The economic releases were mixed this week, but the U.S. Central Bankers commanded the attention of the capital markets. First, former secretary of treasury, Lawrence Summers, took himself out of the running to replace Fed Chairman Ben Bernanke when his term expires; his front-runner status went to Janet Yellen, vice chairwoman of the Board of Governors of the Federal Reserve System. The simplistic view is that Yellen is expected to be more dovish than Summers; the real differences are more complex. Secondly, most expected that the Fed would start to taper its monthly purchases of $85 billion bonds (QE) after its September FOMC meeting; the governors at that meeting decided that the economy was not yet robust enough to cut back on the purchases. The prospects for continued stimulus rallied both the stock and the bond markets on the week. Credit spreads narrowed; commodity prices for oil and the metals fell on the week. The U.S. dollar fell against other currencies, driven lower by the prospects of lower U.S. interest rates for a more extended period of time.

Perspective:

We are all calendar centric; that tendency comes by us honestly. This past week my wife and I planned a cruise to Northeast Harbor with intermittent stops. The trip, planned with friends, was not weather dependent, it was calendar dependent. We needed to fit the trip into the rest of the events in our lives and those of our friends. As it turned out, the weather was gorgeous, even though the wind was a little light; the one day we had some wind, it was blowing in exactly the wrong direction we needed to go. So, we motored most of the trip and had a great time.

When the Federal Reserve chairman said that the Fed might taper its purchases some time in the future, but that that action was dependent on the economy, all the commentators asked the "experts" for the date. Consensus built around September and therefore the expectation was for tapering following the September meeting. Just like the weather in Maine, the economy does not move a calendar schedule. Surprises in the most transparent of the Federal Reserves in my lifetime should not take place, but, this week, the markets were surprised. The surprise was not created by the Fed, but by Fed watchers who needed to translate the data-dependent Fed policy to calendar-dependent followers.

Economic Releases:

The FOMC surprised the markets by not starting to taper the purchases of bonds (quantitative easing or QE) as many had expected. Bernanke reminded attendees at his post-meeting press conference that the tapering was data dependent, not calendar dependent; he also pointed out the absence of inflationary pressures. In the September meeting the Fed released its own economic forecast. The table below shows the Fed's forecast along with the comparison to that which they issued after its June meeting. The Fed left its long-term GDP and inflation forecast little changed, but the Unemployment Rate was a little lower. For 2013, GDP and Unemployment were both lower than previously forecast.

The weekly Initial Claims for Unemployment showed solid improvement again this week and the prior week's special factor has been cleared to show that fewer than expected have lost their jobs. The week of Sept. 14, New Claims totaled 309,000, below the range of expectations. The four-week average of Claims (blue in chart 1) fell to 314,750. Continuing Claims (red in chart 1 and lagged by one week) fell to 2.787, a new recovery low.

U.S. Industrial Production (blue in chart 2) rose +0.4% in August; Capacity Utilization rose two ticks to 77.8%; both were below the mid-point of the range of expectations. The chart shows that August's change of Industrial Production was similar to the pre-Great-Recession levels, but the Capacity Utilization remained begrudgingly below the levels of 2005-2007.

Other Economic Releases

U.S. Housing Starts rose 891,000 in August; Permits rose 918,000; both numbers were below consensus. On the other hand, Existing Home Sales rose 1.7% to 5.48 million, above the range of expectations for August. For September, the National Association of Home Builders Index slipped a point from the highest reading since the frothy days of 2005, to 58. The Philadelphia Fed Survey of General Business Conditions surged beyond the range of expectations to 22.3; further north, the Empire State Manufacturing Survey slipped two points to 6.29 for September.

In the EU, the harmonized index of consumer prices (HICP) rose ony a tick; the year-over-year rate was 1.3%. The German ZEW Survey for both Current Conditions and Business Expectations both rose to 30.6 and 49.6 respectively in September. In August, UK Retail Sales fell unexpectedly -0.9%.

Equities Markets:

Equity markets surged on the news that the FOMC decided not to commence tapering at their September meeting, but, by the end of the week, some of the enthusiasm had waned. Nonetheless, equity markets managed positive returns across the globe on the week.

Bond Markets:

Bond yields fell across the globe (with the UK 10-year being the exception) on this week's news concerning the U.S. Federal Reserve.

Currencies & Commodities:

The U.S. dollar, influenced by the prospect of lower Fed-induced interest rates, fell against the other currencies. Oil and metals commodity prices also fell 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.