The Mess That Greenspan Made - Part 20

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here. There will be no changes to the model portfolio or the buy ratings this week, but developments from last week as they relate to financial markets are reviewed in the following discussion topic:

The executive summary is as follows:

A surprisingly strong labor report and other positive economic data in the U.S. combined with very dovish comments from multiple Federal Reserve officials, including Fed Chief Janet Yellen, to send U.S. equity markets to record highs. Treasuries fell and the U.S. dollar rebounded as investors around the world were emboldened to bid prices higher amid ongoing violence in the Middle East that has now spread to Israel.

Though most related shares moved higher, commodity prices had their worst week in the last five as prices for both energy products and agricultural goods tumbled. Metals were the notable exception in the natural resource sector and mining stocks saw more gains, adding to their impressive 2014 performance after a dismal 2013. For the week, the model portfolio rose 0.8 percent and is now up 9.2 percent for the year.

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On the Declaration of Independence

A few thoughts on the Declaration of Independence on this Fourth of July after having read much about the Revolutionary War period in recent years.

In addition to Thomas Jefferson, Benjamin Franklin, and John Adams, two other members were on the Committee of Five tasked to draft the document – Roger Sherman and Robert Livingston. It is not know what, if any, contributions Sherman and Livingston made to the document as the group met infrequently from June 10th to July 5th and kept no minutes.

Though there is some debate on this subject, Thomas Jefferson wrote the first draft of the Declaration of Independence, but only because John Adams asked him to. The other four members of the committee wanted Adams to write it. At the time, authoring the document was seen as being a relatively menial task and high profile members of the Continental Congress such as Adams much preferred oration before their peers to a writing assignment such as this. As it turned out, writing the Declaration of Independence was, by far, the most important development in Thomas Jefferson’s political career.

Jefferson borrowed liberally from others, notably the Virginia Declaration of Rights that was adopted by the Virginia Convention in June and opens with the following:

That all men are by nature equally free and independent and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.

This is surprisingly similar to the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

The most famous edit came from Benjamin Franklin who suggested changing “sacred and undeniable” to “self-evident” in the passage directly above.

Lastly, that John Adams and Thomas Jefferson both died on July 4th, 1826 – exactly 50 years after the Declaration of Independence was adopted – is pretty amazing. The two had been ill for some time and, as a testament to how important the date July 4th had become and the power of mind over the body, both held on until that day, expiring as others celebrated.

The Labor Department reported that U.S. employers added a better-than-expected 288,000 jobs in June and the unemployment rate fell from 6.3 percent to 6.1 percent, a six year low.

Payrolls for April and May were revised upward by a combined 29,000 and April’s revised gain of 304,000 marked the biggest increase in jobs in two and a half years. After a dismal winter when payrolls increased by an average of just 150,000, the last three months have seen average gains of 272,000.

The household survey also showed marked improvement as the jobless rate fell for all the right reasons, though the labor force participation rate was unchanged near multi-decade lows at 62.8 percent. Some 407,000 people were newly counted as employed and the official count of “unemployed” Americans fell by 325,000.

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Thursday Morning Links

MUST READS
Dow, S&P 500 set new records – USA Today
ECB maintains policy despite waning economy – AP
Riksbank presents ’shock’ interest rate drop – The Local
U.S. jobs data seen reinforcing strong growth outlook – Reuters
Hedge Fund Finds Asset-Backed Bargains in Subprime Debris – Bloomberg
Janet Yellen Signals She Won’t Raise Rates to Fight Bubbles – NY Times
Yellen: Don’t blame the financial crisis on low rates – Fortune
Yellen Says Financial Instability Shouldn’t Prompt Rate Change – Bloomberg
Berlin talks bring Russia and Ukraine closer to resuming ceasefire – Reuters
Saudi Arabia Sends 30,000 Troops to Iraq Border: State-Owned TV – NBC News
Water Fetches Record Prices in Drought-Hit California – Time
China in the Golden Age of Central Bankers – Salient Partners
Similarities Between 1914 And 2014 – GoldSilverWorlds

MARKETS/INVESTING
World stocks rise ahead of US jobs report – AP
GoPro’s Rocket Ride a Sign of a Top? – Fox Business
Many women think stock market is too risky – USA Today
It’s Almost Dow 17000—and Time for Some Lessons From 2008 – WSJ
Treasury Decline Boosts Yield to 15-Year High Versus Germany’s – Bloomberg
Gold slips ahead of U.S. jobs data, ECB Policy Announcement – Reuters
Gold industry bust at $1 300/oz, says Randgold’s Bristow – Mining weekly
Chinese Trader Said to Pledge Metal 3 Times for Loans – Bloomberg
Indian Central Bank plans to swap Gold to improve reserves quality – Bullionstreet
Assets in top exchange-traded gold product up most since 2011 – Mining.com
The coming two-stage rally in silver – SRSrocco Report
FCA: ‘No evidence’ of gold price rigging – Telegraph

ECONOMY/WORLD/HOUSING/BANKING
32 states trail US as a whole in job recovery – AP
The economy — surprise — didn’t tank in first half – MarketWatch
Services sector keeps UK economy ‘firing on all cylinders’ – Telegraph
Sir Jon Cunliffe: House prices ‘biggest risk’ to UK economy – BBC
German private sector expands at slowest pace in eight months – Reuters
How Bad Would a Housing Market Crash Be for China? – Businessweek
Mixed Results: U.S. Housing Market Resembled the 2014 World Cup in June – CBS
Not Every Part of the Housing Market Is Improving – Wall Street Cheat Sheet
Obama: more reforms needed to wring risk from banks – report – Reuters
Obama Decries Big Bonuses at Bank Trading Desks as Risky – Bloomberg
Yellen Looks the Other Way – Alhambra Partners

 
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