Japan surprised the markets last Friday with greater stimulus for both its economy and the stock market. The Bank of Japan said it would increase its annual asset purchase program from 60 – 70 trillion yen to 80 trillion yen, and the Bank of Japan is going to triple the rate at which it buys stocks and property funds, where in the past it was mainly a bond-focused purchase program.
On top of this, Japan’s $1.2 trillion Government Pension Investment Fund is going to raise its allocation to both Japanese and foreign stocks to 25% each, up from 12% each, and cut its domestic bond stake from 60% to 35% of assets. Another 15% will go to foreign bonds. Tokyo’s market jumped 4.8% and sparked gains around the world, which is a big deal in a country where the culture is tremendously risk-averse and where bonds, not stocks, have been the investment of choice for not only the government but the individual investor as well.
Since Friday’s big jump, Tokyo’s market has been up another 2.8% in just four days of trading (the market was closed on Monday for a holiday). A 7.8% gain in five trading days is nothing to yawn at.
At home, markets have been hitting record highs once again. The latest catalyst was Wall Street’s belief that a GOP majority in both the House and now the Senate will be good for business if, for instance, business tax reform can be brought to bear. We’ll see about that. Politics is a messy and unpredictable game. I’d rather see markets moving higher on fundamentals than on election results.
For instance, Monday’s Institute for Supply Management manufacturing report was way better than expectations and showed that we remain in a strong manufacturing expansion. Meanwhile, the service side of the economy appeared to soften a bit for the second straight month in October, but the numbers still show clear expansion — just a little less than in August. The employment numbers inside the ISM service report keep getting better, however. The ADP report on hiring released Wednesday was also strong.
This morning, the Labor Department reported that unemployment dropped to 5.8% in October, its lowest level since July 2008, while new job creation surpassed 200,000 for the ninth month in a row. October’s gains were less than forecast, but August and September’s tallies were revised higher, reinforcing the image of a job market that is healing and growing.
And to that point, the lesser-known but equally important U-6 rate of total unemployment among the entire U.S. workforce declined by more than the headline unemployment rate, reducing the gap between the two further toward what we believe is a more normal level for the economy.
More workers depositing paychecks should mean a strong holiday shopping season, although consumer spending dropped slightly in September (the most recent data available) even as incomes rose. Auto and light truck sales also have slipped lately, but have been very strong all year. I don’t read too much into any one month’s data, but it could simply be that people decided to save a little more in anticipation of spending more at the end of the year, or found it prudent to cut back after making a large purchase, like a car, earlier in the year.
Saudi Arabia is playing with oil prices, lowering them for the U.S. in hopes, I figure, of making shale production here a bit less viable. Our imports from Saudi Arabia hit a four-year low in October and prices have now fallen under $80 per barrel.
Even closer to home, Vanguard is redesigning its website with a “clean, intuitive design.” Vanguard is also finally going to implement a two-step security feature for logging into the system and your accounts — something that needs implementing immediately, given the heightened risk of online attacks we’ve all heard about.
Unfortunately, Vanguard says this won’t happen until the end of the year, which thankfully isn’t that far away. But all this monkeying with the Vanguard website may be the reason I’m getting reports that accounts are disappearing and then reappearing or that the website simply stops working for a while. My recommendation: Stay alert. I wish I could tell you more, but that’s about as good as it gets when dealing with Vanguard.
There have been some pretty good possible phishing attempts on Vanguard investors lately. One example is a postal mail letter that looks like it’s coming from Vanguard Brokerage notifying customers that automatic email delivery of shareholder materials, like annual reports from outside funds, has been suspended. The letters offer up legitimate Vanguard website URLs as well as what may be some bogus ones where you are told to go to re-enroll. One is called myedocumentsuite.com, and the other I’ve seen is netxinvestor.com, but both end up at the netxinvestor website. These may be related to Pershing, but it’s weird that the company would use two different URLs to get to the same place. I’ve asked Vanguard about this but have yet to receive an answer. Until I find out more, if you get a letter like this, don’t click or type in the URL, but call Vanguard instead.
Senior Editor Dan Wiener and Editor/Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, a monthly newsletter that keeps abreast of recent developments at Vanguard, and the annual FFSA Independent Guide to the Vanguard Funds.
