The economic releases, particularly in the U.S., were softer this week. Nonetheless the capital markets reacted to the easing of geopolitical risks surrounding Syria. Equity markets rose on the reduced geopolitical risks; bond markets rose on softer economic data. Oil and metals commodity prices fell on the week with the easing of Syrian tension. The U.S. dollar fell against the European currencies and the Looney (The Canada dollar is referred to as a Looney because it has a picture of a loon on it).

Perspective:

This past month, University of California-Berkeley professor Emmanuel Saez updated his previous paper, Striking it Richer: The Evolution of Top Incomes in the United States, using preliminary IRS estimates for 2012. The findings of the paper are that the top 1% captured 95% of the income growth during the recovery; most of those gains occurred in the last two years of that period. In recovery, real growth in Income was 6%; the top 1% experienced growth of 31.4% while the bottom 99% experienced growth of .4%. The vast majority of the U.S. population has experienced an anemic recovery in their incomes.

Table 1 is taken from Saez's paper. The top 1% have experienced the biggest increases in income in recovery as well as the biggest losses in recessions. The next 4% and 14% of the population have also increased their percentages of income over that same time period, but their increases since World War II have been less dramatic. The Bush-era tax cuts have certainly contributed to this, but other factors have also caused this divergence. As evidence, the share of total income accruing to the top 1% has been increasing for more than 25 years since falling to its low points in the 1970s, well before the Bush-era tax cuts took place. The rise of emerging market economies have put pressure on wages on the lower end of the wage scale over the past decade. This recovery has been led by corporate profits and the capital markets, not consumer spending; the recovery has been less robust than recoveries in the past. Whatever the causes, this report will be sited by the politicians for their own personal agendas.

Your thoughts are welcome...

Economic Releases:

U.S. Retail Sales (blue in Chart 2) rose only +0.2% in August; the fact that the August number came in at the low end of expectations was only partially offset by the two-tick upward revision to +0.4% in July. Without the more volatile automobile segment, Core Retail Sales (red in Chart 2) rose only a tick; July's core was revised up two ticks to +0.6%.

Other Economic Releases

This week's 31,000 drop in Initial Jobless Claims to 292,000 may been a false-positive due to computer upgrades in two states; nonetheless, the four-week average dropped to 321,250. Continuing Claims dropped 73,000 to 2.871 million. On the softer side, September's University of Michigan Consumer Sentiment dropped 7 points to 76.8. The August PPI showed no inflationary pressures; PPI rose only +0.3%; Core (less food and energy) PPI was flat on the month.

Industrial Production in the European Union fell -1.5% in July; France's IP fell -0.6%. The UK's Labor market improved a bit in August; Unemployment dropped a tick to 7.7%.

Industrial Production in China increased +0.94% in August for a year-over-year change of 10.4%; Retail Sales increased +1.17%; both numbers were a touch better than expected.

Equities Markets:

In the face of softer economic data, most equity markets rose with the potential agreement on addressing Syria's chemical weapons. Declining oil prices caused the natural resource-rich Canadian equity market to decline.

Bond Markets:

Bond investors are more tied to economic data and expectations for Central Bankers; this week bond markets rose (and yields declined) on softer economic data, particularly in the U.S. Credit spreads were also a bit narrower, which provided positive returns to the credit markets for the week.

Currencies & Commodities:

The Syria premium on oil and metals commodity prices eased this week with the appearance of an agreement that would avoid a U.S. air strike. Commodity prices of oil and metals declined on the week. The U.S. dollar declined against the European currencies and the Looney, but rose against the Yen 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.