell -1.1% during the month, on the positive side, forward-looking core orders came in at a strong +7.2%.

(+) Manufacturing inventories rose +0.5% for January, which was a contrast to a flat reading during the entire fourth quarter of 2012. Nondurable inventories gained +1.0%, which provided the primary magnitude for the change, while durable inventories rose a bit as well. Overall, this was in line with expectations and was considered to be a positive input to the first quarter’s upcoming GDP. Continue reading →

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The chart of the week looks at the Yield on the Barclays Intermediate US Government/Credit Index, which is our Fixed Income Benchmark and a good proxy for a conservative bond allocation (60% Treasuries/40% Investment grade corporates) minus the 4 Year Market Implied Inflation rate (subtracting 4 year TIPS yields from 4 year Treasuries yields). The reason we use the 4 year inflation rate is because the weighted average maturity in the Barclays Intermediate US Government/Credit index is 4.18 years, so it is an apples to apples comparison to the 4 year implied inflation rate.

This basically gives you the “real yield” (i.e. after inflation) you can expect from this conservative bond index. As you can see from the chart, the real yield now stands at negative 1.2% and is at the lowest level in 10 years (as far back as our TIPS data goes). This means an investor in a conservative bond portfolio can expect to lose 1.2% of their purchasing power every year on the bond portion of their portfolio if inflation turns out to be 2.4%/year, which is currently implied by the market over the next 4 years:

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The chart of the week looks at the depth of unemployment post WWII and the time it takes to recover. There are many people talking about the current recovery that is taking place and the positive fundamental shift that is improving the US economy.

That said: December and the unemployment rate ticked up in 7.8 percent.

Although the numbers were in line with economists’ expectations, they still reflect a job market that remains incredibly weak almost four years into the economic recovery and is painting a picture of a continued slow recovery from the 2008 recession.

Benjamin Keating, Senior Vice President and Portfolio Specialist, is responsible for communicating Hartford/Wellington Investment Management’s investment strategy and economic outlook to the financial community in the United States. In this capacity, Ben serves as a specialist for our global fixed income offerings and asset allocation models.

With the recent concerns about fixed income in the coming years Ben provides LSA members  strong talking point to communicate with clients and forward looking ideas in fixed income moving forward.

The private LSA manager interview is now available online for active members only.  To view the LSA interview with Ben go to www.LSAportfolios.com and login.  The interview is posted under “Resources/LSA Manager Interview”.  If you are not currently an LSA member but would like to hear the interview contact us at support@lsaportfolios.com.