No. 7/July 2013
MARKET COMMENTARY
[email protected]
www.ethenea.com
Cognitive
Dissonance
What the Fed intended to
do was to calm the
markets, but actually it
may just have thrown the
baby out with the
bathwater. The markets are
overreacting, with no sign
yet of a recovery or
turnaround in interest rates
– and for good reasons...
When Ben Bernanke, Chairman of the US Federal Open Market Committee (FOMC), appeared for the press conference on
19 June 2013, the capital market hoped that the rather vague
fears of so-called tapering would be soothed. We already
wrote about this in our last market commentary. In his statement then, Bernanke went quite soon to the point, explaining
that the US Federal Reserve would be prepared to scale back
and ultimately end the purchasing programme for US government and real estate bonds if the USA were on a stable course
of growth. He backed this up using employment figures that
are not yet within the target range (the interested reader can
find a closer analysis of these employment figures further on).
Ben Bernanke added: "To return to the driving analogy, if
the incoming data support the view that the economy is able
to sustain a reasonable cruising speed, we will ease the pressure on the accelerator by gradually reducing the pace of
purchases. However, any need to consider applying the
brakes by raising short-term rates is still far in the future."
ETHENEA | Market Commentary
No. 7/July 2013
Cognitive dissonance between the FOMC and the capital
market led to a rate increase of 40 basis points in 10 year US
government bonds. Even returns on 10 year federal bonds
rose by 30 basis points (see Graphs 1 and 2).
The choice of a car analogy might be based on the assumption
that the overwhelming majority of capital market participants
are male and thus ought to have a strong link to cars. However,
this assumption does not seem to be accurate, as the capital
market rather acted as if Ben Bernanke had just announced
the start of a cycle of interest rate hikes.
2.8
5.0
FOMC
2.6
4.5
2.4
4.0
2.2
3.5
3.0
1.8
in %
in %
2.0
1.6
2.0
1.4
1.5
1.2
1.0
Jan13
2.5
Feb13
Mar13
Bund10yr
Apr13
May13
Jun13
1.0
Jul13
08
09
10
Bund10yr
UST10yr
Source: Bloomberg, ETHENEA
11
12
13
UST10yr
Source: Bloomberg, ETHENEA
Graph 1: Course of German and US 10 year bond yields
Graph 2: Course of German and US 10 year bond yields
The Federal Reserve, which rarely seeks to justify itself in
public and does not interpret or comment on the Chairman's
words publicly, did feel the need to provide a few words of
explanation in this case. A good week or so after Bernanke's
statement, both Fed Governor Powell and New York Fed
President Dudley commented along the following lines: Since
May, the adjustments to the market have been greater than
could be justified by any reasonable assessment of the course
of (monetary) policy. In the author's estimation, the market
has not been so chastised since Alan Greenspan talked about
"irrational exuberances" back in December 1996, provoking a
correction in the stock markets.
The fact is that an interest rate turnaround is still currently
not on the cards. The end of ultra-lax monetary policy, at
least in the USA, is on the horizon – but has still not been
reached. Nevertheless, the ultra-lax monetary policy would,
to all appearances, been replaced by a very lax monetary
policy. And the prospect of the self-imposed conditions for
ending the bond purchase program being met in the foreseeable future may become improbable, due to the apparently
misleading rise in rates at the long end of the curve. There
is still much debate amongst market augurs. Meanwhile,
the period in which the end will take its beginning varies
strongly between September 2013 and summer 2014. Moving targets, then. At this point I would like to draw your
attention again to the excursus to follow, in which Dorothee Rainis portrays the complexity of the US job market.
In this case too, the statements from the Fed have also caused a
certain pacification of the market at the end of the last month.
The author's hopes of a quiet, boring summer, however, have been
dashed (and not just by the bad weather). The observed rise in
rates is obviously grist to the mill for those who were predicting a
turnaround in rates three years ago. If the author had collected 10
euros for every time he has been asked over the past three years
what he would do, since interest rates were rising... but let's not go
there – you already know..
But it is not just the US and German government bonds that
have fallen victim to the correction in market expectations.
Especially higher-risk bonds have suffered heavy losses. Graph
3 clearly shows that, above all, bonds from emerging markets
have taken a battering. In this, it has been quite irrelevant
whether bonds are quoted in the local currency or in USD.
Since May, losses on the relevant indices have been at 10%
and 15%, respectively. In this context, the USD High Yield
Market's losses of 5% appear rather tame.
2
ETHENEA | Market Commentary
No. 7/July 2013
Graph 4 shows that, fortunately, the stock markets almost all
ended the first half of 2013 with positive gains. Almost all,
except for the Shanghai Stock Exchange, for instance, which
registered year to date loss of nearly 14%. This loss can be
attributed in parts only, if at all, to the Fed's misinterpretation though. The main reason is more likely to be found in
the distortions on the Chinese money markets, where banks
no longer had any confidence in one another and at times demanded an overnight rate of up to 14% (see Graph 5). Anyone
feeling a sense of déjà-vu at this point, or getting flashbacks to
2008 – well, there's nothing we can really say to reassure you.
Warnings of a too reckless lending by the Chinese banks do
not appear to have seemed to fade away without any great effect. Only substantial cash injections by the Chinese Central
Bank PBoC under Zhou Xiaochuan brought some relief to the
market. However, one hopes that the banking crisis of the notso-distant past in Europe and America might serve as a lesson
for Chinese bank supervision, and that countermeasures will
be taken accordingly.
150
102
100
140
130
96
120
94
92
Jan = 100
1May13 = 100
98
90
88
86
110
100
90
84
01May 08May 15May 22May 29May 05Jun
12Jun
19Jun
26Jun
IBOXX EUR Global TR
IBOXX USD Liquid HY
IBOXX USD Liquid EM Sov
IBOXX Global EM Local CCY
80
Jan13
Feb13
Dow
NIK
Source: Bloomberg, ETHENEA
Mar13
DAX
SMI
Apr13
May13
CAC
SHANG
Jun13
FTSE
Source: Bloomberg, ETHENEA
Graph 3: Relative course of selected bond indices
Graph 4: Relative course of selected share indices
But even the losses on the Shanghai Stock Exchange pale in
comparison to those suffered by gold investors (Graph 6). Until now, losses in 2013 amounted up to between 15% and 27%,
depending on their local currency: quite a clear price decrease
for a "crisis currency". But maybe we don't understand the
subtleties of gold trading enough to form an opinion...
purchasing, financed (or, as they say on the capital market,
sterilised) by the sale of short-term government bonds. Let us
further recall that the 10 year US treasuries recorded a yield
of 2.13% on 1 September 2011. 10 year treasuries currently
yield 2.51%. On the evening before Federal Reserve Chairman
Bernanke's significantly misunderstood performance, yields
were at 2.18%. Whether higher interest rates at the long end of
the curve can be withstood, given a stronger global economy,
is not entirely clear. Even the different members of the FOMC
seem to be concerned about this. At least, this could explain
their soothing words to the market.
Now, back to the American capital market and the fear of the
Fed of having thrown out the proverbial baby with the bathwater. Let us recall: In September 2011, the Fed announced
Operation Twist, a program of long-term government bond
3
ETHENEA | Market Commentary
No. 7/July 2013
110
14
105
Jan 2013 = 100
16
100
12
10
90
in %
8
85
6
80
4
75
2
70
Jan13
0
Source: Bloomberg, ETHENEA
95
Shanghai Interbank O/N
Feb13
Mar13
Apr13
May13
Jun13
Jul13
Gold in USD
Gold in EUR
Gold In CHF
Gold in JPY
Gold In RUB
Gold in CNY
Source: Bloomberg, ETHENEA
Graph 5: Course of Shanghai Interbank Overnight Rate
Graph 6: Relative course of gold price in different currencies
But let us go back even further into the past. Graph 7 shows
the course of the Fed's money market interest rate and the
yields of the respectively current 10 year bonds over the last
40 years. Within this period, there were 21 cycles of interest rate
hikes, if a cycle is defined such that it only ends the first time
the interest rate is lowered. Graph 8 shows these 21 cycles as a
correlation between the Fed Fund's interest rate hike and the
maximum interest rate hike in the 10 year bonds. Even though
the variation appears very wide, a point cloud can be generated
that suggests that a rate increase of around 200 basis points in
the Fed Funds corresponds to a rise of 100 basis points in the
10 year interest rate. If one now further assumes a symmetrical
correlation, then it would be no problem to argue that the rise
of 100 basis points in 10 year yields approximately corresponds
to a money market restriction, accomplished by the Fed, of 200
basis points. Lots of "ifs" and "coulds", but I am just trying to
get you thinking.
4
ETHENEA | Market Commentary
No. 7/July 2013
20
450
18
400
10yr US Treasury yield rise in bp
16
14
in %
12
10
8
6
4
350
300
250
200
150
100
50
2
0
0
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
FedFunds Target Rate
200
400
600
800
1000
1200
Fed Fund Target Rate increase in bp
Source: Bloomberg, ETHENEA
Source: Bloomberg, ETHENEA
Graph 7: Course of 10 yearUS bond yields, and of Fed Fund target interest
rates
225
2.50
200
2.00
Graph 8: Correlation between extent of interest rate increase in Fed Funds and
maximum rate increase in 10 year US bonds
65
60
1.50
175
1.00
0.00
100
PMI
0.50
125
55
in %
150
Index
0
10yr Treasuries
-0.50
75
50
45
-1.00
50
-1.50
25
-2.00
02
03
04
05
06
07
Case Shiller MoM sa %, rhs
08
09
10
11
12
13
40
Case Shiller Home Price Index 20
Source: Bloomberg, ETHENEA
12
13
EU PMI
Germany PMI
USA PMI
Japan PMI
China PMI
UK
Source: Bloomberg, ETHENEA
Graph 9: Case Shiller Home Price Index and monthly rate of change
Graph 10: Purchasing Managers’ Index of different states
Even though the US real estate market seems to have not only
recovered itself since the start of 2012 (see Graph 9), but even
experienced continuous price growth, this segment's dependency on long-term interests is still worth mentioning. Not for
nothing is the Fed purchasing 40 billion US dollars a month in
mortgage bonds. Whether the market will continue its robust
growth, despite the latest rate hike, needs to be monitored
carefully. The last US Purchasing Managers’ Index value,
published on the last business day in June, does not indicate
solid economic growth (see Graph 10).
5
ETHENEA | Market Commentary
No. 7/July 2013
Last but not least, let us have a look at the ubiquitous
employment figures: Graph 11 shows the development of the
number of people in employment outside the agricultural
sector (nonfarm payrolls). It turns out that, in the last three
years or so, five million jobs have been created. A clear success.
At least, you would think so, isn’t it?
which corresponds to 15% of the total population. Just for
comparison: According to my own research, "only" 7.7% of
the population are receiving Hartz IV services in Germany.
These figures should make it clear that the American recovery
(until now) isn't perhaps standing on quite such a solid
foundation as some of the figures suggest. Therefore, we also
do not expect that the oft-cited "turnaround in interest rates"
has yet arrived, but rather that we remain in a low interestrate environment. The observed volatility will undoubtedly
stay with us in the near future, since the uncertainty is not
going away. The next hard economic data will be followed very
closely and possibly over-analysed, with the corresponding
consequences for market prices.
Graph 12 shows the relative development of nonfarm payrolls
and the increase in the number of people receiving so-called
SNAP (Supplemental Nutrition Assistance Program), the former food stamp program. While the payrolls have increased
by 4%, SNAP experienced an increase of over 10%. This suggests that many of the five million new jobs cannot be stated as
such feeding a family, hence the need to claim state nutritional
support.
It is surely the right time to reduce risk in the portfolios
– without being able to forego it altogether, since risk-free
returns are extremely rare these days.
The absolute figures appear even more startling. As of March
2013, almost 48 million Americans were receiving SNAP,
136000
112
135000
110
134000
Oct 2010 = 100
108
133000
106
Thsds
132000
131000
104
130000
102
129000
100
128000
98
127000
NFP
SNAP
Source: Bloomberg, ETHENEA
NFP
Source: Bloomberg, ETHENEA
Graph 11: Development of nonfarm payrolls in the USA, i.e. number of people
in employment outside the agricultural sector
Graph 12: Relative change in nonfarm payrolls and persons claiming SNAP
(Supplemental Nutrition Assistance Program), previously "food stamps"
6
ETHENEA | Market Commentary
No. 7/July 2013
Positioning of the Ethna Funds
diversification of investments had a rather negative effect
on yields during the month just finished. As of month-end,
Ethna-GLOBAL Defensiv registered a modified duration of
2.23 and a net equity exposure of 0.57%. Gross equity exposure was also reduced, namely by a further 1.4%. As with
Ethna-AKTIV E, sales focused on bank stocks from the USA
and Great Britain. In addition, European insurance stocks
were reduced.
Ethna-AKTIV E
In the face of rising interest rates, the duration was significantly shortened by the sale of interest futures on Bunds and
10 year Treasuries. As of month-end, the modified duration
was still at 3.02, although it had still been considerably shorter
during the month just finished. Risk positions were partially
sold. Once the interest rate environment improved around
the end of June, we bought bonds from good to very good
issuers, specifically in the USD sector, in order to profit from
the expected narrowing of the gap between USD and EUR
interest rates.
Ethna-GLOBAL Dynamisch
In order to take account of the more volatile environment
in the capital markets, the gross equity exposure was reduced by 7% to 56.8% (net equity exposure: 27.96%). Banks
and car stocks were reduced. Especially shares in US car
manufacturers have developed very well in the past three
months. Sales figures in the USA were very positive during
the first half of the year, lying only slightly under 2007 levels.
Shares in pharmaceutical companies and consumer goods
manufacturers were also bought. High margins, stable cash
flows and reliable dividends are particularly appreciated in
an insecure market environment. With regard to the fund's
pension exposure, it likewise goes without saying that reclassifications were carried out in order to reduce risk. The modified duration was also significantly reduced to a value of 1.38,
through the use of interest rate futures.
Index futures were also used to reduce risk for equity investments. As of month-end, we register a net exposure of 7.28%.
Gross exposure was reduced by 3.8% to 22.1%. The sales focused on bank stocks from the USA and Great Britain. Exposure to the cyclical car stocks was also reduced and profits
were achieved. In the past few months, shares in this sector
have profited from increasing sales in the USA and Asia.
Ethna-GLOBAL Defensiv
As in Ethna-AKTIV E, risks were also reduced here, whereby the heavier weighting given to emerging markets in the
bond portfolio led to higher course corrections. The broader
7
ETHENEA | Market Commentary
No. 7/July 2013
Currency
TW €
€$
€ CHF
€£
€ JPY
€ AUD
€ NOK
€ CAD
€ TRY
€ CNH
Last
95
1.3005
1.2305
0.8565
129.17
1.42588
7.9221
1.36906
2.5116
7.9832
-1m
-0.3%
-0.3%
-1.2%
-0.2%
-1.9%
5.6%
4.2%
1.8%
2.7%
-0.3%
ytd
3.8%
-1.5%
1.9%
5.4%
13.0%
12.2%
8.0%
4.3%
6.6%
-2.8%
Germany Gvmt
ITRAXX 5y
2y
5y
10y
10/2y
Europe
Xover
SenFin
SubFin
Last
0,188
0,735
1,728
154
119
475
167
251
-1m
11
22
21
11
18
65
22
45
ytd
20
44
41
21
1
-7
26
16
Yield pick-up to German 10y Gvmt
USA
UK
Japan
France
Austria
Holland
Italy
Spain
Portugal
Greece
Ireland
Last
76
72
-88
62
43
39
222
304
472
925
238
-1m
59
45
-61
59
41
34
202
285
401
757
209
ytd
44
51
-53
68
43
18
249
395
570
1.058
689
DAX
Dow
EuroStx
CAC40
FTSE
Nikkei
Shanghai
Last
7,959.22
14,909.6
2,602.59
3,738.91
6,215.47
13,677.32
1,979.206
-1m
-5.2%
-2.7%
-7.0%
-6.4%
-6.6%
0.6%
-14.6%
ytd
4.6%
13.8%
-1.3%
2.7%
5.4%
31.6%
-12.8%
DAX P/E
Dow P/E
EuroStx P/E
CAC40 P/E
FTSE P/E
Nikkei P/E
Shanghai P/E
Last
15.1
14.5
16.5
15.6
16.0
25.3
10.7
-1m
-3.5%
-2.7%
-6.8%
-6.4%
-6.7%
0.4%
-14.5%
ytd
5.5%
13.2%
4.6%
10.5%
-9.0%
20.2%
-14.4%
Equities
Graph 13: Development of various market trends, MoM and YoY (month-end)
For further detailed information, follow this link.
Date
Fund
Yield p.a.
Rating is between
28.06.2013
Ethna-AKTIV E
4.49%
BBB
28.06.2013
Ethna-GLOBAL Defensiv
3.90%
28.06.2013
Ethna-GLOBAL Dynamisch
3.61%
Graph 14: Figures of Ethna Funds at the end of the month
8
Mod-Duration
Current yield p.a.
BBB+
3.02
4.43%
A-
A
2.23
3.95%
BBB
BBB+
1.38
4.09%
ETHENEA | Market Commentary
No. 7/July 2013
Ethna-AKTIV E
1.24 %
% of Total NAV
2.00 %
3.65 %
9.43 %
%
9.43 %
AAA
29.54 %
AA
A
BBB
22.78 %
NON IG
22.78 %
Not rated
Equities
Cash
Others
.55 %
%
22.12 %
Source: Union Investment Financial Services, ETHENEA
3.69 %
5.55 %
Graph 15: Breakdown of the Ethna-AKTIV E portfolio by issuer rating
Ethna-GLOBAL Defensiv
% of Total NAV
23.49 %
%
12.10 %
-0.18 %*
11.51 %
12.10 %
AAA
AA
A
BBB
NON IG
Not rated
17.03 %
Equities
Cash
Others
6.08 %
1.13 %
2.84 %
17.03 %
* negative value resulting from forward exchange transactions
for hedging currencies
Source: Union Investment Financial Services, ETHENEA
26.00 %
Graph 16: Breakdown of the Ethna-GLOBAL Defensiv portfolio by issuer rating
Ethna-GLOBAL Dynamisch
% of Total NAV
11.19 %
14.49 %
1.46 %
11.19 %
AA
A
4.38 %
3.44 %
2.47 %
5.80 %
BBB
4.38 %
NON IG
3.44 %
Not rated
Equities
Cash
Others
56.77 %
Source: Union Investment Financial Services, ETHENEA
Graph 17: Breakdown of the Ethna-GLOBAL Dynamisch portfolio by issuer rating
9
ETHENEA | Market Commentary
No. 7/July 2013
Ethna-AKTIV E
Bonds
% of Total NAV
20
Equities
* including 12 other countries
19.0
15
11.3
10
7.3
6.4
4.3
5
2.5
2.3
2.0
1.9
1.3
1.2
1.2
1.1
1.1
1.1
1.0
1.0
0.9
1.5
0.8
0
Source: ETHENEA
Graph 18: Breakdown of the Ethna-AKTIV E portfolio by origin
Ethna-GLOBAL Defensiv
Bonds
Equities
* including 22 other countries
% of Total NAV
12
10
9.3
8.7
8
7.8
5.3
6
4
4.7
4.0
4.4
3.3
3.1
2.7
2.4
2.3
2
2.0
2.0
1.8
1.7
1.5
1.5
1.2
1.1
1.1
0.8
0.8
0.8
0.7
0.6
0.5
0.5
0
Source: ETHENEA
Graph 19: Breakdown of the Ethna-GLOBAL Defensiv portfolio by origin
Ethna-GLOBAL Dynamisch
Bonds
% of Total NAV
40
Equities
* including 3 other countries
38.8
35
30
25
20
18.1
15
10
5
6.1
5.5
3.4
2.7
2.6
0
Source: ETHENEA
Graph 20: Breakdown of the Ethna-GLOBAL Dynamisch portfolio by origin
10
2.2
1.8
0.9
0.9
0.9
ETHENEA | Market Commentary
No. 7/July 2013
Ethna-AKTIV E
Bonds
Equities
* including 22 other sectors
% of Total NAV
16
14
13.2
12
10
8.2
8
5.1
6
3.8
4
3.7
3.2
3.0
2.9
2.7
2.6
2.5
2
3.4
1.8
1.8
1.7
1.7
1.4
1.2
1.1
1.1
0.8
0.8
0.6
0.5
0.5
0
Source: ETHENEA
Graph 21: Breakdown of the Ethna-ACTIV E portfolio by issuing sector
Ethna-GLOBAL Defensiv
Bonds
% of Total NAV
20
Equities
* including 24 other sectors
19.0
15
10
8.4
5.6
5
4.8
4.2
4.0
3.8
4.9
3.2
2.3
1.9
1.9
1.9
1.9
1.4
1.4
1.3
1.1
0.9
0.6
0.5
0.5
0.5
0.5
0
Source: ETHENEA
Graph 22: Breakdown of the Ethna-GLOBAL Defensiv portfolio by issuing sector
Ethna-GLOBAL Dynamisch
Bonds
Equities
* including 4 other sectors
% of Total NAV
18
16
14
15.1
13.7
12
10
8
6
4
10.9
7.6
4.2
3.4
2.9
2.8
2.6
2.3
2.3
2
0
Source: ETHENEA
Graph 23: Breakdown of the Ethna-GLOBAL Dynamisch portfolio by issuing sector
11
2.0
1.9
1.7
1.6
1.6
1.6
1.5
1.3
1.2
1.7
ETHENEA | Market Commentary
No. 7/July 2013
Ethna-AKTIV E
Ethna-GLOBAL Defensiv
% of Total NAV
% of Total NAV
81.5
EUR
6.5
CHF
0.0
AUD
0.0
9.1
USD
‐0.3
GBP
5.4
3.1
NOK
NOK
3.1
Net
Gross
4.9
‐0.1
3.3
3.9
32.7
‐0.0
2.5
0.3
0.3
Net
Source: ETHENEA
Gross
Source: ETHENEA
Graph 25: Breakdown of the Ethna-GLOBAL Defensiv portfolio by currency
Graph 24: Breakdown of the Ethna-AKTIV E portfolio by currency
Ethna-GLOBAL Dynamisch
% of Total NAV
95.3
EUR
79.2
5.2
CHF
5.2
4.1
USD
14.0
0.0
GBP
JPY
4.9
USD
25.5
GBP
56.3
CHF
6.5
AUD
91.0
EUR
59.5
1.5
‐4.6
0.0
Net
Gross
Source: ETHENEA
Graph 26: Breakdown of the Ethna-GLOBAL Dynamisch portfolio by currency
12
ETHENEA | Market Commentary
No. 7/July 2013
Apropos of...
…Labour force: Calling it quits
Summing up, since 2008 the civilian labour force has gained
about 1.6 mill. workers, whereas the number of people capable
of working actually grew by 12.7 mill..
The bottom line of the past week: according to the Fed the
economy is improving, which causes markets to sell off. This
reaction is certainly due to Ben Bernanke’s comment that
money printing might be tapered by the end of the year if the
US economy continues to improve.
Hence, the so-called labour force participation rate fell from
66.2% to 63.4%, which is by the way a level last seen in 1978.
This means, we are on such a roll with the number crunching,
that, in order to have the current unemployment number
being dropped from 7.6% to 7.0% within the next 12 months,
we can estimate how many jobs actually need to be created
every month. If we assume the labour force participation rate
to remain steady at 63.4% and set the average monthly population growth rate to 0.077% (last month’s growth), we get to
about 166,800 new payrolls each month.
Let us recall that at last week’s meeting, the Fed’s projec-tions
for economic growth were revised down from 2.3-2.8% to
2.3-2.6% for 2013. The same applies to the year-end unemployment rate, being revised down from 7.3-7.5% to 7.2-7.3%.
The estimate for year-end 2014 unemployment now stands at
6.5-6.8%, meaning that the 7% mark in the unemployment
rate should be broken by around mid-2014 the latest.
But of course a drop in unemployment usually encourages
people who are currently not in the labour force to get back
into the game and start looking for a job. Considering this,
maybe the assumption of a participation rate of 63.4% is a
bit pessimistic. Setting that number to a courageous 63.7%,
a level last seen in July 2012, would lead to a monthly payroll
increase of 221,000. A drop to an unemployment rate to 7.3%
at the end of this year, leaving the population increase and the
labour force participation rate at their current levels, would
mean a job growth of 152,500 per month. Assuming that not
too many people get encouraged by the development of the
American economy and bumping the participation rate to
a mere 63.5%, would result in about 188,400 new jobs each
month.
In order to understand the meaning behind these figures, we
should take a quick refresher course at the Bureau of Labor
Statistics (BLS) School. The Bureau, whose main responsibility is the collection of statistical labour economics data, first
counts the civilian non-institutional population, which comprises all people over 16 residing in the US, not being locked
up somewhere and not serving in the military. Within this
population, the BLS distinguishes between the civilian labour
force, i.e. those who are either working or actively looking for
a job, and the rest. So-called discouraged workers (who have
given up looking for work) drop out of the labour force. In
order to calculate the unemployment rate, the BLS estimates
the number of people within the civilian labour force who are
not currently employed and divides that number by the total
number of people in the labour force.
Let us compare: The monthly non-farm payroll increase over
the past 12 months was accounted 176,300. In May 2013, with
175,000, it stood below this average. The street’s estimate for
the current month resides in 169.000, what of course is still
subject to change. Also, the employ-ment component in last
Thursday’s upbeat Philly Fed numbers failed to cross back
into positive territory. Moreover, the NY Empire survey last
Monday showed a worsening of labor market conditions, with
the index for number of employees dropping to zero, and the
average workweek index retreating ten points to -11.3.
This translates into the following: At the beginning of 2008,
the BLS estimated the number of people in the labour force at
about 154.1 mill., whereas the current number stands at 155.7
mill.. More people are either working or actively looking for
jobs, which, in theory, should be a good sign. Nevertheless,
during the same period, the civilian non-institutional population grew from 232.6 mill. at the beginning of 2008 to 245.4
mill. as of last May. In fact, the civilian non-institutional population grows every month, and population increase is the main
factor in the growth of the labour force. In 2012, the labour
force increase registered an average of 0.13% per month, while
the monthly average growth for this year is currently 0.083%.
Of course, it is up to our readers to draw their own conclusions, but as far as we are concerned, we cannot wait to see
how the numbers are going to evolve – maybe the summer is
going to get quite hot after all!
13
Fund management:
Guido Barthels (author)
Luca Pesarini
Arnoldo Valsangiacomo
Please don’t hesitate to contact us at any time if you have any questions or suggestions.
ETHENEA Independent Investors S.A.
9a, rue Gabriel Lippmann · 5365 Munsbach · Luxembourg
Phone +352 276 921 10 · Fax +352 276 921 99
[email protected] · www.ethenea.com
NB:
Investing in an investment fund, as with any investment in securities and similar assets, involves a risk of a decrease in price/value. The implication of
this is that share prices and the amount of returns would decrease, and therefore cannot be guaranteed. Costs of investment affect the actual returns on
investment. The legally stipulated sales documentation is authoritative for share purchasing. All information provided here is for product description
purposes only and does not constitute an investment recommendation, nor does it contain any offers for a consulting contract, access to information
or sale/purchase of securities. The contents of this report have been researched and prepared with care. No guarantees are provided regarding its
correctness, completeness or accuracy. Munsbach, Luxembourg, 28th June 2013.
[email protected]
www.ethenea.com