Ed’s Daily Notes for May 27th   Leave a comment

The big event to watch for this week will be Thursday’s second guess on 1st quarter U.S. GDP. Even though the first “guess”/report was for a 0.1% increase, Bloomberg is reporting a consensus estimate for this report at -0.5%. While this is a backward-looking report, it will create a lot of second-guessing for investors. Was this a one-off, due to the weather perhaps, or something else? Is Obamacare having a negative effect on the economy maybe? I actually lean towards the weather excuse, as lame as it is. My own view of the economy is that it is flattening, and we should probably be growing around 1%, with an occasional quarter posting around 2%.

Bloomberg: Bond Market’s Message to Fed: Your 4% Rate Forecast Is Too High

The bond market, unparalleled in predicting shifts in the U.S. economy over the decades, has a message: interest rates aren’t going to rise as high as even the Federal Reserve’s own forecast.

From bond yields to futures and swaps, traders see little chance the economy will strengthen enough over the course of its expansion to compel the Fed to lift its overnight rate beyond about 3.3 percent. That’s less than the historical average of 4.25 percent that New York Fed President William Dudley said would be consistent with the central bank’s current target for inflation and compares with its long-term estimate of 4 percent.

The divergence reflects deepening concern among bond investors that tepid wage growth and a lack of inflation will persist for years to come, and hold back growth as the Fed moves to end its unprecedented monetary stimulus. Lower peak rates will also reduce the likelihood of any selloff in longer-term Treasuries, which have rewarded holders this year with the biggest returns in two decades.

This makes me feel good about my 401(k), with all my dividend plays there. But is it accurate? While the bond market moves more slowly than the equity markets, that doesn’t mean it won’t have a different read on interest rates in a year. I consider it something to notice, but not necessarily something from which to make investments.

Real Clear Politics: Greenwald’s Finale: Naming Victims of Surveillance

The man who helped bring about the most significant leak in American intelligence history is to reveal names of US citizens targeted by their own government in what he promises will be the “biggest” revelation from nearly [2 million] classified files.

Glenn Greenwald, the journalist who received the trove of documents from Edward Snowden, a former National Security Agency (NSA) contractor, told The Sunday Times that Snowden’s legacy would be “shaped in large part” by this “finishing piece” still to come.

Regardless of whether you think Snowden was a hero or traitor, this news will have the potential to severely shake up the political world, especially if it shows that President Obama or Bush were actively using the intelligence apparatus of the U.S. against political opponents, not unlike what Nixon did over 40 years ago.

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Posted May 27, 2014 by edmcgon in Economy, Federal Reserve, News, Politics

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