With all the angst generated by elevated anxiety from a potential .25% basis point (1/4% of 1%) rate hike we at GSA have to wonder have investors been captured or corralled into the Federal Reserve’s Habitrail? Have investors been abandoning all common sense and reason, trading kneejerk style at every and any Federal Reserve headline, statement or missives. Unfortunately, we believe the recent trading activity suggests too many investors are getting caught doing just that.  We were all in one global easing mode module content to take on risk and invest across a broad spectrum of assets of varying quality. Then, the Federal Reserve added on a tube and module, baits it with some tightening talk and many investors go stampeding through exiting their home base and core investment principals fearing they might miss out or there might be something better on the other side.  I’ve found out over the years those who stay true to their long term disciplines, in times like these tend to have a lot less competition picking through the scraps tossed aside during panic selling leading to successful outcomes.  

Where We Are.

Gross Domestic Product(GDP). The US economy clearly regained its footing in the second quarter as GDP was revised up to +3.7% coming off the first quarters +.6% showing. The third quarter currently appears to be trending towards +3% rate of growth helped by strong demand for housing, auto’s, aerospace, retail sales along with a resilient level of consumer confidence.  Estimates for the fourth quarter stand close to +3.5-+4% which would see us exit 2015 at a +2.7-+2.8% level. Good not great but a solid foundation heading into 2016 where GDP is targeted to expand at greater than 3% barring another polar blast or government shutdown. 

Leading Economic Indicators (LEI). LEI in July registered -.2% after a fairly robust June reading of +.6% and May’s +.6%. This minor setback against the fallback of the prior two months strong readings would suggest we remain in a Goldilocks environment, not too hot not too cold and steady as she goes mode.

Purchasing Managers Manufacturing Index (PMMI).  PMMI came in down 1.6% to +51.1%.  Across the board respondents were positive. Food and Beverage noted the positive impact from falling oil prices. Transportation pointed to the strong demand but a bit of softening. Computers and electronic pointed to the headwinds created by the stronger dollar which has since stabilized from the reporting period.  Machinery saw heavy demand from the automotive industry upgrades to equipment.  Lastly Furniture and related products pointed to strong business (see impacts from housing) while finding labor remains a challenge. So, we may be seeing a bit of softness in the headline figure but the underlying businesses appear on solid footing and well above the 50% break even level. 

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