Between the Lines: Suggested Reading from First Allied Asset Management

This post includes a list of recent articles which are suggested reading from First Allied Asset Management, my broker/dealer firm. You will find a link to each article followed by a brief synposis of what the article is about. If these headlines and others don’t look all that optimistic, that would certainly be a reflection of the current economy and investor sentiment.

U.S. Fiscal Dispute Shows Sign of Thaw Before Deadline
Lawmakers return to Washington today amid a potential thaw in the U.S. fiscal policy dispute, as President Barack Obama and House Speaker John Boehner attempt to make a deal to prevent spending cuts and tax increases from automatically taking effect January 1. After building public support for higher tax rates for the highest earners, President Obama is negotiating and “preparing his own party for a possible deal” by sending signals about his willingness to cut entitlement programs including Medicare and Medicaid.

U.S. Sees Biggest Drop in Exports in Nearly Four Years
The U.S. trade deficit grew by 4.9 percent in October, with exports dropping to their lowest level in nearly four years. Some of the sharp decline in exports was caused by the draught in the Midwest, but the bulk of the decline was from a slowdown in growth for the global economy.

Weak export growth in October may foreshadow slower U.S. GDP growth in the fourth quarter. The weakening in export growth has paralleled the recent slowdown in U.S. manufacturing, which has contracted in four out of the previous six months, as China’s economic growth continues to slow and the eurozone economy has fallen into another recession.

Fracking Seen Robbing OPEC of Gasoline Pricing Power

The following Bloomberg piece details a report released on Monday by the National Intelligence Council which argues that domestic hydraulic fracturing (fracking) will shift the balance of power in the global energy markets. Increases in U.S. production may lead to energy independence within the next 10-20 years.

As U.S. supply increases, OPEC’s influence over prices will wane and crude oil prices would fall significantly, increasing U.S. economic activity by more than 2 percent and add 3 million jobs by 2030, according to the report.

If We Don’t Measure Leverage, We Risk More Crises

In this Bloomberg op-ed, Mark Buchanan discusses how important a factor leverage is in the cyclicality of the economy. While commercial and investment banks were forced to deleverage after the financial crisis in 2008, Buchanan argues that central banks should also include leverage in assessing the health of the economy.

Traditionally, the Fed has used interest rates to control inflation and unemployment, but in the last five years, it’s become clear that the level of borrowing may be just as important a factor to consider. The Fed has begun to collect more data and consider ways to identify different levels of leverage in the economy. Slowly this may become a larger part of economic models used by the Fed and other economists.

China’s Banking Weapons of Mass Ponzi Problem Pops up Again

This post from the FT Alphaville blog (which now requires free registration) details the growing fallout from China’s wealth management products. These murky products are high yielding, often illiquid investments that have been marketed by banks but are issued by property developers and other risky ventures.

The concerns over how these products have been marketed are adding to growing concerns over China’s shadow banking system and severe corporate governance and regulatory shortcomings, which have led the Chinese retail investor to largely exit the Chinese equity market. While China’s economy has shown some recent signs of stabilization, investor confidence continues to suffer from shadowy practices, which perhaps partially explains why the Shanghai Composite Index has severely lagged other emerging markets in recent months.

As always, feel free to e-mail me with any comments or questions.

Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *231
F: 212-752-7673

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.
First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Advisory Services, Inc., including the Allocation Series, Manager Series, Private Client Services, and VIP programs. The First Allied Asset Management individuals that provide investment management and advisory services are not associated persons with any broker/dealer.

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