ABA Banking Journal - February 2013 - (Page 8)

the economy BY SCOTT ANDERSON Whistling past the graveyard The mood around the U.S. economic Stock volatility remarkably low outlook is pretty melancholy. It CBOE Volatility Index (VIX) 50% looks like 2013 will be another year of below-trend GDP growth of around 2%, with a chance that 40% a combination of sequestration spending cuts, federal government 30% shutdown, and uncertainty about the U.S. debt ceiling could further diminish economic prospects. Yet, 20% by merely glancing at financial markets, you would think the economy 10% was finally shifting into a higher gear of sustainable expansion. For example, look at the equity 0% market. The S&P 500 index is flirtJan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan ing with a five-and-one-half-year 2011 2012 2013 high, and has risen nearly 5% over Source: CBOE, FRED St. Louis Fed the past month. Perhaps more impressive is that stock-market volatility is almost unbelieveconomic conditions. If the ecoably low right now, given the economic and fiscal risks in the forecast. The nomic picture doesn’t soon confirm Volatility Index (VIX), a measure of S&P 500 volatility, has been trading this recent uptick in financial peraround 12.5—the lowest since early 2007, and well before the “Great Recesformance, the hangover for the marsion” took hold. The average VIX reading since 2011 is 21.0. kets could be palpable. Recent conThe U.S. equity market isn’t alone in this assessment. Equity markets in tractionary readings from regional Europe are up even more than the U.S. market over the past three months. manufacturing surveys for January, The hunt for yield and risk carries over into the fixed-income market as and the large decline in the Univerwell. Ten-year sovereign-bond yields in Italy and Spain have shrunk about sity of Michigan’s consumer senti250 basis points since last July. No sign of a Euro crisis here. ment measure for January could be Yet, the Eurozone is still in a recession—last I checked—and the IMF just the canary in the coal mine. U.S. cut its forecast for Eurozone growth in 2013 to –0.2% from a positive 0.2% payrolls and the unemployment growth forecast made last October. A combination of weaker growth in Gerrate will be important indicators to many and a deeper downturn in Spain helped push the IMF’s forecast lower. watch. If the unemployment rate Investors and business owners need to disentangle the signal from the holds at 7.8% or even moves higher, noise. Is this recent bout of financial risk-taking grounded in a real change that would be a bitter pill for the in the economic and financial landscape? Or is it just a mirage of progress equity markets to swallow. n being driven by central bank largess? Quantitative easing, or large-scale asset purchases, have become the go-to policy for major central banks around the Scott Anderson is senior viceworld. The Bank of Japan, bowing to government pressure, is the latest to president and chief economist for embrace nearly limitless stimulus by setting a higher 2% inflation target. Bank of the West, San Francisco, A dose of caution is probably warranted here. Central banks have shown Calif., and chairman of the they are much more adept at improving financial conditions than they are ABA Economic Advisory Committee. 8| ABA BANKING JOURNAL | February 2013

Table of Contents for the Digital Edition of ABA Banking Journal - February 2013

ABA Banking Journal - February 2013
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
“I’m not just a banker anymore”
Pass the Aspirin
Tech Topics
High-energy banker—a tale of four cities
What’s in it for the customer?
Wealth management goes holistic
Compliance Inbox
ABA At Your Service
Legal Issues
First Person

ABA Banking Journal - February 2013

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