Tuesday, September 30, 2014

Complete Dog Poop!

"Plastic bags okay sir?"... "Yes please", I always say. I'm a hardcore environmentalist. And anytime I see someone in the checkout lane request paper bags I---being a true tree-hugger---cringe and think to myself, doesn't he/she know what he/she's doing to our planet?

Just kidding, I choose the plastic bags because I can carry like 16 of them from the trunk to the kitchen in one trip. Plus, we have a cupboard full of them that we use to pack snacks, pick up dog poop and a number of other functions. Truly, we use them over and over again, except, that is, after we scoop poop.

While I don't know that we'd reuse paper bags any less than we do plastic, I do know that we couldn't stuff near as many into that cupboard. Therefore, most would end up in the recycle bin sooner than do the plastic bags.

I just heard that my governor, for the sake of the environment, signed a bill that would eliminate my plastic bag option. Honestly, my first thought was indeed about trees. I recall a few years ago when all the hullabaloo was about saving trees. Lumberjacks were imperiled by metal objects inserted into trees by environmentalist terrorists. And now the movement has successfully lobbied the California governor into signing a bill that will not only result in the killing of more trees, but in the emitting of more pollutants into the atmosphere, greater energy consumption, greater water consumption (we are experiencing an epic drought here by the way), the bogging down of recyclers and the production of more solid waste. And, to top it off, paper bags don't degrade much faster than do plastics. My, the irony! Here's Jane McGrath on the topic:
Causes pollution: Paper production emits air pollution, specifically 70 percent more pollution than the production of plastic bags [source:Thompson]. According to certain studies, manufacturing paper emits 80 percent more greenhouse gases [source: Lilienfield]. And, consider that making paper uses trees that, instead, could be absorbing carbon dioxide. The paper bag making process also results in 50 times more water pollutants than making plastic bags [source: Thompson].

Consumes energy: Even though petroleum goes into making plastic, it turns out that making a paper bag consumes four times as much energy as making a plastic bag, meaning making paper consumes a good deal of fuel [source:reusablebags.com].

Consumes water: The production of paper bags uses three times the amount of water it takes to make plastic bags [source: Lilienfield].

Inefficient recycling: The process of recycling paper can be inefficient -- often consuming more fuel than it would take to make a new bag [source: Milstein]. In addition, it takes about 91 percent more energy to recycle a pound of paper than a pound of plastic [source: reusablebags.com].

Produces waste: According to some measures, paper bags generate 80 percent more solid waste [source: Lilienfield].

Biodegrading difficulties: Surprisingly, the EPA has stated that in landfills, paper doesn't degrade all that much faster than plastics [source: Lilienfield].

In my humble view, the movement is so anti-market that they can't see the forest for the trees. And of course your politician doesn't give a hoot (owls nest in trees by the way) about the true environmental, or economic, impact of a given piece of legislation. He'll side with the side (the environmental movement or, perhaps, the grocer who'll profit mightily by charging the customer the ten-cent per bag fee, or the producer of the winning product) that feathers his nest...

Monday, September 29, 2014

Market Commentary (audio)

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Sunday, September 28, 2014

Why the bulls are bullish on the U.S. economy --- AND --- The Cliff Lee Theory...

When debating the merits of the present bull market, the believers mantra often includes some line about how big bear markets are virtually always recession-induced. And that there’s no recession on the foreseeable horizon. While I won’t condemn nor condone their prognosticating the market (not this time anyway), I will say that recent, and historical, evidence—with regard to no U.S. recession in sight—weighs heavily in their favor.

For starters, as I’ve been reporting to you over the past few weeks, recent data tells an optimistic story about the outlook for the U.S. economy. Research firm Markit’s chief economist, Chris Williamson, summed up our present state of economic affairs in this statement following last Thursday’s release of the Composite Purchasing Managers Outlook Index for August:
The US economy is enjoying its strongest spell of growth since the financial crisis, according to the PMI surveys. Although the pace of expansion slowed to a four-month low in services in September, the rate remained buoyant and accompanies a similar boom seen in manufacturing. Taken together, the two PMI surveys have posted the highest quarterly average seen since data were first collected in 2009 in the three months to September.

The economy therefore looks set to have expanded at an annualized pace of around 3.5% in the third quarter (a 0.8% increase in GDP on the second quarter). Growth also looks set to remain strong, with inflows of new orders across the two sectors rising in September at the fastest rate since June.“Inflows of new work are in fact so strong that companies are unable to fulfill orders with current workforce numbers. Backlogs of work showed the largest rise in survey history as a result, prompting companies across both sectors to boost payroll numbers to the greatest extent since June.

Policymakers will be cheered by the strong economic performance in September, especially as it suggests that the economy has shown resilience to the prospect of quantitative easing ending in October. However, the Fed will also be worried by price pressures picking up to a post-crisis high, which suggest that calls for interest rates to start rising sooner my grow louder.

As for the historical evidence, here’s a graph (click to enlarge) that shows how past recessions (outlined in red) didn’t occur without having been preceded by a bottoming in the unemployment rate (the yellow line). Notice the present trend—looks pretty safe for now:

Unemployment and recessions

And here’s one (click to enlarge) showing how past recessions (outlined in red) hadn’t occurred without having been preceded by an inverted yield curve (the blue line represents the yield on the 3-month t-bill, the orange line is the yield on the 10-year treasury bond). That’s when short-term interest rates turn higher than long-term interest rates; an ominous indication of pessimism—as investors shun short-term treasuries (forcing their yields higher) and buy low-yielding longer-term treasuries. Only one who sees real near-term danger would buy a low-yielding long-term instrument over a comparably or higher-yielding short-term instrument. Their bet is that the economy is about to tank, sending interest rates yet lower and sending the market value of their existing longer-term bonds higher. I placed arrows at past interest rate inversions. Notice the present healthy gap between  3-month and 10-year treasuries:

Inverted yield curves and recessions

The St. Louis Fed publishes what it calls the Financial Stress Index. It aggregates seven interest rate series, six yield spreads and five other indicators. It is understood that these data series, each capturing an aspect of financial stress, move together as the level of financial stress in the economy changes. The average value for the index is zero (beginning in 1993), which represents normal financial market stress. A move in the index below zero denotes below-average stress, while a move above zero denotes above-average financial market stress. Notice (click to enlarge) the moves above zero preceding the past two recessions, and notice the current historically comfortable reading:

Recessions and the St. Louis Fed Financial Stress Index

The National Bureau of Economic Research (NBER) is the official arbiter of recessions. It is common thought that four indicators weigh the heaviest on their analysis (although they make reference to a number of others on their website): industrial production, real personal income (excluding transfer payments), nonfarm payrolls and real retail sales. University of Oregon economics professor Jeremy Piger maintains real time recession probabilities by melding these four indicators into a Recession Probabilities Index. Notice (click to enlarge) the upward move in the index that preceded each of the past seven recessions, and notice its current position (no worries for now): 

Recession Probability Index

The Cliff Lee Theory:

Back in the fall of 2010 my son Nick and I were lucky enough to find ourselves in row 24, right behind the catcher, of AT&T Park (home of the San Francisco Giants) during Game 1 of the World Series. On the ride to the game Nick shared with me his deep concern over the Texas Rangers’ starting pitcher selection, Cliff Lee. At the time Lee was a post-season phenom, having won all seven of his career post-season appearances. When the guy took the mound during the playoffs or the World Series, he simply didn’t lose (one could’ve created a chart back in 2010 that graphed Cliff Lee’s post-season appearances and post-season wins. Seven spikes in the graph, seven of the same outcomes). My response, “c’mon dude, think about it, we want them to start Lee. He’s way overdue for a loss.” Nick recalls that conversation every time I suggest that a winning streak (these days it typically has to do with stocks and bonds [or, alas, our personal basketball duels]) can’t go on forever. He calls it “the Cliff Lee Theory”.

My point? While there’s a grand canyon of difference between the breadth and logic behind the predictive qualities of unemployment rates, inverted yield curves, etc., and the post-season win record of a big league south paw (yeah, it's a stretch to apply the CLT to economic indicators), I remain humble as I chart the history of recessions and bear markets. Sure, a recession in the near future would require a never-before reasoned explanation, yet that doesn’t mean it can’t happen... 

Oh, and by the way, Lee lost that night...

Thursday, September 25, 2014

So what the heck's going on this morning??

So what's on the market's mind this morning, as it sells off like it hasn't since July 31st? Well... being that the mind of the market is the collective mind of thousands upon thousands of investors, any commentary that might offer up an answer is pure speculation. So with that out of the way, here's my pure speculation:

In my early morning audio, which I'm sure you listened to first thing this morning, I suggested that the headlines suggested that the then 120 Dow drop was in reaction to weak durable goods orders and woes at Apple. If indeed the durable goods number is a contributing factor, I don't believe it's due to the dramatic drop---in that that was all about Boeing. I'm guessing it was the good news in the report that would inspire angst in traders---particularly when you add in this morning's prediction by Dallas Fed President Fisher that the first increase in the fed funds rate will come as soon as next March. Remember, a large contingent of traders are trading on the Fed. In terms of Apple, sure, it's a factor---in that it is no small component in the major averages (responsible for 20% of this morning's NASDAQ pullback)---ex the Dow. Should you worry about Apple? At 14 times this year's estimated earnings, with the immediate success of the iPhone 6 (yes, I know you can bend the 6+), with the payment system, the coming watch and its partnership with IBM (finally going after the business market), I don't think so.

So what else? Well... there's Putin threatening to seize foreign assets in reaction to heightened sanctions. As I've suggested throughout the Ukraine experience, Russia has become too dependent on cross-border trade to go too deep into this conflict without doing serious harm to its economy. If Putin indeed seizes foreign assets, which he may very well do, he runs the risk of setting a modern-day precedent that could cause his country major long-term economic pain. European stocks seemed to sell off on that news.

Then there's the strong U.S. dollar. While one shouldn't gripe about his currency gaining strength, commodity related sectors (they tend to correlate negatively with the dollar) which, alas, are some of my current favorites, have been taking a real hit---and they are no small component in the major averages. Plus, a stronger dollar makes U.S. exports more expensive for our overseas customers. So, make no mistake, there is dollar-related pressure on the multinationals that comprise the major U.S. stock averages. Of course, longer-term, there's a huge silver lining to a stronger dollar. For one, lower oil prices are huge for car-driving consumers, whose lifestyles improve as their gas bills decline. For another, while exporters may prefer a weaker dollar, a stronger dollar makes the inputs they import from abroad (which is a big deal) become less expensive and can serve as an important offset to the negatives.

I could easily come up with a few more potential factors, but I'll leave off with the above. And leave you with a calming (hopefully) reminder: While---as you know (right?)---a constantly rising stock market is not only not normal (impossible even), it's not healthy. And while we'll never successfully time the corrections (hopefully because we'll never try), we know they'll come and, if we're thinking straight, we'll welcome them as healthy breathers that purge a few excesses in the process.

Market Commentary (audio)

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Tuesday, September 23, 2014

Market Commentary (audio)

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Monday, September 22, 2014

Market Commentary (audio)

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Sunday, September 21, 2014

Finding Value --- AND --- An Economic Update...

Professionally, I see the world from the top down. I pay attention to sectors and regions, as opposed to individual securities. This approach virtually eliminates the business (or managerial) risks associated with investing in a small number of individual stocks. As I've reported of late, I presently see the U.S. equity market as a mix consisting of overvalued and fairly valued sectors, with just a couple, in my view, remaining undervalued (and not by a lot). Fortunately, most of the fairly valued, and both of the undervalued, sectors possess cyclical appeal. Of course when I'm talking cyclicality, I'm talking about the economy.

Last week's smorgasbord of (U.S.) indicators, when taken in the aggregate, came in warm enough, but a little cooler, in my view, than the immediately preceding weeks. Here's a brief summary of last week's log followed by message for the day:
THE EMPIRE STATE MANUFACTURING SURVEY came in well above expectations. However, an under the surface look shows key data, such as employment, not as robust as the headline result suggest.

U.S. INDUSTRIAL PRODUCTION surprisingly declined last month (-1% vs +.3% estimate, and +.2% in July). However, automobile production led the decline which is probably due to retooling that looks to have occurred later this year than usual.

U.S. CAPACITY UTILIZATION RATE declined to 78.8%. That's an interesting development. One would expect that based on recent indications---that the U.S. manufacturing sector is gaining momentum---that capacity utilization would begin stretching, not contracting. This will be one to watch going forward. Certainly good news for folks worried about sooner than previously expected Fed tightening...

THE ICSC WEEKLY RETAIL REPORT dipped noticeably. And surprisingly, given what I've noted in recent retail numbers and consumer sentiment. Likely a lull after back to school...

THE JOHNSON REDBOOK weekly reading on retail confirms the ICSC results.

THE PRODUCER PRICE INDEX FOR FINAL DEMAND (PPI-FD) came in flat; weighed down by the recent plunge in oil prices.

MBA PURCHASE APPS surprisingly (in light of rising mortgage rates) bounced back.... go figure! Perhaps home buying isn't all about mortgage rates... or, perhaps folks get busy and buy when they fear rates are rising...

U.S. CPI came in low... Shouldn't be a huge surprise considering the recent plunge in energy prices.

THE FED INTEREST RATE ANNOUNCEMENT TODAY maintained the "considerable period" language, QE ending next month and continuing to reinvest principal payments in its portfolio. When they finally tighten, they'll start with the Fed funds rate, then raise the interest on excess reserves, then go to reverse repos, etc...

In contrast to the last homebuilder sentiment survey and last week's jump in new purchase mortgage apps, AUGUST HOUSING STARTS disappointed.

This week's big drop in WEEKLY UNEMPLOYMENT CLAIMS was almost too good (too big) to take seriously (down 36,000 to 280,000). Ongoing claims dropped noticeably as well... Promising news for the labor market...

The data within the PHILADELPHIA FED SURVEY tell a pretty strong economic story (strong move in the employment components) .

THE U.S. INDEX OF LEADING ECONOMIC INDICATORS ROSE .2% IN AUGUST. Missing the estimate of .4%... This reading is consistent with a slight softening in the data over the past week.

An economy running not too hot and not too cold is heaven for the bulls who are ultimately concerned with when the Fed will begin raising interest rates. Fears that might be sparked by the improving employment picture are effectively offset by readings such as the low CPI and the decline in capacity utilization. Another thing those bulls have going for them is the present economic state of much of the rest of the world. With a few exceptions (such as Brazil, Mexico and India), the rest of the world is experiencing either very little by way of inflation pressure or fear over outright deflation (keeping foreign interest rates remarkably low). I don't suspect that the Fed is interested in putting more upward pressure on the dollar (it's been on quite the run of late) by getting aggressive with interest rates.

And speaking of the rest of the world, while on balance it struggles economically, that's where I'm finding attractive valuations (worries over the economy can make for attractively valued stocks). The question is, does one wade into those cheaper markets now, or wait for signs of sustainable recovery? The thing about asset allocation is that if you forever wait for the sun to shine before adding a position or two, the fact that markets anticipate means that you forever miss the opportunity to pick up undervalued assets. Of course the flip side is that, generally, assets are cheap because they deserve to be cheap, and they can remain cheap---or get cheaper---long after you add them to your portfolio.

So then---acknowledging that cheap assets may remain cheap or get cheaper---we must ask ourselves: What's more likely to get cheaper (lose value) going forward, already cheap stuff or expensive stuff? And/or, what's more likely to rise in price going forward, already expensive stuff or cheap stuff?

While I believe value remains in certain sectors within the U.S. economy (particularly if present economic trends hold)---and that bear markets (not necessarily corrections) are recession-born phenomena (and there's no U.S. recession in sight)---I say, within reason, that we begin migrating a bit of our portfolios toward the cheaper stuff abroad. Which, if you're our client, and you're light on international exposure, is what I'll be saying to you during our next review meeting (if not sooner)...

Friday, September 19, 2014

You'll not find "confident entrepreneurship" among the omniscient observers...

What a week this has been! The FOMC meeting, the Scottish independence vote and the biggest IPO ever.

Breaking it down:

The Fed left interest rates alone and left the word "considerable"---describing the time period between now and the first rate hike---in the post-meeting announcement...

The Scots, in a 55/45 vote, decided not to end their 307-year marriage to the UK...

China's baby, a very big baby, chose a bunch of Yankees to take it public. Those of you who succumb to the popular fantasy that China would aim to do Americans harm are, well.... I'll leave it with fantasy...

For today, we'll focus on the Fed:

While listening to Janet Yellen's post-FOMC meeting press conference something occurred to me: As I observed the movements in the prices of various countries' stocks and currencies, commodities, and government bonds (the four monitors that occupy one of my screens), I thought to myself, traders are moving these prices minute by minute second by second as they gauge the impact on overall sentiment of the comments of the U.S. Federal Open Market Committee.  Whether a Fed move, or statement, today will impact the economy this year, next, or ever is not something they're the least bit concerned with. They need to make a directional bet for today, that's about it...

And, you know, traders---these days---own the Fed. That is, the Fed is clearly concerned with the potential near-term market reaction to their every utterance. 

Our clients hear from me constantly that a 10+% drop in stock prices (a "correction") would be a most healthy occurrence right about now. And while they typically nod their heads in agreement, I know that when that correction finally arrives, palpitations will do away with those affirmations. I suppose, thus, that the Fed frets a lot about a plunge in consumption that might occur amid plunging asset prices (i.e., palpitating hearts make for white-knuckled consumers) . After all, the real estate/credit bubble bursting spawned the "greatest recession since the Great Depression".

So let's look at that desperate aversion to asset deflation: What happens when, say, the stock market or the real estate market takes a hit? Of course owners aren't happy. But on balance is it truly such an awful thing? I guess that depends on whether you're an owner or a prospective owner. And whether you're thinking short-term or long-term. With respect to stocks, if you're an owner and you're hoping the market will continue higher for as long as you remain an owner, you're, frankly, deluded. And if you're emotional well-being is dependent upon your portfolio rising year in and year out, I strongly recommend you get out---and right now. Not that I think the next great bear market lurks around the next corner (I'm agnostic, actually), it's that corrections and bear markets are unavoidable, essential even, stock market phenomena.

If  you're a prospective owner, well... I guess a plunge in prices would be a very nice thing for you. You'd be buying cheaper. But apparently you're not the party the Fed concerns itself with. Nope, the Fed is hell-bent on pulling every conceivable string to avert the next great, or modest even, opportunity for buyers to pick up long-term assets on the cheap. And in its efforts, it inspires speculators to invest in assets and derivatives that they believe will respond most aggressively to its machinations---as opposed to the things that might prove most productive in the long-run. And that---the piling into certain things (treasury bonds, mortgage backed securities, real estate, emerging market currencies, for example) is where bubbles come from. Better to leave asset prices to the market.

Not that the market is by any means perfect, but---left to its own devices---it does perfectly respond to the consequences of imperfect business decisions. It takes care of mistakes by re-pricing them. And in that process, the seeds of future success are planted.

The powers that be---Fed governors in my example---either lack faith in the market, or are ultimately concerned with reputational risk should they allow it to re-price things accordingly.  

Here's Israel Kirzner in his 1966 classic, , with an example of how the market turns error into opportunity:
It should be noticed, however, that disappointingly low prices for tangible things, do not necessarily mean that these things will be put to uses for which they were not originally planned. It is still entirely possible that the ovens may yet be sold to bakers. The low oven prices may indeed spell severe losses for the oven manufacturer. But these low prices may make it just worthwhile for the baker to continue baking bread. What has happened in this case is that the entrepreneurial error on the part of the oven-manufacturer has channeled resources into a branch of production (bread baking), where these resources "ought not" to be employed, as judged from the view point of an omniscient observer. In other words, perfect foreknowledge of market conditions on the part of all entrepreneurs would have inspired multi-period plans in which bread baking would now be a smaller industry than is now in fact the case. But, the error on the part of the oven-manufacturer once having been made, competent entrepreneurship has been able to make the best of a bad situation. The ovens have been put to work, bread baking has been permitted to exploit the ready-to-hand ovens (even though these ovens would not, on better judgment, have been produced in the first place).

I assure you---any fine intentions notwithstanding---"competent entrepreneurship" is not be found on the board of the FOMC...

Thursday, September 18, 2014

Imagine working 4 weeks just to buy a DVD player...

I moved out of my folks' place at the tender age of 19. My roommate---my older and then wealthier brother Dan---splurged for a brand new VHS player. I vividly recall the price tag---it was a ton of money---$549.99.

My wife is visiting an elderly friend tomorrow. Their plan was to watch one of her dear friend's favorite old movies. While confirming their date my wife asked if she has a DVD player. She does not.

Judy just returned from our neighborhood department store toting a brand new stylishly sleek Sony DVD player. She says to me "guess how much it cost?" I say "three bucks" (gripes her when I do that). After socking me on the shoulder she says "twenty nine dollars!".

Some---politicians and narrow-thinking, and/or politically-inspired, economists---would have you and I believe that non-rich folks have seen virtually no real increase in their wages over the past few decades. I guess it depends on how you measure such things. If you measure wages in terms of what they'll buy, well... think in terms of hours worked:

A person making only the California minimum wage ($3.35) in 1981 had to work 164 hours (about 4 40-hr weeks)---not counting withholdings---saving every dime, to buy (not counting sales tax) him/herself a bulky grey movie player. In other words, very few 1981 minimum wage earners enjoyed in-home major motion pictures. Today, a California minimum wage ($9) earner gets a sleek black Sony, with a wireless remote (my brother's had a wire), in less than 4 hours! In other words, very few, if any, 2014 minimum wage earners do not enjoy in-home major motion pictures.

Don Boudreaux tells this story beautifully in several blog posts. Here's one...

Sunday, September 14, 2014

Becoming an enlightened investor...

What are we to make of the current stock market environment? Well, that's a tough one. If we were to survey some number of the media's favorite pundits, I'm guessing we'd get a pretty even split. About half would spout the improving U.S. economy, the rosy state of corporate balance sheets, growing profit margins, capital expenditures (business expansion) on the rise, the yet to arrive retail investor, and valuations that---with inflation factored in---are reasonable, as sufficient evidence there's nothing to worry about on the near-term horizon. The other half would spout the mired state of  much of the rest-of-the-world economy, the extended age of the present bull market, the coming rise in interest rates, all the geopolitical unrest, and the recent bearish moves of a famous hedge fund manager as proof positive that there's serious pain a coming.

The above, almost verbatim, sums up the articles I've suffered through this weekend. Not that I don't find value in the stats, most of which I've already considered, it's those grand predictions that bend my brow and send my head pivoting left and right.

Okay, I'll cease here with the cynicism. I suspect regular readers have heard enough from me, for now, on the nonsense of trying to time the stock market.

So, again, what are we to make of the current environment? Read again paragraph one. While I can offer up pages upon pages, from last week alone, from my daily journal, suffice it to say that paragraph one sums up today's economic state of affairs fairly well. The question is, what does all that mean for the stock market in the near-term? Of course you---a long-term investor---shouldn't be fretting over the near-term. That said I, nevertheless, suspect you are. And, of course---being a staunch critic of those who pretend to know the near-term direction of the stock market---I wouldn't dare try to allay your worries with some fancy prognostication.

Let's instead play devil's advocate with those bull and bear pundits by rebutting their main points, one at a time:

Rebutting the Bulls:

The improving U.S. economy: Rebuttal: Yes, the indicators have improved markedly of late. However, with the end of quantitative easing a month away, a now wavering bond market, the Fed looking to raise interest rates in the not too distant future, the Euro Zone flirting with recession, and sketchy results out of East Asia, the current "recovery" holds little hope of sustainability...

Rosy state of corporate balance sheets: Rebuttal: No doubt, corporate balance are as healthy today as they've been in decades. But that speaks to uncertainty over the future. Against the facts stated in the previous paragraph, the kind of business investment that might propel productivity, and the economy, to new heights just isn't going to happen. Stock prices have been bid higher in anticipation of future earnings growth that simply isn't going to materialize against present headwinds...

Growing profit margins: Rebuttal: Companies have cut all they can and we're simply not going to see margin expansion---against present headwinds---going forward...

Capital expenditures on the rise: Rebuttal: Meaningful capex has been absent throughout this long slow recovery. Yes, we are seeing a pick up, but that's more about replacing old machinery than it is about aggressively expanding operations...

The yet to arrive retail investor: Rebuttal: Sure, the retail investor is generally late to the party, and has yet to fully engage with the present bull market. The thing is, 2008 was such a shock to the individual investor's psyche, that this go-round---against all the global uncertainty---he/she simply isn't coming to play...

Valuations are reasonable: Rebuttal: Yeah but that's using the current price to earnings multiple. Robert Shiller's CAPE (cyclically adjusted price to earnings multiple) is around 26, which is historically high. Besides, whether we're considering today's P/E, or CAPE, higher interest rates demand lower price to earnings multiples. And---against present headwinds---earnings are not going to accelerate nearly enough to keep valuations reasonable. Therefore, those lower multiples will come by way of lower share prices...

Rebutting the Bears:

The mired state of  much of the rest-of-the-world economy: Rebuttal: Sure, much of the world outside the U.S. is struggling, but it's not at all unusual for the world's largest economy to lead the rest into an expansion. Notice how the ECB is just now adopting the kinds of programs the Fed is just now winding down. And note the vastly-improving U.S. economy and how incredibly well the U.S. stock market has performed under those Fed programs. The rest of the world is bound to improve. And, from an investment standpoint, valuations overseas are by and large more attractive than here at home. Other economies and equity markets playing catch up to the U.S. will bolster global confidence and promote earnings growth for U.S. multinationals.

The extended age of the present bull market: Rebuttal: While this bull market ranks 4th in terms of length, and 3rd in magnitude, it's got quite a run ahead if it's going to reach the next plateau in either sense. In terms of length, the present bull would have to keep running for another 235 days to surpass number 3. In terms of magnitude, the S&P 500 has 25% upside to go to earn that number 2 spot. To get to number one in both categories, we're talking another 2,480 days and 131% respectively---no kidding! With no recession for the U.S. economy remotely in sight, there's no reason to count this one out. Not by a long shot...

The coming rise in interest rates: Rebuttal: Rising interest rates will not only not be a headwind for the market, what it indicates is extremely positive. That is a growing economy. The Fed will only raise interest rates if it believes the economy can stand on its own two feet. And that simply means more good solid economic and earnings growth ahead...

All the geopolitical unrest: Rebuttal: Name a time when those four words "all the geopolitical unrest" could not be legitimately uttered. I know, you can't. Therefore, we can't conclude that geopolitical unrest poses a serious headwind for this market. In fact, that's a statement that can only be legitimately made in retrospect. Meaning, political unrest is not a headwind until it is. And, other than for a day here and a week there, geopolitics has been anything but a headwind for the present bull market. If anything, it's helped keep uncertainty alive, which is a key ingredient to long-running bulls. As they say, "bull markets climb a wall of worry".

The recent bearish moves of a famous hedge fund manager: Rebuttal: So George Soros is supposedly betting big on a big correction for the S&P 500. I also happen to know that during the period when he bought those spx puts, he added 180 stocks to his portfolio. Clearly, the gentleman is hedging a bit (he is, after all, a "hedge fund" manager), and has not gone all in on a bearish bet. It's not even an indication that he's betting on a full-fledged bear market. Your garden variety correction of 10% would, I suspect (depends on his strike price), yield him a very nice profit on his gamble. And even if he were going all in on a soon-to-arrive bear market (which, clearly, he's not), who's to say the billionaire octogenarian has it right this time. While he boasts a fine reputation, he's been wrong before, I assure you...

So there you have both sides of the debate. The funny thing is, every single argument and counter-argument is entirely plausible. As for the "experts" who firmly commit to one argument or the other, I assure you, they're speaking their personality and promoting their positions. For, in terms of their positions, if they're passionately bullish, they're all in. And the more they can convince folks to join their party, the more the gains they'll make as the newcomers bid their shares ever-higher. For those who are committedly bearish, they're either entirely out, or short (betting on a drop). And the more they can convince folks to follow their lead (sell stocks), the lower the prices when they finally wade back in (or the more they'll make on those short positions).

I suspect that, as you read the above, you found yourself sympathizing with one side of the argument. Now, if you can somehow step outside yourself and detach from either story (resist your natural tendency), you will become an enlightened investor. You'll know that there's no knowing the near-term future of the stock market and you'll surrender to the investment wisdom of the ages (hmm... I'm feeling kinda spiritual all of a sudden). That is, you'll maintain the appropriate portion of your portfolio (based on your age and tolerance for volatility) in the stocks of the companies that will produce the goods and services the world will want and need---amid an ever-changing, ever-volatile,  geopolitical environment---for eons to come. You'll look forward to the opportunities to rebalance into inevitable corrections and bear markets, while tweaking your sector weightings here and there as the world economy cycles its way into the future.

Breathe my friend.... peace of mind will be yours. :)


Friday, September 12, 2014

Better to be humble...

This week's Econtalk podcast, "Paul Pfleiderer on the Misuse of Economic Models", is superb...

 Host Russ Roberts:
So, one of the obviously key issues facing economists today, and policy-makers, is the labor market. It's not doing very well. It has not rebounded after this last recession the way I think a lot of people expected it to, would have predicted it to. And so people naturally look for explanations. There were numerous explanations, based on various ways of looking at the world. And some of those are formal models, the kind we're talking about. Some of them are informal, really--people try to jazz them up and make them formal with some math. But basically, one set of views says there's a lot of uncertainty and people are having trouble making decisions. A second view says, well, we've distorted the labor market through a set of policies that we might like, but one of the implications of that is that, because of the high marginal tax rates that we've imposed on workers and on firms that hire them, we've made it harder for the labor market to expand the way it normally would. A third argument says, Well, the real problem is lack of aggregate demand; we should have spent more as a government, should have borrowed more; we shouldn't have worried about this or that, etc. And each side is totally capable of providing evidence, which seems to confirm the underlying assumptions of the model. And I would argue, even though I'm very sympathetic to one set of some of those views and very unsympathetic to others--what's the basis for my sympathy or unsympathy? Where is the science in any of that other than cherry picking both assumptions and empirical evidence? 

Russ's statement conjures up a few thoughts: That the labor market is a key issue for economists and policy-makers, as if economists and policy-makers are equipped to provide the solutions (that would be popular opinion---clearly not Russ's). That a lot of people, noted economists in fact, indeed predicted that the labor market would respond markedly to all the fiscal and monetary stimulus. That cherry picking is rife among today's mainstream economists. That the labor "market"---left to its own devices---is entirely capable of healing itself: However, alas, market devices (such as the freedom of employers and employees to negotiate the terms of their engagements) are in short supply for the labor market.

On Janet Yellen and the general conceit of the economics profession:
It's not so much that, well, she has to do something and she has to use the best available evidence. It's: The sociological tendency of our profession to endow what we do with more scientific merit than I think it deserves. So, it's not so much that, 'Well, of course she's got to make a decision and she does the best she can.' But to pretend it's somewhat scientific--which I think she has to do, she tends to do, she has the incentive to do--is the problem. Because it gives it a grandeur it doesn't deserve.

Janet Yellen succeeded the gentleman (Bernanke) who some believe saved us from the next great depression, who succeeded the gentleman referred to as "the maestro" (although Greenspan's legacy has been marred in some circles by the credit bubble of the last decade). My the pressure to... to... um... well... yeah... create jobs and wage increases---while containing inflation---and keeping financial markets afloat. She has her "labor market dashboard", which consists of nine data points that presumably tell her how much slack remains in the labor market. It's up to her, and her team of course, to somehow move those needles to their pre-recession zones, while keeping a watchful eye on the PCE deflator (the Fed's preferred measure of inflation).

But the problem is that when we're talking about the economy, in terms of how to control, or even influence, it, we're talking about the ultimate enigma. We can model centuries worth of historical data, and yet remain virtually clueless as to how today's actors and elements will respond to the schemes of academics whose reasoning comes from the study of yesteryear. Better to be humble. Better to know that we cannot know how to bend the economy to "our" liking. Better to leave the allocation of resources to those who have direct skin in the game. Only in a competitive marketplace, unimpeded by the diktats of politicians and their henchmen, can resources flow to their most productive use... 

Thursday, September 11, 2014

What's going on in the energy sector?

Just a few weeks ago, the energy sector was the brightest spot in our client portfolios---in terms of year-to-date rate of return (2nd best sector), relative valuation (looked attractively priced [2nd best there as well]), and my view of its cyclicality. Fast forward to today, however, and---thanks to plunging oil prices---I'm looking at middle of the pack returns, while valuation remains about the same (earnings estimates have declined with share prices).

The most ironic aspect to the lately falling oil price is that it comes amid great unrest in the Middle East. Which---consistent with what you are at this moment saying to your computer screen---speaks to all that production occurring right here in the U.S. But that's not the whole story.

Some blame (or credit) the recent plunge in oil prices on a cooling---or anticipation of a cooling---global economy. Okay---my optimistic lean notwithstanding (there've been enough recent non-US indicators to question my view)---I'll concede to that as a possibility. But that's still not the story.

While the graph below (click to enlarge) doesn't suggest perfect negative correlation (two things moving in different directions) between the US dollar (the currency oil is traded in worldwide) and the price of a gallon of oil, you can clearly see the relationship.

oil price vs the dollar


While fewer dollars buying the same stuff is a wonderful thing for you and me, our export industries like it like a toothache. I.e., a stronger dollar means weaker foreign currencies, which makes U.S. goods more expensive for foreign customers. While you and I get to buy more stuff from foreign producers...

Back to oil, and why I love the market process: The lower the price of oil, the more the discretionary income for you and me. The more the discretionary income for you and me, the more the other resources we can bring to bear. The more the other resources we bring to bear, the better the economy. And of course, ultimately, the better the economy, the more the use of energy products. And the more the use of energy products, the greater the price of energy products---and so on.

More simply put: lower prices beget higher demand (and lower production), higher demand begets higher prices (and higher production).

So why the higher dollar? Well, as I've reported of late, the U.S. economy ain't doin so bad---while, other central banks, in their efforts to stimulate their own economies (they ain't doin so good), are printing (or looking to print) money like mad, as the U.S. central bank prints less and looks to raise interest rates in the not too distant future. It's an utter no-brainer that the dollar rises in this environment. So then, does this mean oil crashes to $50 as the dollar pounds the pound, the euro, the yen, etc.? Uh.... no, I don't think so. Don't forget, markets---even especially currency markets---anticipate. And I suspect a lot of foreign central bank printing and, maybe, U.S. economic success has already been discounted by the recent run up in the dollar.

Time will tell...

Tuesday, September 9, 2014

Market Commentary (audio)

Click the play button below for today's commentary:

[audio m4a="http://www.betweenthelines.us/wp-content/uploads/9-9-14.m4a"][/audio]

Saturday, September 6, 2014

Good-news-is-bad-news is good news, if you're a long-term investor - AND - A Market/Economic Report

I'll begin this week's market/economic update by pulling from my journal entry from last Tuesday:
Today's ISM MANUFACTURING PMI FOR AUGUST came in very strong as well. The ISMs are a more established and more respected source of information/sentiment than Markit's surveys. They, as you'd expect, tell similar stories. Consistent with Markit's survey, the August ISM PMI showed a very strong pickup in new orders, that component rising to 66.7 vs a strong 63.4 in July. The production and employment components showed strong numbers as well. Input prices showed moderate increases. This report is yet another indicator that the U.S. economy is picking up considerably in 2014. Which, as I've maintained throughout this year, validates 2013's stock market results. In other words, the stock market accurately discounted what "it" saw coming in 2014.

Plus---fear over Fed tightening as a result notwithstanding---these sorts of results are an absolute must if the bull market has more hay to make going forward. Last year's run up essentially stretched valuations to what I view as pretty close to fair value, on balance (some sectors over extended, some still attractive, some right there). Should all this good news translate to better earnings going forward, we could see higher highs in the months to come. That said, let's pray for a really good correction (a healthy 10% or so pullback) along the way---that would be a very healthy break in my view.

Lastly, and perhaps most importantly, these PMIs show a real pickup in business cap-ex spending (expanding operations [plant & equipment]). Which, as I've reported since the beginning of this year, has been this recovery's missing ingredient. And explains why job growth had, until recently, been relatively anemic.

Notice I wrote that good "results are an absolute must if the bull market has more hay to make". Well, interestingly, Friday's jobs number was shockingly bad---relative to expectations that is---and, lo and behold, the stock market rallied and wiped out what was going to be a modest decline on the week. So, apparently, there is no small contingent of traders who entirely disagree with my thought that good economic results are a must if we're to see higher highs. Based on Friday's action, you'd think the opposite, or, if not the "opposite", perhaps somewhere between good and the opposite (bad). Meaning, mediocre news, to them, is good news. Why? Well, because of the Fed of course. Mediocre growth presumably means no need to raise interest rates anytime soon, yet no need to be worry about a recession anytime soon either.

Now, note where I say "a really good correction (a healthy 10% or so pullback) along the way" would be a very good thing. Based on Friday's action, if the jobs number had come in at, say, 250,000+, we might assume that the market would've dipped, rather than rallied. If so---thinking like a long-term investor who believes the market needs to stop feasting and digest a little every now and again---good news, being (short-term) bad news, is, therefore, absolutely good news. Got it?

All that said, there was another event that occurred Friday that may indeed have inspired optimism in the hearts of traders (maybe good news, even for traders, is good news after all??): Following Thursday's rumor that Putin and Poroshenko came to terms on a cease-fire agreement, Ukraine and the separatists actually signed one. From day one I've expressed my belief that Russia has become too much of a global commerce player to threaten its economic future with an all out foray into Ukraine. However, I'll confess, there have been many moments during this conflict when I began to doubt that thinking. And, of course, whatever yesterday's agreement entails could be undone faster than it takes the ink to dry---so, certainly, the jury is still way out on this one.

 Here---also from last Tuesday's entry--- is one more comment regarding good vs bad news and the impact on markets, the dollar's impact on commodities prices, and my thoughts on a few sectors:
So, all that good news and the Dow was off a bit (-30) today. What gives? No doubt some will speculate that good news is bad news due to the Fed. That's been my view, with regard to short-term traders, for some time. However, today's news sent bonds down noticeably, confirming that view, and the market barely budged. In fact the NASDAQ was up nicely on the day. If it's risk-off on good news, we should have seen the Dow down a lot more than 30 points. For just today, the small sell-off appears to be about a drop in oil prices, on a strong move up in the dollar, and a sell-off in energy stocks. It makes sense that the dollar would rally here, amid a loosening ECB and a tapering (of QE) Fed that is looking to increase the fed funds rate sometime next year. Throw in easy Japan and China and you have the recipe for a rallying dollar, and, therefore, falling commodities---like oil and gold. All that said, the energy sector looks very attractive to me these days, from a relative valuation standpoint, and it tends to be a good late-cycle place to be. I'm a holder, and a buyer in underweight portfolios, here. Materials also took a hit today, albeit not nearly the hit energy took, but I particularly like materials based on their cyclicality (valuations are okay too), which has been confirmed of late by the pickup I'm seeing in manufacturing input prices. My only hesitation is that I may be a little early on these later-cycle themes, particularly energy. The economy is just now beginning to pick up some steam, which means we may not be that far along after all. Which, historically speaking, makes a better case for sectors like tech and industrials, which we own healthily as well...

The following are highlights from my economic journal for all of last week. On balance, the U.S. economy continues to improve. The big concern going forward has to be the economies of our trading partners, which, ironically (and obviously), is where I'm finding better values (cheaper stocks). Most pundits are advising that the U.S. market, based largely on an improving U.S. economy, is the best place to invest these days---and I understand. However, it's been my experience that the best places to invest are often the areas that don't look so hot going in, for that's generally where you find the best values. But you gotta be patient!



MARKIT'S FINAL MANUFACTURING PMI FOR AUGUST came in at 57 .9, vs 55.8 in July. This is a very good number and reflects new orders' strength, as well as, once again, employment. Also, input prices rose which supports my position that materials are a good sector to own going forward. Surveys such as this one make a very strong case that the employment numbers will pick up measurably going forward (or at least maintain their recent strong pace)... I'm looking for well north of 200,000 new jobs this Friday...

Today's ISM MANUFACTURING PMI FOR AUGUST came in very strong as well. The ISMs are a more established and more respected source of information/sentiment than Markit's surveys. They, as you'd expect, tell similar stories. Consistent with Markit's survey, the August ISM PMI showed a very strong pickup in new orders, that component rising to 66.7 vs a strong 63.4 in July. The production and employment components showed strong numbers as well. Input prices showed moderate increases. This report is yet another indicator that the U.S. economy is picking up considerably in 2014. Which, as I've maintained throughout this year, validates 2013's stock market results. In other words, the stock market accurately discounted what "it" saw coming in 2014...

So all that good news and the Dow was off a bit (-30) today. What gives? No doubt some will speculate that good news is bad news due to the Fed. That's been my view for some time. However, today's news sent bonds down noticeably, confirming that view, and the market barely budged... In fact the NASDAQ was up nicely on the day. If it's a risk-off on good news, we should have seen the Dow down a lot more than 30 points. For just today, the small selloff appears to be about a drop in oil prices, on a strong move up in the dollar, and a selloff in energy stocks. It makes sense that the dollar would rally here, amid a loosening ECB and a tapering (of QE) Fed that is looking to increase the fed funds rate sometime next year. Throw in easy Japan and China and you have the recipe for a rallying dollar, and, therefore, falling commodities---like oil and gold. All that said, the energy sector looks very attractive to me these days, from a relative valuation standpoint, and it tends to be a good late-cycle place to be. I'm a holder, and a buyer in underweight portfolios, here. Materials also took a hit today, albeit not nearly the hit energy took, but I particularly like materials based on their cyclicality (valuations are okay too), which has been confirmed of late by the pickup I'm seeing in manufacturing input prices. My only hesitation is that I may be a little early on these later-cycle themes, particularly energy. The economy is just now beginning to pick up some steam, which means we may not be that far along after all. Which, historically speaking, makes a better case for sectors like tech and industrials.


THE ICSC AND JOHNSON REDBOOK RETAIL REPORTS released this morning both show very good year over year growth in retail activity. 4.8% and 4.9% respectively. Comfortably within the range that denotes economic expansion.

FACTORY ORDERS were skewed largely by Boeing's huge July, coming in at +10.5%. Ex aircraft orders July was actually a little soft, but the details support the notion that the U.S. economy continues to improve measurably.

MORTGAGE APPS up .2% over last week.

THE FED BEIGE BOOK (a report on the 12 fed districts) report suggests the economy is expanding at a "moderate" in 8 districts, and "modest" in four, pace. Hmm.... I'll have to look up the difference between moderate and modest... I'd say these results, while positive, are a little inconsistent---in that they're not as robust---with what I'm seeing in the PMI's.

This should be welcome news to fed-obsessed long (own stocks) traders. Not great news for those looking for jobs and earnings to really accelerate in the coming months.

My take is that, overall, the economy looks better than it has in years. Which, again, only validates last year's great stock market returns. The problem with "really accelerating" is if it's "too" fast, inflation could sneak up and catch the Fed way behind the curve. "Moderate" or "modest" growth presents kind of a goldilocks---not too hot, not too cold---scenario for the markets.


CHAIN STORE SALES came in okay for August, on a year over year basis. Which is consistent with what we're seeing in other retail reports. Back-to-school sales were said to be solid, led by apparel. This bodes relatively well for Q3 GDP. 

THE ADP JOBS REPORT came in at 204,000, which was below a 225,000 consensus estimate. The increase in manufacturing jobs is consistent with what I'm seeing in the surveys.

I'm looking for a well north of 200,000 number for Friday's government report.

The U.S. TRADE DEFICIT declined in July to $40.5 bill vs $40.8 bill in June. This has to be the most misunderstood and politically abuse economic statistic. A trade deficit, in and of itself, is an utterly meaningless statistic. When the U.S. exports more goods to the rest of the world than it imports, the U.S. is enjoying goods and services from abroad without having to expend the same amount of resources as have the economies of its suppliers. The net results is greater net foreign investment as the surplus in U.S. dollars collected by our foreign suppliers are invested in U.S. real and financial assets. That said, there is one component worth paying attention, which is the imports number. Which gained .7% in July, after declining 1.1% in June. Which denotes a more active U.S. consumer...

WEEKLY JOBLESS CLAIMS came in at 302,000. The consensus estimate was 298,000...  The continuing claims number improved, dropping to new post-recession low of 2.46 million (down 64,000). The four-week average is also down to its recovery low.

PRODUCTIVITY GROWTH for Q2 came in a little lower, at 2.3%, than expected (2.5%). Year-over-year productivity was up 1.1%. Unit labor costs were up 1.7% year-over-year. The surprisingly week Q1 economy (weather gets the blame) no doubt led to bouncing Q2 numbers. Therefore, we'll need to see Q3's results to assess a true underlying trend...

MARKIT'S SERVICES SECTOR PMI came in relatively strong. The following, taken directly from the press release sums it up nicely:
Survey respondents widely attributed the latest  strong rise in business activity to improving  domestic economic conditions and a corresponding  upturn in clients’ willingness to spend. August data  indicated a robust increase in new business  volumes and the rate of growth accelerated from  the three-month low seen during July. Service  providers’ optimism towards the year-ahead  business outlook also improved in August.  Anecdotal evidence suggested that business confidence was boosted by rising underlying demand and hopes that the domestic economic recovery has become further entrenched.

The BLOOMBERG CONSUMER COMFORT INDEX CAME IN VERY STRONG, jumping to its second-highest market in a year. The personal finances component showed its best reading since April 2008...

The ISM NON-MANUFACTURING (SERVICES) PMI FOR AUGUST was nothing short of robust (well, mostly), given that it posted its highest reading ever (inception January 2008). The Business Activity Index (been around longer) posted its highest reading since December 2004. A big takeaway, for me, from this report comes from this common statement from folks in wholesale trade: "New orders, project business and backlog remain robust. Internal investment in capital remains positive."  "Internal investment" would be the capital investment that I'd been reporting as being the recovery's missing ingredient. Business investing to expand their operations is where jobs come from... Another would be these comments from respondents, which supports the capital-investment-leads-to-jobs notion: "New hires in new office" and "Open positions are finally being filled."


Today's BLS JOBS NUMBER was nothing short of shocking! The consensus among economists was an increase of 230,000, I was guessing at least that, and the number came in at 142,000. August has been the most volatile month in terms of later revisions, per the below, and I have to believe that while it is indeed a net increase in jobs---in the face of all that I'm seeing in the various employer surveys, etc., that this number will be corrected in coming revisions, or seen as a hiccup in an otherwise stronger trend. From CNBC:

Job growth cooled in August, with nonfarm payrolls adding just 142,000 even as the unemployment rate fell to 6.1 percent, according to the Labor Department. The fall in the headline rate came as labor-force participation fell, declining to 62.8 percent, or 64,000 workers, tying the 2014 bottom and remaining at the lowest level since 1978.

Economists expected payroll growth of 225,000 in August following July's upwardly revised 212,000. The unemployment rate was forecast to drop to 6.1 percent from 6.2 percent.

August's number are a notoriously volatile set, with 2013's initially reported 169,000 ultimately revised up to 238,000. In 2011, the Bureau of Labor Statistics initially said net job creation was zero, only to push that figure up to 104,000 by the time all was said and done.


Friday's jobs number notwithstanding, I am solidly in the camp that says the U.S. economy is, at last---despite all the distorting actions of politicians and central bankers---reaching escape velocity (although things can change in a hurry). The economies of several of our trading partners, however, remain suspect. I'll be adding country-specific data for other economies over the next few days.



Wednesday, September 3, 2014

Thinking on the bond market...

This week is big on data. And since the biggest stuff (ECB rate and maybe QE decision and US jobs) is coming today and tomorrow, I figured I'd give it to you all at once over the weekend. In the meantime, here's me thinking on the bond market:

I can recall past moments when the Fed raised the fed funds rate and mortgage rates---to the surprise of many (mortgage brokers even)---actually declined in response. I would explain to the confused that the bond market was simply expecting it to work. Meaning the Fed raises interest rates to cool economic growth. And a cooling economy means less demand for loans---and everything else---and, therefore, lower interest rates.

Over the past couple of days I've read a couple of commentaries that suggest that what I just described---yet lower bond yields---is precisely what we should expect when the Fed finally begins tightening a bit. While they may be right, this time around, I'm not so sure.

My not-so-sureness stems from the fact that today's bond market has been anything but predictable. As I've been reporting, the U.S. economy is showing legitimate signs of legitimate growth, which you'd think would send bond prices---from these levels---reeling and rates rising. And, lo and behold, we get the opposite (a bond market rally). Yes, there's trouble, and coming QE, abroad---sending sovereign bond yields in riskier geographies as low or lower than you can fetch for a U.S. treasury. And, yes, the U.S. budget deficit is a good $trill lower than it was a couple of years ago (less demand from the U.S. govt). And, yes, we have a Fed that---while tapering QE to zero by October---stands ready to fire up the printing press at the slightest provocation. But, nonetheless---and a 0.9% German bund notwithstanding---things are so atypical that I have a sneaking suspicion that the bond market may deliver an aggravated response---higher spiking yields---to the imminence of a Fed rate hike.

What I'm suggesting, along with the above, is that folks are in bonds because the Fed is in bonds. I know, the Fed's gonna stop buying soon, and folks are, nonetheless, still buying. And it owns $4 trillion worth that it can reinvest (buy more bonds) as they mature. And, again, folks believe that if things get bad, the Fed will buy even more. Of course there's the "unwinding" debate---how will the Fed ultimately divest itself of its monster balance sheet---which is the stuff of future commentaries.

I'm just thinking (I could easily be wrong) that bond investors collectively are thinking outside the typical box these days and, bolstered by a most accommodative Fed, are trying to squeeze all they can out of their positions---as opposed to buying/holding in anticipation of an economic slowdown. And that when the bell finally rings and the fed has to ease off the accelerator, they may, collectively, step away and send yields higher, a lot higher, at least for a bit...