The Fed Fails to Act

The Fed Fails to Act – Mostly due to Deflation and Slow Global Growth

by Louis Navellier

September 22, 2015

*All content in the Marketmail Introduction is the opinion of Louis Navellier of Navellier & Associates, Inc.*

The big news last week was Thursday’s Federal Open Market Committee (FOMC) statement, where the Fed decided to stick to its 0% interest rate policy, saying that “recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation near term.”  Translated from Fedspeak, they were saying that global economic growth has slowed and deflation, not inflation, is brewing.  Also notable in Fed Chairperson Janet Yellen’s comments after the FOMC meeting is that she remains very disappointed in the lack of wage growth, which she had cited before as a situation that the FOMC wanted to watch closely before raising key interest rates.

I must admit that I was surprised that the FOMC voted 9 to 1 not to raise key interest rates, since I had thought that there would be more dissent.  This vote tells me that the FOMC remains very dovish and reluctant to raise key interest rates until wage growth rematerializes and inflation ignites.

Last Wednesday, during the FOMC conference, the Consumer Price Index (CPI) was announced as being down 0.1% in August. The “data dependent” Fed surely noticed that fact. And unless inflation suddenly returns within 60 days, they may not raise rates in December, as I had previously anticipated.

Rainbow ImageWhen you combine (1) labor market uncertainty, (2) brewing deflation, and (3) volatility in global financial markets, it is apparent why the Fed overwhelmingly decided not to raise key interest rates.  What is also evident is that the Fed’s own economic forecasts have been far too optimistic all year. The Fed continues to envision an environment of steadily rising wages and inflation, which has yet to materialize.  Furthermore, the fact that the doves dominate the FOMC also seems to be creating much of the current economic uncertainty.

I also noticed that Fed Chair Janet Yellen did not exude much confidence in her press conference, which tends to brew even more uncertainty.  Interestingly, Yellen said that the FOMC wants “a little bit more time” to make sure that the U.S. economic outlook hasn’t fundamentally shifted.  To me, that means that the Fed is not very confident of their own economic and inflation forecasts.  Since the Fed essentially admitted that it is not really sure of what is going on economically and signaled that it remains incredibly dovish, gold performed exceptionally well last week and closed at its highest level since August 25th.

In This Issue

In addition to Income Mail and Growth Mail, I want to introduce you to a new columnist, Jason Bodner, who will write Sector Spotlight.  Jason has worked at Cantor Fitzgerald in London, where he spent four years as a director of Equity Derivatives and in New York, where he headed up Equity Derivatives North America until 2012. Jason currently is focused on quantitative strategy, portfolio management, and equity and macro research. His other interests include astronomy – as you’ll see in his Sector Spotlight, below.

Income Mail:
No Fed Rate Hikes in 2015 – QE4 in 2016?
by Ivan Martchev
Yet another Revenge of the Utes

Growth Mail:
A 10% Correction Can Solve a Multitude of Problems
by Gary Alexander
Four Problems Solved by a 10% Correction

This Week in Market History:
The First Day of Autumn Often Heralds Memorable Reversals
by Gary Alexander

Sector Spotlight:
The Rising Speed of Uncertainty
by Jason Bodner
Will Energy’s Ugly Returns Continue?

Stat of the Week:
Deflation is Here: The CPI Fell 0.1% in August
by Louis Navellier
Europe is Doing Better, Due to a Weak Euro

Income Mail:

*All content in Income Mail is the opinion of Navellier & Associates and Ivan Martchev*

No Fed Rate Hikes in 2015 – QE4 in 2016?

by Ivan Martchev

As if it came as a big revelation – with inflation low and falling in a highly-leveraged finance-based economy like the U.S. – the Fed failed to raise rates, once again. In a deflationary environment, corporate revenues and consumer incomes tend to be weak but corporate debt loads rise in real terms as the debt levels stay nominally constant. This creates a rather significant downdraft in spending, hiring, and investing decisions and results in rather subpar economic growth.

The U.S. in the 1930s (and Japan since 1995) would be good examples of deflationary environments. Deflation is bad for the banking system and the resulting negative feedback loop leads to erosion in bank capital and shrinkage in lending that can last for years. This is what Ben Bernanke spent trillions of dollars to fight since 2008 and this is why Janet Yellen decided to stand pat last week.

Here’s where we stand in the inflation trends over the last 100 years:

United States Inflation Rate Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Inflation (based on the YOY change of the Consumer Price Index) is at 0.2% and may go negative, given what is going on in Asia (caused by the unraveling of the credit bubble in China) and what is going on in Latin America (caused by the collapse in commodity prices, in large part due to the Chinese unraveling).

I have heard many gold bugs and hard money people say that the Federal Reserve was created to institutionalize inflation.  That may be true in the sense that the Federal Reserve does target positive inflation as they believe that otherwise the negative feedback loops that come with deflation would simply put too great a burden on the U.S. economy. That would be highly problematic for the political establishment (which always aims to get reelected) and the monied power clique in general (who always try to make more money). Simply put, deflation is bad for business.

So, why is inflation so low and potentially going much lower?

Because as the Chinese credit bubble is deflating, there is likely to be a bad recession or a real depression in China in 2016. As the #1 consumer of commodities and #1 trading partner of many Asian economies, a shrinkage of China’s $11 trillion GDP is likely to cause quite the shrinkage in aggregate global demand.

Officially, the Chinese are not in a recession yet and commodity prices are near 40-year lows. What happens when they get into a real economic contraction, which I think is where they are headed in 2016?

Commodities Research Bureau Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I think the CRB Index is likely to take out the area of support in the 180-200 range that has held for 40 years other than one weekly close at 175.90 in the early 1970s. That would be the result of a severe Chinese recession and its resulting repercussions on global aggregate demand. In that environment, U.S. inflation would likely head into negative territory; so there should be no rate hikes in 2015 and there very well may be no rate hikes in 2016 if this keeps developing according to a more negative scenario.

Euro Versus Dollar - Daily Line Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The December 2015 euro-dollar (GEZ15) and fed funds (ZQZ15) futures that I mentioned last week – the first representing 3-month LIBOR, the latter representing a way to trade the fed funds rate – registered fresh contract all-time highs last Friday. They both indicate negligible chances for a rate hike in 2015.

What about 2016?

Thirty Day Fed Funds - Daily OHLC Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The December 2016 fed funds futures contract (ZQZ16) which aims to forecast the fed funds rate at the end of 2016, also registered a contract life high last Friday. At a close of 99.27, it forecasts right now a fed funds rate of 73 bps at the end of 2016, or at least a couple of 25 bps rate hikes from now until the end of 2016.  A trader that disagrees that the Fed would be hiking rates in 2016 would be a buyer of that contract while a trader who thinks there will be more rate hikes than the two forecasted as of Friday would be a seller of that contract.

Ten Year Treasury Constant Maturity Rate Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A lot can happen before the end of 2016. All I can say is that real 10-year interest rates have been rising since 2011, when they stood at -1.86%. At last count they are at +1.95%. On a real basis – i.e., subtracting the inflation rate from the 10-year nominal rate – real long-term interest rates are not that low compared with their 15-year historical range. In a deflationary outcome driven by the Chinese unraveling, it would not be hard to see the 10-year Treasury nominal yield breaking below 1% in 2016 and inflation turning persistently negative. In that scenario rake hikes will have to be ruled out and QE4 may be considered.

Stranger things have happened.

Yet another Revenge of the Utes

In an environment of falling inflation or outright deflation, dividends tend to get cut before coupon payments. Dividends are at the discretion of corporate boards while coupon payments are an obligation. This is one key distinction that income investors reaching for yields have been ignoring for five years – arguably chased out of the bond market by the Fed itself with its suppression of longer-term interest rates.

If there is little or no yield in bonds, you can get it in stocks -- right?

The answer is both “yes” and “no.”

In a deflationary environment, economically-sensitive dividends or MLP distributions are unlikely to survive. Just ask the holders of upstream energy MLPs whose share prices have been cut in half several times consecutively and whose distributions are disappearing. Those would be good examples of formerly-high and unsustainable yields.

Utilities are another matter. They have recession-proof businesses and regulated pricing, which end up giving them highly predictable cash flows. This is a rarity in a deflationary environment.

Utility Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Utilities are conservative investments. They underperformed terribly during the tech craze in the late 1990s but they did well in the 2000-2002 and 2008 bear markets in stocks. Their interest rate sensitivity as well as their regulated nature is what is more important (to me) in the present environment, as I think the 10-year Treasury yield may fall below 1% next year.  What happens then to Southern Company (SO) and other more conservative utilities with a history of consistent dividend growth?

Southern Company - Monthly OHLC Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In a more benign deflationary outcome, where the U.S. economy “hangs in there” while China unravels, I think that Southern Company is likely to register all-time highs in 2016 and so is the overall utility sector, investable via the Utility Select Sector SPDR (XLU). (Ivan Martchev does not currently own a position in SO or XLU. Navellier & Associates does currently own positions in SO and XLU in some client portfolios.)

As with any business, one cannot assume that any utility dividend is safe. Utilities can get in trouble just like any other operating company and they can cut dividends and sometimes go under. The worst example is energy trader Enron (although technically not a utility but a company serving the sector). A recent dividend cut would be Exelon (EXC), which cut its quarterly payout from 52.5 cents to 31 cents. So the fact that utilities are conservative in general does not mean that one should skip the investment homework. (Ivan Martchev does not currently own a position in EXC. Navellier & Associates does not currently own a potision in EXC for any client portfolios.)

That said, I think 2016 will be bright for the utility sector.

Growth Mail:

*All content in Growth Mail is the opinion of Navellier & Associates and Gary Alexander*

A 10% Correction Can Solve a Multitude of Problems

by Gary Alexander

Quick Quiz: You’re in a store.  You just bought something you like.  The store suddenly announces a 10% sale across the board on all prices in the store, and a 20% price reduction in some selected items.

What do you do?

  1. Run screaming from the store, shouting: “Run for the hills! The store is crashing!”
  2. Sell your newly-bought treasure to an in-store stranger standing next to you for a quick 10% loss.
  3. Buy more of what you like at 10% to 20% off.
  4. Walk out of the store with your goods, waiting patiently for a “30% off” sale before buying more.

It’s amazing how many shopper/investors prefer #1 or #2 instead of the common-sense answers, #3 or #4.

When it comes to stocks, we often behave far differently than we behave in real life. Most shoppers think that they have done the right thing by paying less for a product they like, but stock investors hate “sales.”

We’ve just seen the first 10% correction in the last four years. This late August market hurricane brought the bears out of hibernation.  As of last Friday’s post-FOMC tantrum, the S&P 500 is now 8.1% below its May highs – after dipping 12.4% below its peak last August 25.  However, this recent foray into negative territory for the year-to-date has helped to solve a number of major investment concerns, like these:

Four Problems Solved by a 10% Correction

The Valuation Problem: According to economist Ed Yardeni, in his Morning Briefing on September 14, 2015, the U.S. market had a “valuation problem” earlier this year, but that problem is now largely solved:

“The 12.4% correction in the S&P 500 from May 21 through August 25 was all attributable to a correction in the index’s forward P/E, which dropped from this year’s high of 17.2 on February 24 to a low of 14.6 on August 25. The forward P/E of the S&P 400 MidCaps dropped from this year’s high of 18.7 on May 18 to the year’s low of 15.9 on August 25. The forward P/E of the S&P 600 SmallCaps dropped from this year’s high of 19.6 on June 23 to the year’s low of 16.6 on August 25.”

Historically, a sub-15 P/E on the S&P 500 is far more attractive than a 17+ valuation.  Looking forward, according to Yardeni, “industry analysts are currently estimating $132 earnings per share for the S&P 500 next year and $147 earnings per share in 2017.”  That means the S&P is fairly valued now (132 x 15 P/E = 1980, which is near the S&P 500’s current value), but a year from now, when investors are looking forward to 2017 earnings, the S&P could top 2200 (147 times 15 P/E), if the earnings estimates remain at a lofty $147 for the S&P.

The Income Problem: With the Fed standing pat last week, income-bearing stocks look more attractive than low-yielding short-term cash or intermediate-term bonds.  What’s more, the recent correction made the dividend yield on many stocks higher, since the dividend yield is computed by dividing the dollar value of the dividend by the stock’s price.  With lower prices, unchanged dividends reflect a higher yield.

As of Friday’s closing prices, according to the weekend Wall Street Journal, 10-year Treasuries are now yielding 2.13%, while the overall S&P 500 yields 2.20%.  Many stocks yield nothing, so some stocks and sectors yield far more than 2.2%.  According to Reuters (in “Dividend payers get a break from Fed decision,” September 19, 2015), telecommunication services companies now yield 5.35%.  Utilities, as Ivan Martchev notes above, also yield far more than the S&P 500 average.  Reuters says the S&P utility index gained 24.3% last year, the best of any S&P sector. This year, utilities “retreated as Treasury yields rose on the prospect of a Fed rate hike. With the Fed now holding off, the sector may fall back into favor.”

The Sentiment Problem: In his Thursday, September 17 Morning Briefing, Ed Yardeni said that the current sentiment “remains bearish enough to be bullish from a contrarian perspective.” He cites the fact that “the Investor Intelligence Bull/Bear Ratio edged up to 1.00 this week, from 0.92 last week. In the past, readings of 1.00 or less were strong buy signals. …The percentage of outright bears, which is highly correlated with the S&P 500 VIX, did jump to 27.9% last week, the highest since November, 2012.”

In addition, Markit adds that short interest in the S&P 500 has increased to levels not seen since 2011. The average short interest of the S&P 500 broke above 2.5% recently for the first time since late 2012.

Average Standard and Poors 500 Short Interest Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The “Rate Increase” Overhang: In predicting no action in September, we were in the minority for a long time. On August 13 (in “WSJ Survey: Economists Expect Fed Rate Liftoff in September”), the results of a Wall Street Journal poll showed that 95% of economists expected a rate hike by the end of 2015, with 82% expecting an increase in September; and 13% expecting the first rate hike in December.

Louis Navellier has often jokingly said that the Fed may not raise rates “in my lifetime.” That joke now has a basis in fact:  At one point during the FOMC press conference, Reuters reporter Ann Saphir asked Ms. Yellen if the Fed might “never escape from this zero or lower bound situation.”   Yellen answered, “I can’t completely rule it out.  But really that’s an extreme downside risk.” Can’t rule out “never”?  Wow!

The FOMC voting members are unlikely to say this in public, but the stock market’s sharp decline may have contributed to the Fed’s decision. The dollar is already strong (drawing more investors to the dollar) at near-zero rates, and aggregate wage increases are microscopic. In addition, how can the Fed raise rates when deflation reigns supreme and global growth rates (especially in China) are falling?

A 10% market correction can solve a multitude of problems.  Now, we just need to get through October!

This Week in Market History:

*All content in Market History is the opinion of Navellier & Associates and Gary Alexander*

The First Day of Autumn Often Heralds Memorable Reversals

by Gary Alexander

Autumn Leaves ImageAccording to Randall Forsyth, writing in Barron’s on September 22, 2009 (“It’s the First Day of Fall – in More Ways than One”), September 22 is “Gann Day,” or “the day pinpointed by the late technical analyst, W.D. Gann” as the day “when markets are more likely to reverse than any other day of the year.”

Forsyth cites many examples, but the first and most dramatic reversal came during the Panic of 1873:

The Panic of 1873 suddenly reached crisis proportions at 11:00 am on Thursday, September 18, 1873, when H.C. Fahnstock, the New York partner of Jay Cooke (one of the leading market participants of the day), announced that Cooke’s office was closed.  Cooke, then holed up in his Philadelphia office, admitted that it was true, meaning that the most prominent banker in the country was suddenly bankrupt.

After Jay Cooke failed, NYSE was forced to close down for 10 days.  In his book “Panic on Wall Street,” author Robert Sobel described the scene in prose reminiscent of a Stephen King novel: “The coal-black steed named Panic…thundered riderless down Wall Street,” where “a monstrous yell went up and seemed to literally shake the building in which all these mad brokers were for the moment confined.”

Ever since the Civil War, speculation in land and stocks, fueled by too much paper money, caused an inflationary boom.  Jay Cooke tried to finance a second Transcontinental Railroad, but demand could not support a second such line. His failure caused a sudden surge of deflation, which soon spread to Europe, from where much of the capital for the failed railroad bonds originated, causing the worst global depression, to that date. The Panic resulted in 5,000 U.S. business failures in the fourth quarter of 1873.

On Monday, September 22, 1873, the Treasury tried to bail out Cooke and other failed banks with $26 million in paper money, but more money didn’t help.  Deflation sucked up the extra funds, and the stock market closed for the week. They even forbid securities trading on the “Curb,” but most traders ignored the ban and traded however they could  By November, 55 of America’s railroads had failed and another 60 went bankrupt by the following September.  Over 18,000 businesses failed from late 1873 to 1875.

Despite this panic – and more panics in 1893-4 and 1907-8 – per capita GDP growth kept rising over the last 140 years.  From the long-term perspective, it’s hard to see any dip in 1873, 1894, or 1907. In the 143 years from 1870 to 1913, real per capita GDP expanded an average 1.87% per year (or 20% per decade).

Gross Domestic Product per Capita of the United States Chart

Source: Aneconomicsense.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There were a few more panics which fell on the fall Equinox in the 20th Century: First, on September 22, 1929, the Dow Jones Utility Index became the final major average to peak before the late October Crash.

On September 21, 1931, Britain ended its gold standard and devalued the pound by 20%.  This caused a withdrawal of gold from U.S. banks: 305 banks failed in September 1931 and 522 more failed in October.

On September 22, 1985, in another currency crisis, the “Plaza Accords” devalued the U.S. dollar to the German mark and Japanese yen. The super-strong dollar had appreciated by over 50% in the early 1980s.

On September 20, 1998 (a Sunday), several top Federal Reserve officials met with executives of Long-term Capital Management, a failing hedge fund that was putting the global credit system at risk. In testimony before Congress 12 days later, William J. McDonough, president of the New York Federal Reserve, said that his team learned that the size of the problem was “much greater than imagined.”

On Tuesday, September 22, 1998, a government-led bailout was announced the next day, and the Dow recovered strongly. The next day, the DJIA rose 254 points (+3%). Longer-term, the DJIA rose 4,183 points (+55%) from August 31, 1998 to January 14, 2000, while the tech-heavy NASDAQ exploded from 1499 on August 31, 1998 to 5048 on March 10, 2000, rising 237% in barely 18 months.

There was also a more recent crash in late September of 2008, which I’ll cover in more detail next week. Perhaps we’ll also see the Panic of 2008 as a small blip in long-term growth rates a century from now.*

*For more examples of September 22 lowlights, see: http://www.barrons.com/articles/SB125354476913027971.

Sector Spotlight:

*All content in Sector Spotlight is the opinion of Navellier & Associates and Jason Bodner*

The Rising Speed of Uncertainty

by Jason Bodner

The universe is a fast-moving and volatile place.

I read recently that even as you sit at rest in your favorite armchair in search of absolute stillness, you are actually moving through space at thousands of miles per hour. The Earth rotates at about 1,000 miles per hour. While the planet spins, we are circling the sun at 66,000 miles per hour. The sun itself is rotating around the center of the Milky Way Galaxy at 483,000 miles per hour. So the next time you collapse onto your couch after a rough day to “stop the world from spinning,” just know that this will never happen.

The global equity markets of late can leave someone feeling like they are being hurtled through space at thousands of miles per hour. Prices have resembled the chaotic cadence of a ride on the bumper cars at a county fair. The usual trends investors find comfort in seem to vanish as quickly as they appear.

Typically, even when we examine a seemingly flat equity market, we can find sectors and subsectors acting as the lift and drag, battling each other to yield no net forward progression.  This has been the case for much of the year until the jarring correction of the last few weeks. As we look into the activity of specific sectors in order to try to identify where to latch on to in the wake of the correction (which may not yet be complete) we find one prevalent theme: volatility.

Standard and Poors 500 Index - Daily OHLC Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The recent run of volatility is still pervasive. Last week’s much-anticipated Fed statement on Thursday didn’t seem to provide much respite from the choppiness in the markets. As of Friday’s close, the broad U.S. indices are mixed. Year-to-date, the S&P 500 is -4.90%, the NASDAQ 100 is +2.07%, and the Russell 200 is -3.43%. In surveying what’s been strong and weak under the hood, we have seen some clear leaders and laggards. Consumer Discretionary and Healthcare have led the market, showing sustained strength for well over a year now. Year-to-date, the S&P 500 Consumer Discretionary sector is up 4.67% with a 1-year return of 10.38%. Next best is the S&P 500 Healthcare sector, up 3.58% and +9.27% for the last 12 months. Digging into the details of the healthcare sector, there has been significant institutional accumulation in Pharmaceuticals, Healthcare Products, and Healthcare Services.

Standard and Poors 500 Consumer Discretionary Sector - Daily OHLC Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Looking at the one week performance of the sector groups, we saw volatility echoed in the price action of various groups. The biggest one-day winning performance was the S&P 500 Energy sector, which was up 2.77% on Wednesday. Energy was also the biggest one-day loser on Friday, when it gave back most of Wednesday’s gain, ending down 2.62% and finishing +0.32% for the week. The S&P 500 Materials sector was close to flat by end-of-day Thursday. Then it bore the brunt of considerable selling on Friday, down 2.05% to finish the week -1.59%. Consumer Staples and Healthcare were strong, finishing the week +0.82 and +0.74%, respectively.

Will Energy’s Ugly Returns Continue?

When we turn to the S&P 500 Energy sector, we see some pretty ugly returns: YTD -21.17% and 1-Year -32.48%. Energy began its broad-based decline late last summer as Brent and Texas crude lost value day after day.  As the U.S. dollar strengthened, that placed pressure on commodities (and continues to do so now). The last three weeks have seen some spectacular squeezes on Energy which grab headlines, but the sector as a whole is by far the weakest of the pack.  In equities, almost all of the destruction has been isolated to Oil & Gas as the companies are leveraged and their margins are tied closest to the physical commodities. In fact, if we look at the S&P Oil & Gas Exploration & Production Select Industry Index, we see a year-to-date return of -26.5%. The 1-year return is a staggering -51.9%! These groups have seen significant institutional distribution for prolonged periods of above average volume selling. As the dollar remains strong and even gets stronger, one would expect this trend of weakening commodities and commodity related stocks to carry on. But the volatility of late is making longer-term trends harder to see.

Standard and Poors 500 Energy Sector - Daily OHLC Chart

Source: Barchart.com

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

As investors struggle to digest all of the uncertainty in the market, we see volatile price action on varying volume. August turned out to be one of the more volatile months in recent history. September stabilized somewhat, but the uncertainty is still clear and present. The normal sweeping trends we have seen for the past year within the sector groups have been absent in the wake of the August equity market collapse.

When some ballast appears in the market and indices see some settling, we should begin to see sectors emerging as leaders and laggards. Will healthcare continue to fly while energy continues to sink? Time alone will tell. In the meantime, even when we seek stillness in the markets, sectors and subsectors are undulating sometimes at breakneck speeds under the surface of the major indices.*

*Sector Index Returns source: S&P Dow Jones Indices

Stat of the Week:

*All content in this "Stat of the Week" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

Deflation is Here: The CPI Fell 0.1% in August

by Louis Navellier

Last Wednesday, the U.S. Department of Labor announced that the Consumer Price Index (CPI) declined by 0.1% in August.  Energy prices declined 2%, while food costs rose 0.2% so the core CPI, excluding food and energy, rose by 0.1% in August. In the past 12 months, the CPI has risen only 0.2%, while the core CPI rose 1.8%.  Interestingly, higher service costs have largely been responsible for the higher core CPI, but in the past two months, airline ticket costs have fallen, so service costs are now moderating a bit.  Overall, there is no doubt that deflationary forces are now spreading to more sectors of the U.S. economy.

Gasoline Pump Handle ImageAlso, the Commerce Department announced on Tuesday that retail sales rose by 0.2% in August, in-line with economists’ expectations.  The primary reason that economists were not expecting stronger retail sales was due to falling gasoline prices, which declined 1.8% in August.  Excluding sales at gas stations, retail sales rose 0.4% in August.  Just to demonstrate how influential gasoline sales are on overall retail sales, in the past 12 months retail sales have risen 2.2%, but when gasoline sales are excluded, retail sales have risen 4.4%!  The other positive tidbit in the retail sales report was that July retail sales were revised up to 0.7% in July (compared with an initial estimate of a 0.6%).  Overall, 10 of the 13 industries surveyed reported positive retail sales in August, so consumer spending continues to steadily increase.

The other interesting news that might influence the Fed is that on Thursday the Labor Department announced that it would likely reduce overall payroll totals down by 208,000, or about 0.1% of the overall labor force.  This is a surprising adjustment and raises doubts about what the Labor Department is measuring, since its revisions seem to be endless.  Furthermore, ADP, which does private payroll processing, has been much more accurate than the Labor Department, especially with part-time workers.

Europe is Doing Better, Due to a Weak Euro

On Tuesday, Eurostat announced that the euro-zone trade surplus rose in July to the highest level since 2004 as exports rose 7% and imports rose only 1%.  Clearly, a weaker euro is helping mighty Germany and other euro-zone nations boost their exports.  More than a year ago, economists were worried that Germany’s exports would suffer due to sanctions on Russia; but now exports are stronger than ever thanks largely to a weak euro.  So with the euro-zone and the U.S. economies recently posting better-than-expected economic growth, hopefully fears of a worldwide recession will subside.


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Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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