The Last Days of Summer


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by Ralph Cole, CFA
Executive Vice President of Research

The U.S. economy was indeed stronger than first reported in the second quarter as estimates were revised higher this week when the commerce department reported that the U.S. economy grew 4.2 percent during the quarter. This pace fits with our narrative that the U.S. economy is truly getting healthier, particularly in the aftermath of a very harsh winter.

In fact, there was a lot to like about most of the economic reports this week. For example, durable goods orders grew 22 percent, led by airplanes; unemployment claims came in again under the 300,000 mark – yet another example of vitality in the labor markets; auto sales for the month of July were robust at over a 16 million annual rate of sales. In summary, current economic statistics suggest a sustainable expansion with moderate inflation.

Black magic may be the only explanation for ultra-low interest rates in the face of sound economic numbers. Our industry heuristic states that strong economic growth ultimately must translate into higher interest rates. Not so fast my friend. While the U.S. economy is growing quite nicely, Europe is suffering from falling growth rates, and plunging inflation which has contributed to record lows in interest rates throughout the Eurozone. For example, Germany’s 10-year bund fell to a .88 percent yield while 10-year debt yields touched 1.24 percent in France and hit a 2.22 percent in Italy. With European Central Bank chief Mario Draghi’s most recent speech in Jackson Hole last week, he essentially took perceived credit risk off the table for the Eurozone. With a compelling endorsement of U.S. style quantitative easing on the horizon, investors clearly are (for the time being) comfortable holding European debt.

Lower rates throughout the Eurozone have effectively put a bid under U.S. bonds. In the global market for debt, savers view U.S. debt as a good deal at these levels and continue to buy. Studies estimate that the downward pressure on U.S. rates from lower European rates is anywhere from 20–30 basis points. As you can see from the chart below, U.S. 10-year yields are at their outer-bounds relative to the yield on the 10-year German bund.

Chart 8_29_14

Our Takeaways for the Week

  • The U.S. economic expansion has taken hold, and looks to be sustainable throughout the second half of 2014
  • Lower interest rates around the world and continued quantitative easing by the Fed has kept a lid on interest rates … for now
  • The end of summer brings the anticipation of football season, and the end to QE infinity


200 Miles. 36 Hours.


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LynelleTarter_010_web_Posted by Lynelle Tarter, Marketing and Sales Associate

The Resources Worth Routing section of our blog typically shares information and data that go beyond investment management.

As a company that thrives on data, we’d like to share the numbers behind an event that employees of Ferguson Wellman and West Bearing recently participated in over the weekend. It’s an iconic race steeped in tradition that has been around almost as long as our firm.

As the name infers, the Hood-to-Coast relay starts at the base of Timberline Lodge and ends on the sandy shore of the city of Seaside. Both elite and non-elite teams descend a volcano, navigate through Portland, ascend the Coastal range and slope down to the Pacific Ocean. At the same time, a relay walk and a high school challenge start in Portland and follow the same course to the coast.





Here is the ultra-relay race and our firm’s involvement – by the numbers:

  • Number of years in existence: 33
  • Length of course: approximately 200 miles
  • Length of event time from start to finish: 36 hours or less
  • Participants: 18,000 runners and walkers
  • Logistics: 3,000 vans
  • Volunteers: 3,600
  • Number of legs: 36
  • Length of legs: range from 3.36 miles to 7.72 miles
  • Number of runners on teams: 12
  • Number of teams: Limited to 1,050 running, 400 walking and 50 high school teams
  • Registration: For 15 years, the event has filled up on the first day to sign up
  • Size and scope: The largest relay race in the world
  • Record for the course: 15:44:55 by Nike Mambu Baddu in 1995
  • Dollars raised for Providence Cancer Center in 2013: More than $800,000
  • Our team name: Marcus Arunnerus, paying homage to Roman emperor Marcus Aurelius on Ferguson Wellman’s coin logo
  • Number of years we’ve run the course: five
  • Our firm’s 2014 finish time: 32:07:35



Click here for to see a trailer from a documentary about Hood-to-Coast from 2011.

Note: Clicking on this link will take you to a third-party website. The information provided by this site is not endorsed or guaranteed by Ferguson Wellman. Clients should contact their portfolio manager with any questions about this topic.

The event has become a pilgrimage our firm both enjoys and suffers through annually. Laces crossed Marcus Arunnerus will make it through the registration process for 2015.   


The Talking Heads


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by Shawn Narancich, CFA
Executive Vice President of Research

A good indicator of financial markets adjusting to a slower rate of news flow is the frequency with which the same stories are replayed and debated in the financial press and on television. With retailers now wrapping up second quarter earnings season, Wall Street strategists and commentators have resorted to debating ad nauseum what will happen to short-term interest rates once the Fed ends its program of quantitative easing. Minutes of the latest Fed meeting this week revealed that the Fed will remain data dependent, letting incoming economic reports and anecdotal Beige Book reports tell the story of progress for the economy in general and for the labor markets and inflation in particular.

On the latter topic, policy makers received reassurance this week that inflation is not presently a problem, as headline CPI numbers came in spot-on with the Fed’s 2.0 percent target. Tame inflation indicates that labor markets, absent select areas in energy and manufacturing, still contain the sufficient slack necessary to boost output without spurring a wage spiral. As the old saw says, time will tell. In the meantime, investors seem to be tuning out the chatter as they bid equities to new record highs.

Like Sands Through the Hour Glass. . .

Believe it or not, we’re now halfway through the third quarter and, once again, the error of estimates appears to be on the downside with regard to economic growth forecasts. While this week’s housing statistics were encouraging, with July new housing starts up 16 percent sequentially, a key fly in the ointment was last week’s retail sales report, which came in flat with June numbers and continued a disappointing trend of sequentially slowing retail sales since May. At a time when international headwinds are increasing thanks to Europe teetering just above stall speed and China continuing to undergo a growth-slowing transition away from excessive investment, our forecast for 3 percent GDP growth domestically is starting to feel just a bit optimistic.


As tempting as it might have been to write-off last week’s poor retail sales report as a statistical anomaly when juxtaposed against increasingly positive employment numbers, considerable anecdotal evidence from retailers reporting fiscal second quarter numbers affirms the data. Two key bellwethers of American retailing – Wal-Mart and Target – both reported earnings declines on moribund U.S. sales, and investors have consistently overestimated the companies’ earnings power over the past six months. In addition, Macy’s surprised investors by uncharacteristically missing numbers and lowering sales guidance. Alas, this week brought some better news on the retailing front, with Home Depot reporting strong sales and earnings coupled with a boost to their full year earnings forecast. In contrast to the drubbing that Macy’s took, stock of the home improvement leader broke out to new all-time highs. Similarly, off-price merchandisers T.J. Maxx and Ross Stores both outperformed Wall Street expectations and were accordingly rewarded by investors. With retail earnings reports nearly wrapped up for the quarter, we observe that results are hit and miss, and that investors are best served to take a rifle shot approach to owning specific names advantaged by key trends in retail.

Our Takeaways from the Week

  • Stock prices remain resilient despite mixed economic data and geopolitical turmoil globally
  • Retailers are book-ending another quarter of better-than-expected earnings in general, though one with more cross-currents below the surface