The Week Ahead: Will Bernanke Change Course?

September 15th, 2013
in contributors

by Jeff Miller, A Dash of Insight

Last week I predicted a market focus on Syria, expecting President Obama's Tuesday evening speech to be the focal point. My concept was correct, but events moved even more swiftly. The market celebrated as the chance of military action diminished.

This week's theme is easy to predict: It is all about the Fed. Will Bernanke lead the Fed to a new direction, reducing the current stimulus?

Click on image for full view on original source page.

Follow up:

Throughout the year, and especially since the May FOMC meeting and announcement, financial markets have reflected concerns about a less stimulative policy. It has been a noisy, pundit's paradise, where each and all can claim expertise and chime in. This creates a minefield for investors, so I will highlight the key issues, and some good sources:

  1. Will the Fed reduce the pace of bond purchases, a change commonly referred to as "tapering" by everyone except the Fed? According to WSJ polling, 2/3 of economists expect a tapering announcement.
  2. Does a reduction in bond purchases imply a significant actual price effect? Less than expected, according to this good explanation of why from Mark Dow.
  3. Do financial markets over-estimate the implications of a change in policy? See the results from the recent Survey of Leading Economic Bloggers
  4. How much of the market impact has been anticipated by interest rate increases over the last three months? Victor Niederhoffer opines that it is already reflected in the market.
  5. Who will be the next Fed Chair? Given the apparent nominees, does it really matter for the market? The latest word shows opposition from key Democrats to a Summers nomination. Prof. Hamilton explains why most economists favor Yellen. Michael Hirsh of The Atlantic produces The Comprehensive Case Against Larry Summers.

I have some strongly-held opinions on these question, which I'll report in the conclusion. First, let us do our regular update of last week's news and data.

Background on "Weighing the Week Ahead"

There are many good lists of upcoming events. One source I regularly follow is the weekly calendar from For best results you need to select the date range from the calendar displayed on the site. You will be rewarded with a comprehensive list of data and events from all over the world. It takes a little practice, but it is worth it.

In contrast, I highlight a smaller group of events. My theme is an expert guess about what we will be watching on TV and reading in the mainstream media. It is a focus on what I think is important for my trading and client portfolios. Each week I consider the upcoming calendar and the current market, predicting the main theme we should expect. This step is an important part of my trading preparation and planning. It takes more hours than you can imagine.

My record is pretty good. If you review the list of titles it looks like a history of market concerns. Wrong! The thing to note is that I highlighted each topicthe week before it grabbed the attention. I find it useful to reflect on the key theme for the week ahead, and I hope you will as well.

This is unlike my other articles at "A Dash" where I develop a focused, logical argument with supporting data on a single theme. Here I am simply sharing my conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am putting the news in context.

Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!

Last Week's Data

Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:

  1. The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
  2. It is better than expectations.

The Good

This was a good week, despite the mixed economic data. Here are the positive items.

  • Agreement for the destruction of Syria's chemical weapons. The "broad and sweeping" deal (see NYT) between the US and Russia also has grudging approval from Syria. I have no illusions that this will be easy. The process of identification, destruction, and inspection will go on for many months with a background of civil war. It meets our working definition of "good" since it is certainly market-friendly.
  • The "quit rate" is increasing. I was one of the first bloggers to highlight the JOLTS report, which the BLS uses to look beyond the net numbers from the monthly updates. Most people are completely clueless about the churning below the surface. A key element is how many people voluntarily quit their jobs each month. The media would lead most to believe that everyone is desperately clinging to employment. In fact, 2.6 million people were "voluntary separations" last month. This would be a good question to ask pundits in TV interviews. Most could not come within an order of magnitude. As Bill McBride notes, this is best used as a measure of confidence, not net job growth. Here is a good chart from Calculated Risk:


  • Weekly jobless claims had a "two handle" although there are issues related to reports from two states. This number could be revised, but for the moment, I'll treat it as "good." Bespoke has a nice post with a package of the charts we love. Here is a sample using the non-seasonally adjusted data:

091213 Initial Claims NSAa

  • A world economic rebound, now representing over 85% of the countries in's sample. This group of 41 countries represents 97% of the world economy. The chart below shows the solid improvement from the recent near-recession readings. For the full story, including more great charts, read the entire report. (See also Ed Yardeni). (Somewhat contra – Kate McKenzie on Chinese economic growth).

Recession Alert Global Expansion

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