Yesterday’s News

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Jul 2, 2012 9:18:42 PM

and tagged Europe, Yesterday's News

Leave a comment

One of the things I do every morning is read at least three papers, the New York Times, the Financial Times (FT), and the Wall Street Journal (WSJ). I like to see what is going on—or, at least, what the paper’s editors think is going on. Even in our 24-hour Web world, I still think there is value in looking at what the editors and reporters think is worth putting on paper. With that said, I thought I would try a regular posting called Yesterday’s News that sorts among those papers to identify what is most interesting and important. I will be doing this most days.

The lead economic and business story today, from both the WSJ and FT, was the factory output report. U.S. industrial production, as shown in the Institute of Supply Management (ISM) report, was at the lowest level for three years and had the first actual decline for three years. The figure dropped from 53.5 to 49.7, which was well below expectations. Any level below 50 means a decline, and industrial production is now at 2009 levels.

Much of the decline was attributed to widespread weakness in the rest of the world. Europe, Germany, South Korea, and Taiwan are all contracting, and China’s growth is at the lowest level in seven months. Europe is actually a double hit for the U.S., as economic weakness reduces demand for American goods, and the decline in the value of the euro makes those goods more expensive for the demand that does exist.

The employment component of the ISM report showed a much smaller decline than the overall index; with the employment component still in positive territory, the results from this Friday’s employment report may be less negative than would be suggested by the overall ISM report. Economists noted that the ISM report at this level still implies an overall U.S. economic growth level of about one percent. However, several economists noted that the negative results from the ISM report seem to be inconsistent with other data reported, and therefore, may be an outlier which will not be repeated.

Supporting themes in the papers are France’s need for significant cuts in social services to meet its budget targets, further emphasis on the lack of growth in Europe, and record levels of eurozone unemployment.

In the U.S., the WSJ expanded on a theme from my post of yesterday, talking about how the states are limiting Medicaid expansion. Florida is given as an example: the governor, a former hospital executive, is leading the state-level opt-out that is opposed by the hospitals. Interesting times, as natural allies start to separate.

Finally, on a completely separate note, we may be getting an announcement of the confirmation of the Higgs particle today. This particle is believed to be responsible for the existence of mass in the universe, and its confirmation is a very big deal for the Standard Model of particle physics. What will this be good for? Who knows, but then again, who knew how powerful the laser would be when that scientific curiosity—and that was all it was at the time—was discovered. Long term, this may well be the most important news of the day.

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®