TheChek News Flow

- Dassault Aviation today rolled back the curtains on the ultra long range Falcon 8X, the company's new flagship and the latest addition to the growing Falcon business jet family.

- Unveiled at Dassault's Bordeaux-Merignac facility before an audience of customers, operators, industrial partners and representatives of certification authorities, the 8X will offer the greatest range and the longest cabin in the Falcon line, along with the most extensive selection of cabin configurations available on any executive jet.

- Announced in May of this year at European Business Aviation Convention & Exhibition (EBACE), the Falcon 8X builds on the advanced performance and technological prowess of the popular 7X long range trijet, the most innovative and fastest selling Falcon ever. The 8X will offer a range of 6,450 nm (11,945 km) - and a cabin 3.5 feet longer than the 7X while affording the same low operating economics and remarkable operating flexibility for which all Falcons are known.

Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.

Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.

- Sees FY15 $14.00-15.00 v $14.57e (as given on 12/15), R$24-25B v $23.4Be

An Interview With ECB Executive Board Member Benoît Coeuré

WSJ: What are the prospects for quantitative easing after the results of the four-year ECB loans to banks and purchases of covered bonds and asset backed securities so far?

Mr. Coeuré: For me the question is not so much whether what we are now implementing works, as the measures that you mentioned were meant to address the environment that we had in the summer. The key issue now is whether the environment is changing to a point where we need to do more. What has changed is the confirmation of low growth and low inflation, and the oil shock which is obviously new.

I see a broad consensus around the table in the Governing Council that we need to do more. If we had been in a position to cut rates at the last meeting, we would probably have done so. It’s not that much of a question on whether we should do something, but more a discussion on the best way to do it.

WSJ: What other assets should you buy? Government bonds?

Mr. Coeuré: If we want to do more we obviously have to reach out to market segments where there is more liquidity and that is why the government bond market is the baseline option, which doesn’t necessarily mean we would only buy government bonds. That’s a discussion we will have in the Governing Council.

WSJ: Will you have the information you need by your next policy meeting on Jan. 22?

Mr. Coeuré: I don’t know what the flow of data will show between now and then. Ideally you would need enough time to assess what exactly is the pass-through from lower oil prices to core inflation and to know more about the second-round effects. On the other hand we don’t want to be behind the curve and act too late. I would expect the discussion at the Governing Council to be a balancing act between those considerations.

WSJ: How important is a very strong majority on the Council for QE?

Mr. Coeuré: It’s certainly desirable to have as much support as possible when it is about introducing a new instrument. No instrument is perfect. We have to weigh the pros and cons, and understand the unintended consequences. The more Governors standing by this new instrument, the safer you feel that the pros and cons have been weighed in the right way.

We need to design a solution in a way that mitigates the concerns of as many people around the table as possible. We have a good precedent with Outright Monetary Transactions. This was a new instrument that raised concerns around the table. We were able to design it the right way because we took concerns on board, and we are now going through exactly the same process.

WSJ: What about arguments that QE wouldn’t be effective in the eurozone?

Mr. Coeuré: That’s exactly why we want to discuss the way we design it. We are starting from a different place than the U.S. We need a European solution to a European problem. Moreover, our economy is more bank based which implies that any new instrument would have to complement what we’ve already done. Even if we buy government bonds, that does not suppress the need to buy ABS or covered bonds. It does not suppress the need to do our liquidity operations. It has to be a combination of instruments.

WSJ: What is your message to the QE skeptics in Germany and the financial markets?

Mr. Coeuré: The starting point is simple: the ECB has a narrow mandate which is medium-term inflation (of close to but below 2%) and today we are far from this number. We have both a moral and legal responsibility to deliver on our mandate.

I absolutely agree that very low sovereign yields weaken the incentives to run sound fiscal policies. The answer is not to ask the ECB to be an agent of the fiscal authorities. That’s not the way the European people have drafted and approved the EU Treaty. The answer is to be as strict as possible in enforcing fiscal rules, and that’s the role of institutions that are not the ECB.

WSJ: Inflation was 0.3% in November and is expected to weaken more. Are you behind the curve?

Mr. Coeuré: Our mandate is to bring inflation back closer to 2% over the medium term. Monthly headline inflation can be low provided it does not contaminate longer term inflation expectations. That is what we want to understand today. Headline inflation will be very low, maybe even negative in early 2015. That is mechanical. Is it bad or not? It all depends on the impact on longer term inflation expectations. It has the potential to be net positive only if you can reap the benefits on purchasing power and consumption without de-anchoring longer term inflation expectations.

WSJ: Is an inflation rate of 2% even achievable in the eurozone?

Mr. Coeuré: I may be old fashioned, but I still believe that inflation is always a monetary phenomenon, and so the question is more how fast do we go back to 2% and what is the kind of shock that keeps us from 2%. It is also true that in the eurozone we have an environment where markets are more rigid than in the U.S. and U.K. So it is likely that given any particular shock, inflation will take more time to go back to our objective.

WSJ: Economic output is still below its 2008 peak in the eurozone. Is there a risk that a Lost Decade turns into a Lost Generation?

Mr. Coeuré: Reforms are working in the periphery. You can see growth in Ireland. You can see unemployment going down in Spain. You can see the economy improving even in Cyprus. All eurozone countries are reforming their economies, but at different paces. It’s all moving in the right direction but it’s frustrating because it’s not fast enough in our view.

WSJ: Is it time for the eurozone to be more of a contributor to the global economy, rather than just depending on growth elsewhere through exports?

Mr. Coeuré: I think that there’s certainly a strong case to support domestic demand. As long as eurozone growth generally remains driven by external demand, it’s vulnerable to external shocks. We are living in a risky world. There are geopolitical risks. You cannot count on consumers in other regions to support your well-being. That’s why the discussion on investment and structural reforms is so important.

WSJ: Given the divergence in monetary policies among major central banks, will the euro be weaker?

Mr. Coeuré: We don’t have an exchange rate target. The likely course of events over the foreseeable future is interest rates remaining at an extremely low level in Europe and a normalization in other places, including the U.S. The logical market outcome would be for the exchange rate to adjust. I don’t want to pass a judgment on how much it can adjust or how much it should adjust.

WSJ: What will the ECB’s meeting minutes look like next year?

Mr. Coeuré: The Governing Council still has to make the final decision. It is likely that the minutes will be substantial. I expect the arguments not to be attributed, but they will give you a sense of the balance of views in the Governing Council. We will decide this week whether we disclose the names for the votes. In terms of substance and granularity they will compare favorably with Fed minutes.

WSJ: How long between meetings and the publication of minutes?

Mr. Coeuré: Four weeks. We want to publish the minutes after the second non-monetary policy meeting in case we would need to discuss them, which I don’t expect should usually happen.

WSJ: Europe has been heavily criticized in recent years. What are some reasons to be optimistic?

Mr. Coeuré: We are a group of highly advanced, rich economies with extremely good human capital and an extremely good capacity to innovate. The question is more how to move on and get rid of the legacy of the crisis, which we haven’t been able to do fast enough, partly because we had to rebuild the house while it was still on fire. We need further discussion on how to complete monetary union to make it more robust, which will in my view require some degree of fiscal union, with appropriate democratic underpinnings. It will be a long discussion, so we’d better start it early.

ECB’s Coeuré Sends Strong Signal on Asset Purchases

Executive Board Member Sees ‘Broad Consensus’ Among ECB’s Governing Council

FRANKFURT—European Central Bank executive board member Benoît Coeuré sent one of the clearest signals to date that the ECB is poised to embark on large-scale asset purchases centered on government bonds early next year, as the bank grapples with a weak economy and ultralow inflation.

In an interview with The Wall Street Journal, Mr. Coeuré also provided details of the ECB’s plans to publish minutes of its policy meetings starting next year, saying the accounts should be released four weeks after meetings and will be “substantial” in providing the balance of views among officials.

“I see a broad consensus around the table in the governing council that we need to do more” to raise inflation and boost the economy, Mr. Coeuré said in the interview, conducted late on Tuesday at his office in the ECB’s new skyscraper headquarters in Frankfurt.

Other officials, including ECB President Mario Draghi , have signaled that the bank is ready to embark on broad-based asset purchases, known as quantitative easing, if needed to keep inflation from staying significantly below the ECB’s 2% target for too long.

Mr. Coeuré’s comments were noteworthy in that they suggest the threshold for action has now largely been met, and that officials have moved to the design phase of a quantitative-easing program. Central banks in the U.S., U.K. and Japan have used this policy extensively to reduce long-term interest rates.

His comments underscored the divergent paths being taken by major central banks. The Federal Reserve and Bank of England are expected by analysts to start raising interest rates next year. However, the ECB’s easy-money policies will stay in place for the foreseeable future, Mr. Coeure said. The “logical market outcome” of these trends is that the euro’s exchange rate should adjust further, he said, adding, “I don’t want to pass a judgment on how much it can adjust or how much it should adjust.”

Mr. Draghi said after the ECB’s last meeting on Dec. 4 that officials would reassess their policies in early 2015. Expectations for further action have intensified amid plunging oil prices, which economists expect to pull eurozone consumer prices into negative territory on an annual basis.

“What has changed is the confirmation of low growth and low inflation, and the oil shock which is obviously new,” Mr. Coeuré said.

He declined to say whether the ECB would have enough information when it meets on Jan. 22 to pull the trigger on QE. “Ideally you would need enough time to assess what exactly is the pass-through from lower oil prices to core inflation and to know more about the second-round effects. On the other hand, we don’t want to be behind the curve and act too late,” he said.

If the ECB does embark on QE it would likely be despite the objections of one of its most powerful members, German central bank head Jens Weidmann, who has signaled fierce resistance to the program, partly on the grounds that it may weaken pressure on European governments to shrink debt and reform their economies.

Mr. Coeuré appeared sympathetic to these concerns. “I absolutely agree that very low sovereign yields weaken the incentives to run sound fiscal policies,” he said. The answer, he said, is to enforce budget rules set by the European Union, which is outside the ECB’s remit.

But he stressed that the ECB can’t turn a blind eye to low inflation, which was 0.3% on an annual basis last month. “We have both a moral and legal responsibility to deliver on our mandate,” Mr. Coeuré said.

He played down concerns that the ECB would only be able to move forward with QE over a considerable number of objections from the bank’s 24-member executive board. He offered the ECB’s conditional bond purchase plan in 2012, known as Outright Monetary Transactions, as an example of how the ECB could reach a strong majority in favor of QE.

Mr. Weidmann was the sole dissenter on the OMT program, which hasn’t been used and has been credited with easing euro breakup fears.

“We were able to design [OMT] the right way because we took concerns on board, and we are now going through exactly the same process,” Mr. Coeuré said. “The more governors standing by this new instrument, the safer you feel that the pros and cons have been weighed in the right way.”

Turning to the minutes of ECB meetings, Mr. Coeuré said the description of the policy discussion won’t include individual board members’ arguments, and that officials haven’t decided yet whether to keep votes anonymous.

Although recent market weakness is unnerving investors, those who excel at calling market turns remain bullish.

Next year will be as good for stocks as this year was. That at least is the judgment of the market timers who have done the best job in the past of calling the market’s turns. In contrast, the timers who have the worst track records have most of their money out of equities.

Another bullish straw in the wind comes from a ranking of industry sectors according to their popularity among the best-performing investment advisors. The sectors that the top performers currently like the most are not those that have performed the best prior to past bull market tops.

None of this amounts to a guarantee that the bull market in stocks will last another year, of course. But to be bearish right now, you in effect have to bet that those who have exhibited the worst market timing abilities will now get it right, while those with the best records will be wrong.

Late last year, I devoted a column (see “Top Market Timers Stay Bullish,” Nov. 2, 2013) to the contrasting market outlooks of the best and worst market timers, reporting that—as they are today—the best were overwhelmingly bullish and the worst were not. Since then, the stock market has produced a double-digit return; the Wilshire 5000 index, which represents the combined market value of all publicly traded stocks, has gained more than 15% (assuming dividends were reinvested).

Consider the 25% of Hulbert Financial Digest-monitored stock market timers with the best track records over the last 20 years. Currently, they on average are allocating 84.9% of their stocks-versus-cash portfolios to equities, which is almost identical to their consensus exposure in November 2013. The worst-performing quartile of market timers, in contrast, are allocating an average of just 38.1% to equities.

A similarly bullish conclusion emerges regardless of the performance period used to define the best and worst quartiles of market timers. Over all time periods from as short as the last 12 months to as long as the last two decades, the best timers are far more bullish than the worst timers.

You may be wary of drawing a bullish conclusion from this best-versus-worst contrast, given that the exposure level among the best quartile of timers for 20-year performance is almost identical to where it was 13 months ago. Might those top timers always be bullish? If so, their current bullish posture tells us more about the bullish market environment of the last 20 years than about what the future may hold.

But the top timers are not perma-bulls. Each of them has outperformed a buy-and-hold in the stock market over the last two decades, which would not be the case if they were always recommending a fully invested posture.

Sectors Most Popular With Top Performers

Next let’s look at which sectors are most and least popular among the best-performing investment advisors. For this purpose, I need to focus on a different group of advisors than the market timers who are the basis of my best-versus-worst contrast. These advisors recommend specific stocks, unlike the market timers who call turns in the overall market.

Over the years, I have found that one of the best ways of defining this group of top advisors is to include only those who have great track records over both the short and long terms. By doing that we eliminate from consideration those advisors whose good record is due primarily to chance, as well as those whose recent advice has been out of sync with the market.

Specifically, I include only those Hulbert Financial Digest-monitored advisors who have beaten a stock market index fund over the last 15 years, and I then narrow the group even further to include just the 15 with the best returns over the trailing 12 months. The accompanying table shows the number of stocks from these top performers’ model portfolios that appear in each of the broad industry groups (as defined by the Dow Jones industry classification system).

To place the data in this table into context, I turn to Ned Davis Research. They studied sector performance in the last three months of every bull market since 1970, and found some distinct patterns. The two consumer-oriented sectors typically perform the best during late-bull-market periods, while Financials and Utilities do the worst.

The popularity ranking in this table therefore is not what we would be seeing if we were in the last three months of a typical bull market. Perhaps the best piece of data is the popularity of the Financials group, which is the third most popular of the 10 groups. Furthermore, as you can see from the column in the table showing the number of times stocks in this sector have been upgraded by a top performer over the last three months, the Financials group’s popularity is increasing.

It’s important to stress that the market timing insight we can get from the sector popularity rankings is primarily for the longer term—as, indeed, is also the case for the best-versus-worst contrast discussed above. During the market correction in 2011, for example, both of these indicators remained bullish. So it would not be inconsistent with the top performers’ bullishness for a correction to occur during 2015.

But, assuming the top performers are right, such a correction—if it were to occur—would not be the beginning of a major bear market.