Camelot Portfolios Talking Points

Dead Weight in the ECB

As stagnation continues to plague the members of the European Union, council members decided to keep the status quo. In a press release statement from the European Central Bank (ECB), lending facilities will remain unchanged at 0% with present levels to remain constant well into the future (European Central Bank). Another decisions made by policy makers was the continued use of quantitative easing through asset purchases. The ECB will purchase €80 billion per month until at least March of 2017 (European Central Bank).This includes a continuation of corporate bond purchases of large companies like Nestle and Roche (European Central Bank). According to Mario Draghi, these policies are in line with the goal to converge inflation towards 2% in Europe (European Central Bank).

Looking at this from another angle, it is difficult to see any substantial progress by the ECB influencing economic policy for member countries. Overall, it seems that while Germany and France continue to have satisfactory economic conditions within Europe, Portugal, Italy, Greece, and Spain (PIGS) continue to hamper any efforts. Unemployment within PIGS continues to be considerably elevated between 10 and 23 percent (Trading Ecomomics). If we compare this to our states with the highest unemployment like Alaska and New Mexico, their unemployment is around 6.9 percent (Bureau of Labor Statistics). There are differences between states and countries, but the governance in monetary policy is still governed by a central bank. Collectively, to keep the Euro currency stabilized, it has to deal with significant pressures by all of its members. Outside of Germany and France, governments appear unwilling to change policies to allow monetary policy to work in their favor.


Insights from the District Governors

Every month and a half, the US governors for each reserve bank send information regarding their respective states into book call the Beige Book. It gives comprehensive views of the economic conditions in each state/district and what determines policy in the near future. Slow but continual economic growth continues to drive most of the districts coming from demand in housing and transportation services (Federal Reserve District). Loan and credit quality remain strong as well as delinquency rates remain low (Federal Reserve District). Compare this to a Beige Book in 2008-09, this points to an optimistic viewpoint by the Federal Reserve Bank. An area of concern by a majority of districts remaining on the table is a decline in industrial manufacturing. This seems to stem from the considerable decline in the oil sector, but stability is coming from aerospace and automobile manufacturing (Federal Reserve District).

Another interesting factor from most of the governors is pointing to pressures on wages. In New York, San Francisco, and Boston, employment agencies are reporting an increase in compensation negotiations (Federal Reserve District). The governors across the country believe the reason behind the pressure to increase wages is from the loss/reduction of health care benefits from many employers (Federal Reserve District). Shortages in health care benefits and health care workers is creating problems in other industries because of the need stabilize cost for employers (Federal Reserve District). It is interesting to review what the governors have to say. The overall positives in their remarks continue to point for a rate hike in December, if not more in 2017. 


Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Sarah Berndt, Portfolio Manager

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-


Bureau of Labor Statistics. Local Area Unemployment Rate. September 2016. 2016.

European Central Bank. Monetary Policy Decisions. Press Release. Frankfurt, 2016.

Federal Reserve District. Current Economic Conditions. 19 October 2016. 2016.

Trading Ecomomics. Jobless Rate. 2016. 2016.



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