There were few releases in this August summer week, but, nonetheless, those releases managed to send mixed messages to the markets. While Europe appeared to be poised for recovery, the U.S.' recovery seemed to falter. Yet within the U.S. and Europe, equity and bond markets responded with mixed results, some up and some down. The same mixed phenomenon occurred in the commodity markets: WTI fell while the Brent oil price rose; natural gas and metals prices were higher on the week.

Perspective:

When is bad news, good news? When softer economic data in the U.S. causes the Fed to delay tapering of the Federal Reserve's bond buying program, quantitative easing. Bad news causes interest rates to go back down and stock markets to go back up. Yet, too much bad news could initiate worry that the U.S. could fall back into recession. Therein lies the conflict and misdirection for the markets. The appearance that the U.S. economy is neither falling into recession nor rebounding has caused many to project what ISI's Ed Hyman calls "taper-lite." Currently the Fed is purchasing $85 billion in securities each month in addition to replacing the securities that have pre-paid or matured. Taper-lite is a slow ween of QE and could start by eliminating the replacement. My friend and former currency trader, Lou, likens tapering to “giving your kids a little less until they become strong and independent.”

While the economic messages were sparse and mixed, the personal messages could not be stronger these last weeks of August. Our son is marrying a terrific gal next weekend in Vermont. Last week we had visits from two of our children who joined us for a three-day cruise. I drove our daughter to Boston and stayed with the third daughter on Friday. The oldest two daughters came to Camden with their spouses for a pre-wedding week of laughs, lobsters and sailing. We are blessed that our kids are strong and independent; they are giving us many happy returns. The news is all good and good news is good news!

Economic Releases:

The July U.S. housing releases delivered mixed messages. Existing Home Sales surged to 5.39 million, above the range of expectations. The National Association of Realtors attributed the jump to a 'panic' that the increase in interest rates would result in much higher mortgage rates in the future. New Home Sales (blue in the chart below), on the other hand, fell to 394,000, well below the range of expectations; revisions to prior months subtracted 62,000 from the previous reported. The decline in Housing Affordability Index (red in the chart below) reflected the impact of resent increases in housing prices and mortgage rates. These statistics had greater import since housing will need to be a primary engine of growth in the economy as the Fed gradually removes accommodation.

Other Economic Releases

In another mixed economic signal, US Initial Jobless Claims rose 13,000 to 336,000 in the week of August 17th; the 4-week average of Claims fell to 330,500. Continuing Claims rose to 2.999 million. On the positive side, the Markit Purchasing Managers' Index (PMI) Flash for August rose to 53.9, further into the expansion zone.

In the Eurozone, the Markit PMI flash reports for Composite, Manufacturing, and Services rose to 51.7, 51.3, and 51.0 in August; all three exceeded consensus; Services crossed from the contraction zone into expansion. These Indices were led by Germany, whose PMI's for the Composite, Manufacturing and Services were 53.4, 52.0, and 52.4 respectively; all three beat consensus. Germany's second-quarter GDP matched consensus at +0.7%. France's PMI's fell short of expansion and consensus at 47.9, 49.7, and 47.7 respectively. The UK's second-quarter GDP was revised a tick higher to +0.7%, led by household consumption.

China's Flash Manufacturing PMI rose to 50.1, crossing just over the demarcation between expansion and contraction in August.

Equities Markets:

Equity markets were mixed on the week. In the U.S., the Dow fell, but the S&P 500 and Nasdaq rose on the week. In Europe, the FTSE and CAC fell, but the Swiss and DAX markets rose. In Asia, the Nikkei rose, but the Hang Seng fell on the week. The ML credit markets fell.

Bond Markets:

Softer data in the overall firm economic environment resulted in mixed messages in the bond markets as well. Bond yields and spreads were mixed across the globe.

Currencies & Commodities:

The U.S. dollar was mixed, falling against the Euro and Looney, but rising against the Yen and Pound. WTI oil prices fell, but Brent prices rose on the week. Metals and Natural Gas commodity prices rose on the week.

Who is John Davidson?

John W. Davidson, CFA, started writing these Comments more than a decade ago as a personal discipline when he was promoted to from portfolio manager to chief investment officer and CEO.

Most recently, he was the president of PartnerRe Asset Management Corporation, responsible for the management of PartnerRe's invested assets, which grew from $4 billion to $12 billion during his tenure. After joining PartnerRe in the fall of 2001, he hired the staff, built the trading floor and created the infrastructure to manage both fixed income and equity assets internally. He retired from PartnerRe at the end of 2008 and moved to Maine, where he focused on board work.

He has more than 35 years of industry experience, including positions with investment management responsibility for separate institutional accounts, mutual funds, trusts and insurance assets. Prior to joining PartnerRe, he served as president and chief executive officer of two other investment management companies. For various companies he has held positions as chief investment officer, chief economist, head of fixed income and portfolio manager. As a portfolio manager, Davidson managed and traded U.S. Government Securities as well as futures and options on fixed income instruments.

His real world experience is backed by a strong academic foundation, which includes earning a Master of Business Administration in finance and a Master of Arts in mathematics from Boston College, as well as a Bachelor of Arts, cum laude, in economics from Amherst College. He holds the professional designation of chartered financial analyst.

His experiences and credentials have brought him to the public as a television commentator and conference speaker. In addition to his frequent past appearances on CNBC, CNNfn, Bloomberg TV and Yahoo FinanceVision, he appeared as a special guest on Wall $treet Week with Louis Rukeyser. Reuters, Bloomberg and other business press services have quoted his views on the market. He has taught CFA preparation programs, as well as other courses offered by the Stamford and Boston CFA Societies, and the National Graduate Trust Officers' School.

Davidson is a natural leader in both his professional and personal life, having developed those skills early in his career as a naval officer. He spent three years on active duty, which included a year on the rivers of Vietnam, and 24 years in the Naval Reserve, from which he retired as a captain in 1994.

Davidson is treasurer and board member of the Camden Conference. He is also on the investment committee of the Pen Bay Health Foundation. He serves as an independent trustee for mutual funds.

In his leisure time, he is an active sailor, tennis player and skier. With his wife, Barbara, he renovated a 100+-year-old home in Camden, where they enjoy spending time with their two golden retrievers and having visits from their five children. He can be reached at jwdbond@me.com.