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The ECB, Deflation and Tom Brady

Tom Brady Inflation

Following months of dialogue and bickering about the best way to fix Europe’s ailing economy, the European Central Bank (ECB) has embarked on a new course and has decided to follow in the footsteps of the Federal Reserve, the Bank of England, and the Bank of Japan.

Beginning in March, the ECB will coordinate the monthly purchases of 60 billion euro (which is about 68 billion dollars) in bonds with newly printed cash.

The bond buys are intended to last until at least September of 2016, amounting to about 1.1 trillion euro.  However, the purchases could go longer depending on whether it is meeting its goal for inflation.

So what concerns does this cause?  Well for one, the specter of deflation.  But there is also a heavy need to restore confidence and provide a better environment for economic growth in the 19 nations which share the euro.

It’s a lot to ask for from monetary policy alone.

So the first thing that happens is that government bond yields (Mom – that basically means interest rates) in Europe continue to trend lower. In fact, they are setting records in Germany, France, Spain, and Italy.

The euro depreciates against the U.S. dollar because lower interest rates make a currency less attractive to hold.  The aggressiveness of this open-ended commitment to buy bonds forced an additional 3.5% drop versus the dollar on Thursday and Friday. The dollar is currently at its highest level in over 11 years.

This is good for the U.S. consumer and for the U.S. traveler.  Imports into Europe will become more expensive, which is good for inflation (meaning that an increase in costs keeps deflation at bay) but bad if wages don’t accelerate.

Earnings Season

We follow Bespoke Investment Group for earnings research.  So far, about 179 companies have reported their earnings and revenue for the fourth quarter (4Q) of 2014.  Here’s where we stand:

  • The percentage of companies beating their revenue estimatesfor the 4Q currently sits at 60.1%. This number is currently right at the average of 60% that we’ve seen since 2001, but above the 57.2% that finished up the 3Q of 2014, and hovering around the 60.7% that we saw in the 2Q of 2014. Since the revenue readings bottomed out in the 4Q of 2011, quarter-over-quarter readings ping pong but the trend has been steadily moving UP for revenues.
  • The percentage of companies beating their earnings estimatesalso stands at 60%.  This is below the 62.1% final reading from the 3Q of 2014, but above the 58.6% final reading from the 2Q of 2014.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“MCM”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.   

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MCM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MCM is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.  

A copy of MCM’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures.  

Please Note: MCM does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MCM’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.  

Please Remember: If you are a MCM client, please contact MCM, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.  

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