U.S. Economic Growth: Place Your Bets

DOW + 113 = 17,904
S&P 500 + 11 = 2096
NASDAQ + 25 = 5055
10-Year Yield – .04 = 2.32%
Oil + .50 = 60.02
Gold – 4.70 = 1182.50
Silver – .06 = 16.11

The Federal Reserve Federal Open Market Committee is meeting to determine monetary policy. Tomorrow they will issue a statement and Fed Chair Janet Yellen will hold a press conference. Nobody expects the Fed to change policy tomorrow but they will probably signal that they are looking to raise interest rates at the FOMC’s September meeting, with a few qualifiers: if the labor market continues to improve, if mild inflation does not turn into deflation, if global markets don’t melt down, if the dollar remains well behaved. And then, over the next few weeks, the policymakers will talk about how the rate hike will be small and measured.

Of course we have to wait to hear from the Fed but the markets have placed their bets. Global investors have been moving out of equities and into cash. Cash levels rise to 4.9 percent of portfolios, up from 4.5 percent in May; the proportion of investors’ overweight equities falls to net 38 percent from 47 percent. The proportion of investors expecting to underweight global emerging markets surges to a net 21 percent from net 6 percent in May. The U.S. dollar is the most crowded trade as Fed tightening looms; 72 percent predict the euro will weaken vs. the dollar in coming year.

Central banks now own an incredible $22 trillion in assets and they have created $6 trillion of negative yielding bonds this year. Some 45% of government bonds in the world currently yield less than 1%. And 83% of global stock markets are currently supported by zero interest rate policies. If that doesn’t push investors to risk assets, nothing will. And so don’t expect the Fed to just take away the punchbowl without repercussions.

closing stores and laying off workers . The retailer announced plans to close 140 stores and lay off 250 corporate workers during this fiscal year. Over the “next several years,” the number of stores closed is expected to climb to 175. The closures and job cuts are the company’s attempt to recover from five straight quarters of sales declines.

Coty Inc (NYSE:COTY) has acquired three beauty products and fragrance lines from Procter & Gamble Company (NYSE:PG) for almost $12 billion. The businesses are believed to include PG’s Max Factor, CoverGirl and Wella hair care brands. Details of the transaction are still being worked out but if it goes through, it would be the biggest deal in cosmetics in at least a decade and would turn Coty into a world leader in perfume and hair care.

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Blackstone (NYSE:BX) and Carlyle Group (NASDAQ:CG) are making a joint bid for NCR, the cash register and ATM manufacturer, in a leveraged buyout that would be the year’s biggest at more than $10 billion, including debt. The auction for NCR is several weeks away from completion, and other buyout firms are expected to compete.

While still in the early planning stages, Goldman Sachs (NYSE:GS) will soon offer loans online to both consumers and to small businesses as it looks to tap into a marketplace worth nearly $850 billion. Taking on consumer lending means taking on a growing field of competitors. Along with traditional credit providers like Wells Fargo (NYSE:WFC) and smaller banks, websites like Lending Club and On Deck have moved into the peer-to-peer lending business.

Discover Financial Services (NYSE:DFS), the credit-card issuer that expanded into mortgages and student lending, is closing its home-loan origination business and will offer severance packages to about 460 employees.

Fitbit has raised its IPO price range to $17-$19 per share (from $14-$16). At the high end of the new offering range, FitBit would be valued at about $3.9 billion, and should raise about $656 million for the company. Ticker symbol FIT, going public tomorrow.

Written By: Marvin Clark