Written By: Julia Crosby

Consumer’s spending started decreasing at the end of May, after a record high of five months.  Chairman and Chief Executive Officer of Safeway Inc., Steve Burd, stated “customers remain price-conscious, in part because confidence is yet to rebound to pre-recession levels and shoppers are trying to be very careful with how they spend their dollars”. Although consumer’s spending has decreased, a Commerce Department report declares that more Americans signed contracts to purchase previously owned homes than forecasted in the month of March. As it was declared in January that payroll tax in the United States would increase, it started to have a detrimental effect on the economy because the implementation of the payroll tax led consumers to reduce their spending. Consumer spending makes up about 70 percent of the U.S. economy, without consumer spending the United States’ economy would experience a catastrophic event.  Millan Mulraine, an economist for TD Securities USA LLC in New York stated, “Consumers won’t be able to sustain the current pace if income growth continues to disappoint”. The National Association of Realtors stated that previously owned home sales increased by 1.5 percent in the month of March after a 1 percent decline.

The currently low mortgage rates and the unemployment rate decreasing, is making the housing market stronger. As property values start increasing more property owners will be put their properties on the market creating needed supply. Stocks have climbed on the Standard Poor’s 500 Index for the six month straight, which has caused central banks to maintain the stimulus plan. The Commerce Department’s Report also stated that Americans’ incomes increased by .2 percent in March after having a significant increase in February at 1.1 percent. According to a Bloomberg survey taken April 5 to April 9, economists in this survey predicted “the lagged effect from a two percentage-point jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, will cause the mean economic growth to weaken to a 1.5 percent pace this quarter from 2.5 percent. The economy will then accelerate to an average 2.4 percent rate in the last six months of the year”.  There is hope for the economy to rally in the last six months of the year, as economists predicted.

Source: Bloomberg

http://www.bloomberg.com/news/2013-04-29/consumer-spending-in-u-s-climbs-more-than-forecast-on-services.html

By: Shobhana Chandra

Author Adam Shell and Kim Hjelmgaard, USA TODAY

By Danny Micelotta

Stocks pushed higher Tuesday, just a day after gold and oil prices fell sharply on Monday. The result was a large selloff that included commodities and gold. All three major U.S. stock indexes – the Dow Jones industrial average, Standard and Poor’s 500 stock index and the NASDAQ composite index were rising in value before noon. Gold fell more than 9% leading to record-setting sell-offs which is probably the cause of the stock weakness. As the stock moves lower, the stocks will become increasingly volatile. One reason for the market rebound was the strong earnings reports from Coca-Cola and Johnson & Johnson. In addition, the financial firms Goldman Sachs and BlackRock also reported better expected earnings which helped increase the market. Stocks also gained a substantial boost from March housing starts rising 7%. Tech firms Intel and Yahoo also reported profits on Tuesday. Stocks will most likely be driven by corporate earnings for the rest of the week.

China growth data and Boston marathon bomb greatly shook confidence, which resulted in the Dow falling 1.8%, the S&P 500 index 2.3%, and the NASDAQ 2.4%. Although stocks are showing signs of bouncing back, Robert Sluymer, technical analyst at RBC Capital Markets, says a market correction is underway and “does not appear to be finished.”  Benchmark oil for May delivery also fell 11 cents to $89.25 per barrel in electronic trading on the New York Mercantile Exchange. Japan’s Nikkei index fell 0.41% regressing from last week’s multiyear highs. Although the stock market faced a significant drop Monday, the market rebounded rapidly and satisfied some of investors’ concerns. However, analysts are still on the fence as to whether or not the market will continue to surge or face more significant drops as we move deeper into the week.

Source:

http://www.usatoday.com/story/money/markets/2013/04/16/stocks-tuesday-4-16/2086933/

By: Ben Protess

Author: Julia Crosby

Mary Jo White, the first woman to serve as Unites States attorney in Manhattan, has become the head of the Securities and Exchange. The Senate Banking Committee’s final vote was unanimous; twenty-one to one. There is much controversy steaming from White’s new position because of her close relationships to major banks on Wall Street. White has spent the last ten years as the former federal prosecutor defending huge names such as JPMorgan and many other large name banks. White is replacing Elisse B. Walter who was leader of the SEC since December. Now with the U.S. economy being in such turmoil, White has tremendous work to accomplish to try and help stabilize the markets. Congress is pushing for the SEC to implement new laws on Wall Street and work towards decreasing financial fraud. The SEC is faced to deal with high-frequency trading, a new phenomenon the SEC’s laws have not caught up to. Also the SEC is currently trying to take more control over money market funds to decrease the amount of fraud. Paul Stevens, the chief executive of the Investment Company Institute stated that “Her [Mary Jo White] long experience and notable accomplishments as an advocate for the public interest will serve her well in her new role as SEC chair, carrying out the agency’s vital missions of protecting investors and overseeing our capital markets”. People opposing White have argued that she is too intertwined with Wall Street and should not be the leader of the SEC because of it. Senator Sherrod Brown was the only one to vote against White stating “Her turns through the revolving door that connects government and private practice. I don’t question Mary Jo White’s integrity or skill as an attorney, but I do question Washington’s long-hold bias toward Wall Street and its inability to find watchdogs outside of the very industry that they are meant to police”. To prevent bias or insider knowledge, White has agreed to recuse herself from being associated or part of Debevoise & Plimpton the legal practice she was once part of. White has impacted the United States drastically, so far in her career by overseeing the case of John Gotti and supervising the investigation that dealt with Osama bin Laden and Al Qaeda. White will bring structure, experience and new laws, which will hopefully strengthen the SEC as a whole.

Source:

http://dealbook.nytimes.com/2013/04/08/with-senate-approval-white-is-set-to-run-s-e-c/

Author: Julia Crosby

S&P 500 has made it into record territory, leaving investors to wonder if there is any room for growth. The bulls are taking a stance declaring that shares are looking cheap, indicating there is growth potential in the market. Investors are worried because the market has been at this level before and since 2010 global equities have been following the pattern of picking up in first quarter and then dropping during the spring. Jeffrey Knight, head of global asset allocation at Columbia Management Investment Advisors, claims that even for the most bullish forecasts in 2013, equities are set to remain constant or pull back, based on previous performance. The emerging markets have been weak and The United States still has a ways to go before leading a global recovery.

The FTSE Eurofirst 300 Index has already pulled back since the peak in mid-March, where as Japan and The U.S. are climbing. The Cyprus crisis has led to instability and uncertainty in the Euro markets. European policy makers are now imposing losses on bank deposit holders, creating awareness about the risks involved with investing in the Eurozone’s southern perimeter and implementing capital controls.  By imposing losses on bank deposit holders it is opening the door to a riskier market. Stephane Deo, head of asset allocation at UBS says, “They [Eurozone Leaders] are playing with fire talking about bank depositors, with these kinds of decisions you are putting a lot of risk in the market.” As time passes, the turmoil resulting from the Cyprus crisis, is creating more of a challenge for the Eurozone to exit the recession they are currently in.

As Europe takes a secular outlook, it is likely that equities are going to take precedent over bonds, unless Europe starts to become more of a force on the global economy, discusses Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch. Anthony Conroy, head of trading at BNY ConvergEx, declares that as there is more U.S. growth, there will also be a switch from bonds to equities. Conroy raises the concern that there is not much volume for equities and there could be a correction as the second quarter is started. It is said that the performance of the S&P has come from consumer staples, healthcare and high paying dividends and if the bulls are deciding to invest it is being done with precaution. As Cyprus’s government puts more controls into effect and implements beneficial solutions, hopefully the crisis will be averted and European markets will return. As budget cuts are put into place and the unemployment rates decrease in the U.S., optimistically speaking markets will only become stronger.

Source: Financial Times

By: Michael Mackenzie and Stephen Foley in New York and Ralph Atkins in London

URL: http://www.ft.com/intl/cms/s/0/f57aab32-96eb-11e2-a77c 00144feabdc0.html#axzz2PCe27Xbe

Author: Danny Micelotta

In this week’s blog, we will be discussing Cyprus’s current financial crisis and its effect on the U.S. and European stock markets. Kim Hjelmgaard of USA today mentions in her article how during the past week Cyprus has been struggling to please its lenders and prevent its banks from collapsing. Although Cyprus recently made a deal to acquire a $13 billion bailout, the excitement did not help protect the stocks for long. The Cyprus relief rally helped to slightly increase U.S. stocks, but unfortunately within two hours all three U.S. stock indexes took a loss. As far as European investors, savers with deposits of more than 100,000 euros are to take significant losses. According to Bloomberg TV, the Euro also dropped to a 4-month low due to the Cyprus fallout.

Cyprus entered the European Union in 2004 and adopted the euro four years later in order to try to stabilize the country and lead it to future prosperity. Unfortunately, Cyprus has taken substantial hits from the Eurozone debt crisis and has had too much of a reliance on Russian money. According to USA Today the island’s banking system can be characterized as out-sized and shadowy.  The island was in desperate need of a bailout, and EU finance ministers approved the deal. However many financial analysts are not confident that the bailout will be enough to truly solve the problem. Some are frightened that the new bailout template does not give any certainty that the country will bounce back from its current fallout, and there is also concern that other countries are prone to the same collapse as Cyprus.

Article Source:

http://www.usatoday.com/story/money/markets/2013/03/25/stocks-monday-3-25/2016827/

Author: Kim Hjelmgaard, USA TODAY

Author: Billy Acciavatti

One of the biggest economic headlines in the news, if not the biggest headline as of late is the fear that the United States will go over the ‘Fiscal Cliff.’ This is what will happen at the start of the New Year as taxes will increase and government spending will decrease. This is expected to increase unemployment and possibly send the economy into a second recession. After Barack Obama won the presidential election last week, the country has chosen to continue having a conflicting government. This result has caused many to believe that congress and the President will not come to an agreement in time to keep the economy from falling off the cliff. Markets have already started to express their skepticism of potentially falling off the cliff and it will certainly be interesting to see what happens in the coming weeks to see if congress and the President can come to an agreement. Regardless if they come to an agreement or not, this article focuses on how an investor should play the ‘fiscal cliff.’ The author of this article states that we should be able to find good deals in the market for blue-chip and high dividend yielding stocks while bond yields are expected to go down. This is interesting because although the market as a whole may underperform in the short term, an investor playing the market correctly can potentially profit big time in the long term. Let’s take two scenarios. The first, being the worst case scenario, the economy goes over the ‘fiscal cliff.’ If an investor is holding cash waiting up to an agreement between congress and the President, he or she will not be exposed to the down side of the market as uncertainty drives equity prices down. If an agreement is not reached, the market will most likely react in a severely negative way, in which our investor will still not be exposed, this is where the opportunity to profit comes about. As the market reacts, it is most likely that it will overreact and there will be some very good value plays in the market for the investor to profit on. The second scenario is that the President and congress come to an agreement. The market will also go down until the agreement is reached and an investor who is holding cash will still be unexposed to this downside, but once an agreement is reached the investor should jump into a most likely bull market. In both scenarios the intelligent investor has an opportunity to profit from the looming ‘fiscal cliff.’ My recommendation is to short the market in the short term or hold cash and wait for an agreement to be made or not be made. Either way an investor who plays the fiscal cliff correctly can profit while the economy may contract as a whole.

http://online.wsj.com/article/SB10001424127887324073504578107371026601336.html?mod=WSJ_PersonalFinance_PF15

By Joe Light and Ben Levisohn

By: Billy Acciavatti

Instead of choosing an article from the financial press to write on today I have decided to write my blog on a very interesting event that occurred today on campus at Bentley University. Economics professor, Scott Sumner, presented his view on the misdiagnosis of the 2008 Financial Crisis and offered an explanation of how things went wrong and what could have been done to keep this crisis from happening. Professor Sumner’s credentials include a Ph.D. from the University of Chicago in economics along with recently being named one of the top one hundred global thinkers, being ranked 15^th,tied with Federal Reserve Chairman Ben Bernanke as ranked  by Foreign Policy. Professor Sumner is currently teaching Monetary Economics here at Bentley University.

In today’s presentation Professor Sumner was quite critical of the measures that were taken during the financial crisis, hinting at the fact that the wrong steps were taken to try and stimulate the economy. Being a monetary economist, Scott Sumner focuses on the measures that a central bank can do in order to keep the money supply tight or loose, meaning that money is either easy to get or hard to get depending on the interest rate. Sumner was critical on the measures taken during the crisis primarily because the substantial drop in nominal GDP, which is the total amount of money spent in the economy, saying that this should have been noticed and that the Federal Reserve could have taken measures to stimulate the economy by making money easier to get so that overall spending in the economy would increase. Sumner spoke on the fact that the financial crisis was not caused by bankers, but rather that it was caused by economists who failed to realize the real problem in the economy which was the slowing of spending. The economist’s blindness to this fact is what triggered the financial crisis. Sumner concluded that the problem was misdiagnosed and said that if the Federal Reserve had noticed the indicators that the money was tight and not kept interest rates at two percent, they could have lowered interest rates and stimulated spending in the economy and the financial crisis that followed could have been avoided.

Sumner’s thoughts could almost be seen as genius as he offers a solution to the question of “How do we get this economy moving?” which he answered with increases in spending which would in turn stimulate growth in nominal GDP. The problem was though that Scott had no channel to show his views. He then started a blog to get his hypothesis out there. Now, his view of the economy has been adopted by Ben Bernanke and could almost be seen as the cause for the third round of quantitative easing that the Federal Reserve announced on September 13 of this year. Now, the question is will “Will our Bentley University celebrity’s policies be able to pull this economy out of the lagging drought we have been in?” We will just have to wait and see how it all pans out.

Author: Daniel Micelotta

This weeks article describes how home prices rose 6.3% in October from a year earlier, marking the biggest increase since June 2006, CoreLogic reports. The company also says this is the eighth consecutive year-over-year jump in home prices nationally. CoreLogic chief economist Mark Fleming says the housing recovery “continues to gain momentum” with almost all markets experiencing some appreciation. The largest gainers were the states that were hurt the most during the decline or those with strong energy sectors. States with rises included Arizona with increase s of 21% year-over-year, Hawaii 13%, Idaho and Nevada 12%, and North Dakota 10%. Despite the rise in prices, five states continued to see prices fall. One of the reasons prices are rising are because there are fewer homes for sale. In October, the supply of homes for sale was down 22% from year earlier levels, the national Association of Realtors says. Buyer demand is also improving, helped with low interest rates.

The rise in home prices is definitely a healthy sign for the economy because it means the housing market is in better balance. Since the recession, home prices have drastically taken a hit causing the real estate market to suffer in addition to home sellers not being able to find buyers. The rising values also indicate that a smaller amount of homeowners remain behind on their mortgages. An improving housing market will also directly translate into more jobs for construction workers as new homes are being built. I think American consumers will ultimately spend more as the housing market soars. When people become wealthier, they will generally spend more money which results in a healthier economy. The current success in the real estate market will hopefully lead towards a more favorable economy.

Article Source:  http://www.usatoday.com/story/money/business/2012/12/03/home-prices-october-corelogic/1743825/

By Josh Adler

The article chosen this week is about the question of whether the European Union should keep the Euro currency. These groups of countries are tied together because of the common currency. The creators of the Euro believed that the Euro would behave like the dollar. The Euro can create internal devaluation which would decrease prices and wages. This has created inflated unemployment in Greece and Spain where unemployment is above 20 percent. Angela Merkel , the Chancellor of Germany states that removal of the Euro would be catastrophic. In England, there is an economic think-tank that offers a $400,000 prize for the best plan to manage a break-up of the euro. Many of the Euro countries contain high debts and the devaluation for Greece would increase the burden of euro-denominated debt. Foreign bonds would have to be restructured and the debt is necessary for recovery. According to The Economist the best option would be to abolish the euro once a country leaves which will invalidate all euro contracts.

This situation is serious and it seems as if there is no way to solve the Euro crisis without pulling all the countries in the EU into a recession. I believe that the EU is avoiding the inevitable and that the Euro needs to be restructured. The European Union needs to determine the probability of keeping the European Union together and the reproductions of removing the members of the EU. I believe that if the EU separates then the strongest countries should leave first thereby saving themselves from any economic turmoil. The European Union could still exist however I believe there needs to be more strict requirements. It is clear that the European Union has made it too easy to be a member. Countries should undergo a financial stress test similar to the tests given to banks. This would hopefully decrease the chance of default and probability of systemic risk.

Economist Article: http://www.economist.com/node/21552250

Author: Nishant Sheth

After the recent financial crisis the idea of the “Too Big to Fail” concept were rampantly discussed. They have now come back into the news through a recent article on the Federal Reserve Bank of Dallas. The recent report included very critical words on the “megabanks” of today. It talked about how even with this crisis banks still remain far too large. Banks still remain too difficult to regulate and America hasn’t seen enough overhaul in policy, is the reports premise. The banks of today still look too much like they did pre-2008. The Occupy movement shed a lot of light on moral hazard and loss of credibility on the part of the banks. However, the fact that top Federal Reserve officials feel this way is even more powerful. The Dallas Fed feels as if a lot of the policy such as the Dodd-Frank act has not had enough impact. Another issue brought up, was the fact that too much decision making lyses within the Treasury secretary and that the Fed does not have enough involvement. They feel that they are more of a neutral entity but being regional critics do not receive enough regulatory power. Mr. Fisher, the Dallas Fed president has been fierce on inflation. He was not in accordance wit the Fed’s actions in terms of “quantitative easing”. The top bank regulators at the Fed have embraced unorthodox monetary policies and have not commanded any overhaul of the current system. Many of these regional Fed’s want to break these large banks into smaller ones. They also argue that small banks get hurt when the large ones are bailed out. What do you guys think about current Federal Reserve Policies? Why haven’t we made more significant inroads in regulation since 2008?

New York Times Article: http://dealbook.nytimes.com/2012/03/28/banking-regulator-calls-for-end-of-too-big-to-fail/?src=busln