IB Traders Insight


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Technical Analysis

Podcast: Long-Term Technical Uptrends Breaking Down


Click here to listen to John Kosar’s Thursday January 21st interview with Jim Puplava of the Financial Sense website.

John Kosar CMT, Director of Research at Asbury Research LLC, notes that long-term technical uptrends, dating to the beginning of the bull market in 2009 are breaking down, not just in the US but in overseas markets as well. He believes there has been technical damage that speaks to the potential for a global recession, as major trends in effect for more than five years have been broken. John makes the point that globalization has made the world a smaller place, and overseas data from major markets is now correlating with US markets. John also covers his outlook for oil and gold, as well as where he is currently deploying capital in this environment.

 

Asbury Research provides investors with a forward looking, strategic forecast of the US financial landscape 1-2 quarters out, and then defines specific tactical and actionable investment opportunities within that larger forecast via a unique and proprietary multi-layered approach that includes quantitative, technical, and behavioral analysis.  Our focus is on the US stock market and market sectors, US interest rates, the US Dollar, and economically influential commodities like gold, crude oil, and copper, but our scope is global as we integrate our database of worldwide inter-market relationships to add breadth, depth and accuracy to our investment conclusions. Interactive Brokers customers can subscribe to Asbury Research in Account Management.

This article is from Asbury Research and is being posted with Asbury Research's permission. The views expressed in this article are solely those of the author and/or Asbury Research and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8602




Stocks

This Week in Corporate Events: Dividend Announcements


WSH is tracking 259 Ex-Dividend dates for this week and 1,188 for Q1.  Last week there were 125 dividend distributions with 10 (8%) companies decreasing payments and 39 (31%) companies increasing payments.

Companies with Ex-Dividend dates this week include: American Express, Apple, Boeing, Exxon Mobil, IBM, Target and Visa.

About Wall Street Horizon
 
Wall Street Horizon provides institutional investors and traders with an ever expanding set of forward-looking and historical corporate event datasets including earnings dates, dividend dates, options expiration dates, splits, spinoffs and a wide variety of investor-related conferences. With access via machine-readable feeds or Enchilada, its easy-to-use online application, the company's data is widely recognized for its unmatched accuracy and timeliness.  For more information, please visit http://www.WallStreetHorizon.com or email us at info@wallstreethorizon.com.
 
This article is from Wall Street Horizon and is being posted with Wall Street Horizon's permission. The views expressed in this article are solely those of the author and/or Wall Street Horizon and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

8601




Technical Analysis

VIX (VX) Surges Over 10% on Worries Over Chinese FX Reserves Drop


The VIX (VX) powered ahead over 10% yesterday, with market worries over the rising drop in Chinese FX reserves announced over the weekend. The VX is now firmly within the upper half of the upchannel (on the daily and weekly charts). The VX is also within a session or so of hitting the January high, and should be targeting the daily chart upchannel resistance shortly after.  Weekly, daily and 4hr RSI, Stochastics and MACD are mostly rallying. I am flat and am looking to go long intraday on any dip towards 24-25 today.

VIX (CFE VX Feb16) Weekly/Daily/4hr/Hourly

Click here for today's technical analysis on Euro Stoxx 50, DAX, Nasdaq100, Nikkei, S&P500, EURUSD, Silver, Gold, Natural Gas

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8600




Technical Analysis

Euro Stoxx 50 (FESX) Breaks Below January Low on European Bank Credit Risk Rise


The Euro Stoxx 50 (FESX) broke down further below the January low yesterday, sliding increasingly close towards downchannel support (on the daily chart).  The FESX, along with the DAX (FDAX) have in recent weeks been amongst the weakest of the index futures on my Watchlist, and continue serving as a leading indcator for changes in risk appetite.  Weekly and daily RSI and Stochastics are still bearishly sloping down, while the daily MACD is just now making a negative crossover.  I am flat and will look for any bounce towards downchannel resistance (on the 4hr chart) to establish an intraday short.

Euro Stoxx 50 (Eurex FESX Mar16) Weekly/Daily/4hr/Hourly

Click here for today's technical analysis on VIX, DAX, Nasdaq100, Nikkei, S&P500, EURUSD, Silver, Gold, Natural Gas

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8599




Technical Analysis

DAX (FDAX) Breaks Below January Low on Deutsche Bank Credit Risk Rise


The DAX (FDAX) broke down further below the January low yesterday, sliding increasingly close towards downchannel support (on the daily chart).  The FDAX, along with the Euro Stoxx 50 (FESX) have in recent weeks been amongst the weakest of the index futures on my Watchlist, and continue serving as a leading indcator for changes in risk appetite.  Weekly and daily RSI are still bearishly sloping down, while the daily MACD is just now making a negative crossover.  I am flat as the DAX is an overly large contract for me to trade especially given recent volatility, but expect it to test downchannel resistance (on the daily chart) in the next session or so.

DAX (Eurex FDAX Mar16) Weekly/Daily/4hr/Hourly

Click here for today's technical analysis on VIX, Euro Stoxx 50, Nasdaq100, Nikkei, S&P500, EURUSD, Silver, Gold, Natural Gas

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures, spot FX and equity CFD markets can be traded consistently profitably. Tradable Patterns’ daily newsletter (blog) provides technical analysis on a subset of ten to twelve CME/ICE/Eurex futures (commodities, equity indices, interest rates), spot FX and US equity markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8598




Futures

Crude Gets Crushed Again and a Boost to Gold


Scott Martin, Fox News Contributor & United Advisors

This video is from CME Group and is being posted with CME Group’s permission. The views expressed in this video are solely those of the author and/or CME Group and IB is not endorsing or recommending any investment or trading discussed in the video. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8597




Stocks

Q4 Earnings Reports by Sector SPDR ETF


Excluding Energy Earnings Growth Was Decent

 

With about two-thirds of S&P 500 firms having now reported Q4 2015 results (and using consensus estimates for those that have not), it looks as if overall index earnings declined about $3.9 billion, or 1.5% year-on-year, dragged down by a 73% decline in profits from companies in the Energy Sector SPDR (XLE). Technology (XLK) was the biggest contributor to S&P profit growth followed by Consumer Discretionary (XLY), as shown in Figure 1.

Figure 1: S&P500 4Q15 Earnings growth by sector
$millions and percent change, year-on-year

Source: FactSet AltaVista Research

Excluding Energy, we calculate that S&P 500 profit growth would have been about 4.9% in the fourth quarter, which though slow is decent considering how late in the profit cycle we are. The current profit expansion began in the fourth quarter of 2009.

The 4.9% profit growth is all the more respectable considering that many firms are struggling to grow their top lines at all. Energy was a big drag of course, but so to was Industrials (XLI), Materials (XLB) and even Technology! Health Care (XLV) saw good revenue growth—as it usually does—and Consumer Discretionary firms managed to see decent top-line growth as well, suggesting consumers are spending at least some of their savings from the gas pump at retailers, car dealers and elsewhere (Figure 2).

Figure 2: S&P500 4Q15 Sales growth by sector
$millions and percent change, year-on-year

Source: FactSet and AltaVista Research

Looking ahead to 2016, current consensus estimates for individual index constituents suggest that overall S&P 500 profits will rise by 6.4% to $1.14 trillion, nearly half of which will come from just two sectors, Financials and Technology, while Energy is forecast to be the smallest sector in terms of profits. The danger is all this is that even given a normal rate of “decay”—that is, the rate at which consensus estimate tend to be revised lower—of 1% or so per month, by then end of this year we could be look at a full year decline in earnings as opposed to the 6.4% increase currently forecast.

Investors should always be mindful of valuations, but this becomes particularly important in a slow-growth (or no growth!) environment. Table 1 has common valuation metrics for each of the Select Sector SPDR ETFs based on consensus esimates for fund constituents, along with the ALTAR Score™ rating, which is our measure of an ETF’s overall investment merit.

Table 1: Valuation Metrics and ALTAR Scores™ by Sector SPDR
Based on consensus 2016 estimates for individual fund constituents



Source: AltaVista Research

Reprinted with permission from AltaVista Research
For more information go to www.etfresearchcenter.com
T 646.435.0569 | E info@altavista-research.com

About AltaVista

A better approach to ETFs. AltaVista’s ETF reports and ratings are built on a fundamentally-driven analysis of each fund’s underlying constituents, with the aim of helping investors make better fund selections based on forward-looking measures of investment merit.

This article is from AltaVista and is being posted with AltaVista's permission. The views expressed in this article are solely those of the author and/or AltaVista and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8596




Stocks

Dow Jones Resources Coverage


EXCLUSIVE ANALYSIS AND NEWS BEATS

In This Issue:

  • Exclusive news on Iran’s crude-oil price cuts, its nixing of a nascent plan to hold an emergency OPEC meeting, Libya’s efforts to recover from Islamic State attacks and much more
  • Unique analysis on investors hedging their bets on a crude-oil revival and a sour outlook in Russia despite rising crude output

Exclusive News

Iran Follows Saudi Oil Price Cut

We reported exclusively on Jan. 19 that Iran would cut crude prices to Europe in February, in line with similar reductions by Saudi Arabia, signaling that it wants to compete with its largest rival but without making deep discounts after international sanctions were lifted on its oil.

  • National Iranian Oil Co. said it would reduce its official prices in North West Europe by 55 cents a barrel for its light crude and by 15 cents in the Mediterranean for delivery in February.
  • The move came amid softer international oil markets, as traders prepared for the arrival of Iranian crude.

Libya Details Port Damage From Attacks
  
 
The head of Libya's state-owned oil company told Dow Jones on Jan. 13 that he would meet with major oil companies such as BP PLC to try to jump-start the country's potential to produce petroleum after Islamic State militants inflicted heavy damage on a key oil-export terminal.

  • Mustafa Sanallah, chairman of the state-run National Oil Co., said Islamic State's recent attacks would delay the return of 300,000 barrels a day of output, about 20% of the country's capacity.
  • An attack on the Es Sider terminal and previous fighting nearby left only three storage tanks still usable out of 19 at the port, he said.

Iran Won't Join Immediate OPEC Production Cut

We broke the news on Jan. 29 that Iran wouldn’t join a producers’ cut debated by Russia and Saudi Arabia to stem a global oil slump, quoting Iranian and Gulf oil officials.

  • Russia had said the previous day it was in talks with OPEC producers to slash 5% of their respective production. Iran’s remarks–-confirmed by OPEC delegates–-scuttled the idea.
  • On Feb. 1, we were first to report that Arab states in the Persian Gulf don’t support an emergency OPEC meeting to discuss the output cut, preferring to wait and see how Iran’s return to the market affects prices.

More Exclusive News

Read more about the scoops discussed above and listed below by searching the wire for ((N/NRG or N/DJCS) and P/PMDM).

  • Feb. 2—Around $20 million worth of sugar was backed up at the Sri Lankan port of Colombo. The bottleneck, we reported exclusively, is a knock-on effect of sugar smuggling from Myanmar to China, which has artificially sweetened buying prices in order to support domestic farmers.
  • Jan. 22—Iran was preparing a shipment of at least a million barrels of light crude to a Mediterranean port in the European Union as early as mid-February, the first Europe-bound shipment from Iran since an embargo was lifted the previous week.
  • Jan. 22—Schlumberger was in talks to buy back its former Iranian unit, said Siamak Javid, managing director of former subsidiary Well Services of Iran.
  • Jan. 20—The next phase of development for Iran's giant South Pars gas field will start producing in February, Petropars, the state-owned company that runs it said.
  • Jan. 17—Suncor Energy Inc. was working on a friendly transaction to raise its all-stock offer for rival Canadian Oil Sands Ltd.
  • Jan. 11—Alcoa signed a long-term deal with General Electric to supply $1.5 billion of metals for engines and engine parts.
  • Jan. 11— Saudi Aramco chairman Khalid al-Falih told Dow Jones that the company’s potential IPO could include upstream assets. He added that the state-owned oil giant is looking to sell shares in its expanding downstream businesses.
  • Jan. 8—Kazakhstan's $64 billion oil fund could run out within six or seven years as slumping oil prices cut revenue and the government spends its savings, a central bank official said.

Unique Analysis

Investors Hedge Bets on a Crude-Oil Revival

Avenue Capital Group, Och-Ziff Capital Management Group, Carlson Capital and Blackstone Group’s  GSO Capital are among firms that have raised or are raising money from investors to plow into the energy sector, investors told us in an article published on  Jan. 27. But wary of the sharp price declines that stung early bargain hunters, they are approaching their investments more cautiously.

  • Some funds are focusing on senior, secured loans—those that are first in line to get paid back if energy companies run into problems handling their debt. Others are buying hedges against further declines in oil or natural-gas prices.
  • Those steps will mean lower gains than if they took riskier positions. But they also could guard against the risk of being too early in a market that, while battered, continues to post steep declines.

Russia’s Oil Output Rises But Its Prospects Sour

The Siberian drilling rigs of oil giant OAO Lukoil are helping raise Russia's oil output to its highest level since the breakup of the Soviet Union a quarter-century ago. But falling crude prices, U.S.-led sanctions and diminished oil exploration threaten Russia's oil industry and raise questions about its capacity to continue underwriting President Vladimir Putin's ambitions at home and abroad, we reported on Jan. 26.

  • While recent increases in Russian oil output have helped cushion the sharp price fall, Mr. Putin is so squeezed for cash, his government postponed a planned reduction in oil-export duties this year.
  • Executives say they fear the postponement could be extended, diverting money to Moscow that could be invested in new drilling and exploration to supplement aging oil fields.

About This Newsletter

This weekly newsletter covers Central Banks, Deals, Resources and Technology topics on a rotating basis. Next week: Technology.

If you have questions about Dow Jones and The Wall Street Journal, visit us online or email service@dowjones.com.
 
If you have questions about the content of this newsletter, email Jacques van Wersch at jacques.vanwersch@dowjones.com

About Dow Jones

Dow Jones & Company is a global provider of news and business information, delivering content to consumers and organizations via newspapers, Web sites, apps, video, newsletters, magazines, proprietary databases, conferences, and radio.

Dow Jones Newswires delivers premium business news, commentary and insight in real time and with unquestionable accuracy and depth. Built on a renowned global reporting network of nearly 2,000 journalists, Dow Jones Newswires publishes more than 16,000 daily news items – including exclusive content from The Wall Street Journal, Barron’s and MarketWatch – covering every asset class and key regions and markets worldwide.

This article is from Dow Jones & Company (Dow Jones) and is being posted with Dow Jones' permission. The views expressed in this article are solely those of the author and/or Dow Jones and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8595




Macro

US Equities - Momentum Factor Unwinding


In our experience, there are two types of momentum unwind.

The first one is the normal run-of-the-mill unwind due to irrational exuberance in valuations and an extended positioning in consensus strategies.

The second one is related to changes in cycles.

It is a bad combination when all three – valuations, positioning, and cycles – converge as is the case now, in our opinion.

Regardless of which bucket you want to place the current episode into, the reality is that these exercises tend to last 2-3 months, and in some cases when the world is really in bad shape, as many currently feel it is, can last 6-months or longer.

The key point here is that to expect a resumption of momentum or a recovery of that factor’s leadership this early in the unwind, especially considering the PnL duress in the professional community is currently more violent than the losses suffered in January, would be misguided.

Put another way, if there is a momentum strategy, style relationship, market capitalization, sector rotation, you watch daily, and it is down or has reversed by 5-10%, call us when it is down or has reversed by 20-30%, and we will take a look at it.

Finally, ask yourself this question.

If the EURO STOXX 50 Index (SX5E), German DAX (DAX), NASDAQ 100 (NDX), Russell 2000 (RTY), and Facebook-Amazon-Netflix-Google (FANG) all made new "closing lows" for 2016 last Friday, then is it more likely that the next move for global risk assets is a bounce or that the Nikkei 225 (NKY) and S&P 500 (SPX) will play catch up?

Our bet is that that the Nikkei 225 and S&P 500 play catch up.

To see the equity strategies we're employing to capture this unwind, take a free trial to Sight Beyond Sight through Interactive Brokers...


Sight Beyond Sight® is a global macro trading newsletter written daily by Neil Azous. With close to two decades of institutional experience across asset classes, Neil interprets the day-to-day economic, policy and strategy developments and provides actionable trading ideas for investors. We invite clients of Interactive Brokers to sign up for a free trial in Account Management. If you are not a client of IB, you can sign up for a free trial by visiting our website.
 
This article is from Rareview Macro and is being posted with Rareview Macro’s permission. The views expressed in this article are solely those of the author and/or Rareview Macro and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


 


8593




Macro

The Truth about Productivity


Rick Rieder explains why slowing productivity is a statistical mirage.

 

One of the greatest economic mysteries out there, according to many market watchers: Why labor market productivity has slowed sharply around the world in recent years.

As my co-authors and I write in a new BlackRock Investment Institute paper, “Productivity Slowdown Puzzle: Structural, Cyclical or Erroneous,” the slowdown in productivity matters. In a world where developed market workforces are shrinking thanks to aging populations, productivity will be the key driver of potential economic growth rates in the long term.

But in my opinion, the productivity slowdown mystery, puzzle or whatever you want to call it has a simple solution: It’s a statistical mirage. As Nobel Prize-winning economist Robert Solow famously put it back in 1987, “You can see the computer age everywhere but in the productivity statistics.”

I’m of the camp that traditional economic metrics simply haven’t kept pace with fast-changing technologies geared toward greater efficiency at lower cost. In other words, official numbers don’t capture the productivity gains coming out of new, often free technologies. The calculations behind the data understate the benefits of innovation — and as a result, underestimate productivity.

Technology is changing the world in ways never before witnessed. U.S. consumers are adopting new technologies such as smart phones at the fastest rate since the advent of the television, and this is resulting in the widespread use of app-based innovations that arguably enhance productivity, but are unaccounted for in official data. Just one example: free apps that allow us to learn a language or check road conditions.

At the same time, new technologies are also bringing greater efficiencies to businesses at lower cost. Think cloud-based computing, energy-sector fracking, the sharing economy, improved data storage, enhanced computing power, developments in robotics and inventory management systems, which enable asset-light business models and drive down the cost of corporate investment. An area where this greater efficiency is showing up: lower inventory levels. Approximately one-fifth of the largest 1,500 U.S. companies by market value now have zero inventories, up from 5 percent in 1980, according to Morgan Stanley data.

Statisticians try to factor in such improvements by tweaking price deflators. Yet I believe such deflators still understate quality improvements — and, therefore, true productivity. In short, they don’t fully account for technology’s downward influence on price.

Consider technologies’ quality improvements and downward influence on prices, and productivity growth starts to look much better than it first appears. In fact, understated productivity means real annual U.S. gross domestic product (GDP) growth may have been 0.7 percent higher than reported over the past five years, Goldman Sachs estimated in a July 2015 report.

Looking forward, if the productivity slowdown is simply a mirage, then both actual and potential economic growth are understated, and we could see a gradual lifting of productivity estimates over time as measurement errors are corrected.

That said, given that the understated growth of the past few years was still quite solid and the labor market probably experienced its cyclical peak at the end of 2015, there are signs that the U.S. economy is actually decelerating now, and higher productivity estimates are unlikely to reverse this trend. As I’ve long argued, this means the Federal Reserve likely began normalizing rates too late, and it may now have to initiate more quantitative easing over the next year or so.

However, in the very near term, monetary policy will likely remain the same, and I’m not holding my breath that statisticians will suddenly see the error of their ways on the productivity front. In the meantime, the low productivity myth shouldn’t be so readily accepted.


Rick Rieder, Managing Director, is BlackRock’s Chief Investment Officer of Global Fixed Income and is a regular contributor to The Blog.
 

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of February 2016 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.

©2016 BlackRock, Inc. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. All other marks are the property of their respective owners.

USR-8416

This article is from BlackRock and is being posted with BlackRock’s permission. The views expressed in this article are solely those of the author and/or BlackRock and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


8590




1 2 3 4 5 2 827

Disclosures

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