Saturday, April 30, 2016

Weekly Update: The Media, The Positives, The Negatives, The Profit Cycle, etc.

If you're at all surprised by this week's weakness in stocks you haven't been watching my recent videos. Which is perfectly fine as long as your surprise isn't combined with intense worry. If it is, then you might want to take the few minutes a few times each week and take them in. My aim is to put short-term market volatility into what I believe to be its proper light.

The media has to sell its stuff, therefore the fact that scary stuff evokes a stronger physiological response in humans than does light and cheery stuff---and that humans have a perverse penchant for taking the bates that enhance those physiological responses (fears)---means that when the likes of famed investor Carl Icahn say "the market has a day of reckoning coming", or when his pal Donald Trump says "the bubble's about to burst", the media will plaster those quotes into every headline from here to Timbuktu!

Reminds of the time a few years ago when I teased a blog post with:
"At approximately 4am last Thursday I was woken from a deep sleep by the deafening sound of an extremely anxious five-foot long diamond back rattlesnake, coiled at the foot of my bed.  I froze, our eyes locked, his blood-red forked tongue slithered in the direction of his gaze as he positioned himself to strike. I".

That post broke the all-time record for hits to my blog site.

Bespoke Investment Group made the point last week while recognizing that when an indicator that was very recently viewed as a harbinger of terrible things to come for the Eurozone banking sector/credit markets---and plastered from here to Timbuktu in the financial press---did a positive 180, a media accounting of the bullish development was nowhere to be found:
"It’s important, in our view, to note that the CoCo market (aka contingent convertibles; bonds that can be turned into equity) has exploded higher in price and therefore return over the last few weeks, and is now back to an entirely normal level (chart). Despite the impressive recovery, we see no charts of CoCos in our Twitter feeds, scans of news sites, or on the television; the credit rally has been stealthy and out of the purview of commentators that drive page views via fear."


Now, the above was not me setting the stage to drown you in positivity about markets and the economy. In fact, per my video commentaries, I haven't been at all positive on the very near-term prospects for stocks.

As for the intermediate-term I see the risks fairly balanced. As follows:


Trend is presently higher

Cyclical sectors have assumed leadership

Impressive breadth

Dovish Fed

Dovish foreign central banks

Commodities rebounding

Sentiment sour

High short interest

Hedge funds way behind

ISMs (manufacturing and services surveys) signal expansion

Weakening dollar


Profit margins peaked

Charts looking toppy

Lower highs

Rich valuations

Tighter Fed going forward

Global uncertainty

Election year with termed-out president

Great Britain referendum

As for the long-term I see folks driving new cars, sporting new sneakers, texting on new phones, seeing new places, trying new restaurants, making new Facebook friends, listening to new music, going to new movies, opening new stores, building new homes, taking new meds, drinking new coffees, investing for the future, etc. That is, for the long-term I'm crazy bullish on owning global franchises!

Speaking of global franchises, I have a sneaking suspicion that the days of the U.S. equity market outperforming its foreign peers are near their end, for the time being. Why? Well, for a few reasons: One, notice under "negativity" above that "Tighter Fed going forward" was not followed by "Tighter foreign central banks going forward". Nope, most of our trading partners are many months behind us in terms of what I'll call the monetary policy cycle. I.e., they're desperate to inflate their local asset prices.

And, per the chart below, they're behind us in the profit cycle as well. Notice how the S&P 500 (top panel) has seen profit margins that have recently surpassed their high of 2007 (9.52%) and are presently trending lower. Versus the MSCI Europe, Australia and Far East and the MSCI Emerging Markets Indexes (panels 2 and 3 respectively), which have room yet to run before reclaiming their higher watermarks (9.28% and 12.83% respectively).          Click each chart, wait a second, then click again to enlarge...

Profit Margins spx, eafe, em

And notice how prices (purple line) tend to follow margins (i.e., U.S. stocks may catch down):

profit margins and price

And notice the recent trends in GDP (U.S top panel, Eurozone panel 2, Emerging Markets panel 3):

gdp trend us, eafe, em

Although I suspect that, given much anecdotal data (the generally leading indicator stuff), the U.S. trend in GDP will slope noticeably higher throughout the balance of 2016. Which would, one would expect, bring (on strong) the Fed headwind---which, however, would, one would expect, be somewhat quelled (ultimately) by the better corporate results that would accompany a better economy.

And take a look at valuations (price to earnings ratios [S&P 500 blue, Developed Non-U.S. green, Emerging Markets red]). I.e., U.S. stocks (in the aggregate) look relatively pricey:

Valuations spx, eafe, em

And how about dividend yields (same color codes as previous chart):

Dividend yields spx, eafe, em

Again, I see potentially good things for our non-U.S. exposure going forward, relative to the U.S.. That said, we'll remain very diversified---of course!

Have a great weekend!


Sunday, April 24, 2016

There Ain't No Such Thing As Free College Education

It's difficult not to stray just a bit from purely market/economic content herein (as I have of late [it's the season]), particularly when I hear directly from our clients that their delightful, bright and still impressionable children whom I've come to know  through the years---either in person or through their parents doting anecdotes---are being duped by political wolves in dogooders clothing, as they emerge into young adulthood .

Sure, a free college education for all sounds beautiful, but to truly believe that it's doable---that an education can in fact by some miracle ever be free---is to engage in the kind of magical thinking that we adored those years ago as the sparkles of our eyes sat on the knees of costumed jollymen and shared their hearts' desires. 

Today, sadly, the sparkles (in some) have given way to a bent-browed intensity---anger even---that says an education is a right that one should not have to pay for! Well, if indeed we go so far as to set our young adults onto the knee of Washington, while they'll surely, initially, hail the kings who upheld their "rights"---and for a time cast their votes accordingly---as they grow into productive, tax-paying members of society they'll come to know once and for all that there is no such thing as a free education. Like the day they realized that their shopping mall wishes were not magically met by the man with the beard---that it was Mom and/or Dad who ate the Christmas Eve cookies they placed by the fire, drank the milk, and paid for the red wagon---they'll come to know that an education worth having will never be free. Although there'll be no loving affection for the ones who fostered their naivete this time around, for it'll be them who are paying the bill! And, as my favorite breathing economist, Don Beaudreaux, instructs below, they'll pay it in more ways than one.

Pass this on to anyone whom you believe believes the free education fallacy, along with this link to Don's blog Cafe Hayek (where they'll receive an absolute wealth of education for the cost---a few minutes a day!)...

There Ain’t No Such Thing As Free College Education

by DON BOUDREAUX on APRIL 22, 2016

Here’s a letter to a high-school student from Kansas City who e-mailed me this morning:
22 April 2016

Mr. Parker J________

Dear Mr. J________:

Thanks for your e-mail, and good luck writing the essay for your high-school newspaper!

You ask “What … could be the possible effects of making public universities free to attend? Would the benefits outweigh the costs?”  My answer is simple: it is impossible to make universities free, and any attempts to perform this impossible feat will create more costs than benefits.

Universities – whether private or public – are built of land and materials, and they require for their daily operation not only non-human resources such as electricity, books, computers, printers, projectors, lighting, elevators, and office furniture, but also lots of human labor: professors, administrators, and staff.  Each of these resources, both non-human and human, could be used in ways other than to supply classroom instruction and research at the collegiate level.  So to use these resources in colleges is to sacrifice those goods and services that we’d enjoy if these resources were not used in colleges.  These sacrifices are real costs, and they must be borne by someone.

Government can certainly shift more of these costs from students onto taxpayers.  But such a shifting does not eliminate these costs.  Indeed, such a shifting of costs away from the most direct users of colleges (students) onto other people (taxpayers) will cause students to use collegiate resources more carelessly.  (Think of what you’d order at a restaurant if you knew that the restaurant will pick up the tab for whatever you order as opposed to you knowing that you must personally pay for whatever meal you order.)  The result is that colleges become more costly.

Government can hide these higher costs, but you and your fellow students will pay these costs eventually in the form of higher taxes when you enter the workforce and in the form of economic growth made slower because of the increasing waste of resources that “free” college entails.  (By the way, because I’m a tenured college professor, government attempts to make college “free” will likely cause my income to rise.  The reason is that such a policy will result in government funneling more and more taxpayer dollars into higher education.)

A final note: a big part of the cost of college – for many students the singlebiggest part of the cost – is not tuition and expenses.  It’s the income that students forgo by attending college rather than working.  So even if by some miracle a Pres. Sanders makes all of the vast resources that colleges now use free, each and every college student will still unavoidably bear the significant cost of foregone income.

In short, neither colleges nor college attendance can possibly be made free, and attempts to make them appear to be free will only make them more expensive over time.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Saturday, April 23, 2016

Look Around

Look left, look right, then look around...

When I look left I see a mammoth power-hungry establishment that seems somehow adept at convincing a large swath of the populace that it stands equipped to better their lots by slicing mammoth power-hungry establishments down to size. Hmm...

When I look right I see, well, ditto! Hmm...

A client told me recently that when the campaigns began revving their engines her son played her a few Trump on the stump videos and said "mom, this guy makes sense!". Since then the son has changed his mind, Bernie Sanders---"a true champion of the people"---is his man.

A complete 180 you say? I think not! "Power hungry" defines both of these gentleman (and, of course, the rest of the field). The young man, in his admirable quest to cast his best vote, exposes a lack of peripheral vision that is the side effect, the curse actually, of years of intellectual feeding through the elders, instructors and media outlets of his life, all of which who bend to the faulty---and utterly pernicious---notion that society's thriving is a top down, planned, affair.

When I look around I see what Matt Ridley sees.

From his 2015 book The Evolution of Everything:
To put my explanation in its boldest and most surprising form: bad news is manmade, top– down, purposed stuff, imposed on history. Good news is accidental, unplanned, emergent stuff that gradually evolves. The things that go well are largely unintended; the things that go badly are largely intended. Let me give you two lists. First: the First World War, the Russian Revolution, the Versailles Treaty, the Great Depression, the Nazi regime, the Second World War, the Chinese Revolution, the 2008 financial crisis: every single one was the result of top– down decision-making by relatively small numbers of people trying to implement deliberate plans – politicians, central bankers, revolutionaries and so on. Second: the growth of global income; the disappearance of infectious diseases; the feeding of seven billion; the clean-up of rivers and air; the reforestation of much of the rich world; the internet; the use of mobile-phone credits as banking; the use of genetic fingerprinting to convict criminals and acquit the innocent. Every single one of these was a serendipitous, unexpected phenomenon supplied by millions of people who did not intend to cause these big changes. All the interesting things are incremental, says the psephologist Sir David Butler, and very few of the major changes in the statistics of human living standards of the past fifty years were the result of government action.

It is a fair bet that the twenty-first century will be dominated mostly by shocks of bad news, but will experience mostly invisible progress of good things. Incremental, inexorable, inevitable changes will bring us material and spiritual improvements that will make the lives of our grandchildren wealthier, healthier, happier, cleverer, cleaner, kinder, freer, more peaceful and more equal – almost entirely as a serendipitous by-product of cultural evolution. But the people with grand plans will cause pain and suffering along the way.

Beware the grand planners!

Friday, April 22, 2016

Weekly Update: What the Market's Thinking, Emerging (and endless) Opportunities, and Prince on "The Planet Earth"...

I’m thinking you’ll appreciate a little brevity this week (with regard to markets) and some musing beyond the noise.

So, the worst start to the year gave way to a most impressive rally. Impressive, not only in terms of magnitude, but in terms of inclusion. Meaning, virtually all boats rose with the tide. Here’s a look at the S&P 500 (bold green line), along with its 10 sectors, from this year’s bottom (for now) on February 11:   

Click each chart, then click again, to enlarge...


Which brings the S&P to a smidgen above (2.3%) where it started the year:

SPX YTD 4-22-16

So, two months from the bottom (red circle) and we’re back to square one on the year:


Well, yeah, but not really when we think about what the market’s "thinking" now versus what it was thinking on January 1. On January 1 the market was thinking that the Fed was going to raise interest rates 4 times this year (cuz that’s what they said), and it was thinking that the economy was going to deliver very poorly (cuz that’s what economists said).

Here’s the Fed’s own “dot plot” (a dot for each member’s fed funds rate projection for 2016), featuring projections from prior meetings:

fed dot plot

In terms of what economists said, here’s Citigroup’s economic surprise index, which, while tailing off lately, shows the economy clicking along a bit better than economists expected to begin the year:

u.s. economic surprise index 4-22-16

Plus, the sectors are telling a little different story. Here’s Jan 1 to the Feb 11 bottom:


The out-performers as of 2/11 were the supposedly safer stuff: Utilities (green), staples (white), and telecom (blue).

And here’s Feb 11 to current:


Hmm… The out-performers from the bottom have been energy (grey), materials (lt blue), financials (yellow), consumer discretionary (lt orange) and industrials (purple).

Looks like maybe the market sees a better economy ahead!

But should it with the economic surprise index rolling over the past few weeks? Or could it be that the rest of the world’s looking up (of late), which would be good news for U.S. exporters in those economically sensitive sectors? China (red), Eurozone (green):

China, Eurozone Surprise Index

I’ll keep you posted…

Now let’s go beyond the noise and onto what truly matters in the long-term scheme of things:

Grasping the long-term scheme of things requires, as they say, a 30,000-foot view. A, essentially, rising above the noise and, more importantly, a rising above our own fears and biases.

Like it or not, the U.S. is a very small place. Its citizens make up a mere 4% of the world’s population. Yet its great companies are major suppliers to the 96% who live outside its borders. The U.S. is advanced, its people---their lifestyles---are the envy of the world. I.e., the world wants what the U.S. has, and U.S. companies indeed want to satisfy the world's desires.

The vast majority of the other 96% reside in nations we call “emerging” (think China, India, Brazil, Mexico, etc.). That fact alone (that most of the world’s population is “emerging”) makes me wildly optimistic over the prospects for our clients’ portfolios in the many years ahead. Consider the fact that roughly 90% of the world’s humans under the age of 30 live in the emerging markets! Not only are the emerging economies emerging, their people are emerging into the most productive---and consumptive---years of their lives! The opportunities for U.S., and non-U.S. (that’s why [you clients] a good fourth of your equity exposure is dedicated to foreign enterprises), companies are utterly---and endlessly---enormous!

Ah, but here’s the thing, taking full advantage of the opportunities the world has to offer can mean taking heavy doses of Pepto-Bismol during the inevitable periods of turmoil and market volatility. The question one has to consider is, what can happen that would forever quell a person’s desire for a richer life? When one concludes that, yes, the world is forever a volatile place, yet through it all people will---as they always have---persevere, one can sleep at night knowing that the produce of the companies whose stocks he/she owns will, through it all, find its way to a world of forever desiring customers. And, thus, he/she will ultimately be rewarded (dividends and share price appreciation) for his/her own perseverance.

All that said, if you’re a client, and you’re taking Pepto-Bismol when the market gets rocky, I insist that you call me immediately! We either need to put markets into their proper perspective, as they relate to your particular circumstances and current allocation, or adjust your allocation to a mix that keeps you out of the medicine cabinet. Life’s too short!!

Speaking of the world, and life too short, here's the incomparably talented Prince on The Planet Earth...

Sunday, April 17, 2016

Your Weekly Update: Taxing Viagra Sold to Venetians...

If you've been following along, you know that I remain outside the camps that see an imminent China collapse, an imminent U.S. recession greater than the last one (I don't see an imminent one at all actually), or an imminent round of hyperinflation with gold soaring to, say, $5,000 the ounce. If you've been following along the campaign trail, and if you buy into your chosen one's economic prognostications, then I would be your bleary-eyed optimist who can't see the forest through the trees. Hmm....

Before you glance through the charts below, allow me to throw a bone to any of you who see the world through the eyes of THE ONE you hope to lead the "free" world going forward. While the odds of a 2016 economic disaster (barring an unforeseeable exogenous shock) remain low, the odds of a robust economic surge remain low as well. I believe that that, among other things, would take a long-overdue round of big time capital investment on the part of America's great companies. But, alas, when America's great companies are accused of hoarding offshore profits (which of course they are), when they are seeing proposed policies that if enacted would threaten their ability to compete on the global stage, and when they are, to wrap it up, being soundly vilified by the wannabe leaders of the country they call home, umm.... NO!, they're not in the mood to let go and expand---at least not in the presently less-friendly U.S..

A word on tax inversions:

There's this deafening chorus of haters (whose conductors sit atop Capitol Hill, as well as the campaign stump) who see a U.S. company, say a Pfizer, moving its shingle to, say, Dublin, as engaging in an act of sheer---and punishable---treachery. I suspect many of you agree. Passionately!

Well, let's look at that:

What would have actually happened had Washington not abruptly changed the rules and kept Pfizer from doing the deal with Allergen?
  1. Would Pfizer's huge stable of medicines have been made less available to U.S. citizens?

  2. Would Pfizer pay less U.S. tax going forward?

Of course you know that the answer to the first question is "no". And if you think beyond what you're being fed by the media and the politician, you might conclude that they'd not only be as available, but potentially even cheaper, and ultimately better---if indeed Pfizer's move to Dublin proved as profitable as such a bold maneuver would have to be. Hmm...

As for #2, I suspect you'd say "yes". And you'd be right, but maybe not to the extent you might think you'd be right. From what I gather, had the deal not been blocked, Pfizer's effective tax rate in the U.S. would've been slashed from 25% to "as low as" 17%. And, trust me, thems big numbers! But  you might have thought that Pfizer would've been dodging the IRS altogether. That it'd be paying Ireland's 12.5% tax rate on all of its profits and be done with it. Not hardly!

In fact, every net (after it exploited every benefit [there'd also be an interest tax deduction for payments to its affiliates abroad]) dime Pfizer would've made in the U.S. would still be taxed in the U.S.. It's the profits it earns on Viagra sales to Venetians that wouldn't be taxed if it decided to invest some or all of those spoils back here, its previous home---which, by the way, boasts the still largest economy on the planet---a very nice place to invest if it weren't so damned expensive!

That's right, the issue is what's called repatriation: Among developed countries, "capitalist" America ironically hits its companies by far the hardest when they make money outside its borders and invest the money back home. That sounds really bad, wrong even, doesn't it? Now be honest!!

So, be careful what you ask for:

Let's say, hypothetically, Pfizer inverts and sends a few execs---who it trusts wouldn't be spending all of their time sampling at the Guinness Storehouse---to Dublin, saves some serious money on the income it typically deploys in the U.S., and sees a monster barrier disappear that kept it from deploying yet more of its income in the U.S.. Well, I'll leave the rest---the potential investment, job growth and, yes, economic stimulus!..., as well as the increased tax revenue from Pfizer generated by its expanded U.S. operations (oh and don't forget that the contractors and employees would pay taxes on the money they earn from Pfizer's ventures)---to your imagination.

Moving on:

Here are a few of my up to date economic charts, with a brief characterization (and color coding) of each (yes, there are a few red flags [to keep a close eye on!] but the overall trend remains expansionary):     click each chart, then, after a second, click again to enlarge....

Retail sales --- brick and mortar struggling:

Online retail sales --- remaining strong:

Auto sales --- off their highs:

Household net worth --- wonderful:

Mortgage new purchase apps --- uptrend:

Housing starts --- uptrend:

Housing permits --- uptrend:

Consumer confidence --- good:

Homebuilder optimism --- net positive (above 50):

Weekly jobless claims --- very very good:

Bank Credit --- uptrend:

Inventory to sales ratio --- too high:

Corporate financing gap --- too large (not supportive of capital investment):

Commercial and Industrial Loans --- strong (is supportive of capital investment):

Commercial paper issuance --- improving:

Commercial paper rates --- very low:

ISM Services and Manufacturing Surveys --- services holding above 50, manufacturing looking up:

Small Business Optimism --- waning:

Small business hiring plans --- recently deteriorating (but still overall uptrend):

Small business investment plans --- uptrending:

Headline Inflation --- presently subdued:

Core Inflation --- creeping:

Yield curve --- no recession signs:

High yield spread --- improving:

Chicago Fed Financial Conditions Index --- very low recession risk:

St. Louis Fed Stress Index --- low stress in the system:

KC Fed Stress Index --- high, but recently reduced, stress in the system:

Cleveland Fed Stress Index --- high stress in the system:

Index of Leading Economic Indicators --- relatively low recession risk:

Industrial materials prices --- recent

Be back in a bit with a look at the stock market charts.

Wednesday, April 13, 2016

Market Commentary (video)

Click the icon in the lower right corner (after clicking the play button) for full screen, then wait a few seconds—or adjust the settings (left of the youtube logo in lower right corner)—to focus.

Today's TV Segment (video)

Tuesday, April 12, 2016

Market Commentary (video)

Click the icon in the lower right corner (after clicking the play button) for full screen, then wait a few seconds—or adjust the settings (left of the youtube logo in lower right corner)—to focus.

Friday, April 8, 2016

Your Weekly Update: A change in the narrative...

Don’t know that you’ll agree (as I seem to get push-back at times), but the U.S. is not in a recession, and the likelihood of one beginning in 2016 is remote—despite the rants from the competing presidential-wannabe podiums that we are somehow in deep despair and that the self-proclaimed white knights, or dame, will wield his/her populist, protectionist, or socialist sword, slay the dreaded whatever (big business, big government, small border) and save us from the impending apocalypse.

Not that we don’t have serious issues to tackle, like big government’s ability to change the playing field with too little effort (killing, for example, mergers that tradition, and laws, would’ve previously allowed), but when we succumb to the gloom proffered by self-serving/self-absorbed panderers, we abandon all faith in capitalism (in the undying spirit of the entrepreneur)!

While I’ve expressed my view that the very near-term looks a bit precarious, I suffer no delusion that the stuffs and services you and yours will be consuming and enjoying in your near and long-term futures won’t be unthinkably superior to those of today---thus making the thinkers/producers, their companies and their investors (you and me) far wealthier in the years to come, despite the executable whims (which’ll be few I suspect) of whosoever occupies the highest political office in the land from here on out.

While I’m tempted to offer up my slew of economic charts (maybe next week), I’m thinking I’ll present only three this week; the first tells a couple of stories.

Here’s weekly unemployment claims over the past 20 years (yellow line), the S&P 500 Stock Index (green line) and recessions (red shades):     click chart, then click again, to enlarge...


First story: The stock market tends to do well when the labor market strengthens.

Second story: The labor market tends to weaken heading into recessions.

Now, that said, we are indeed heading into a recession, that’s for sure! Yes, the labor market will weaken, stocks will react and the inevitable next recession will begin---it’s just highly unlikely (although anything can happen) that it’ll occur in the relatively near future. And while I’m not pessimistic on the market for 2016, the fact that recession risk is low does not mean that stocks will be for sure winners on the year, which---if you’re an investor (as opposed to a trader) in the stuffs and services that’ll make material life ever better in the years to come---is of no consequence to you.

As for the near-term, not that you care (cuz you’re a long-term investor), oil and stocks just don’t seem to be getting along (quite like they were) lately:

oil and s&p

Thus, Wall Street has had to change its as-goes-oil-so-goes-the-market narrative. For the moment it appears to be as-goes-the-dollar-so-goes-the-market (in reverse):


And/or, as I wrote, and charted, last week, as-goes-the-dollar-so-goes-the-fed-and-so-goes-the-market.

Q1 earnings season gets underway next week. And while the headlines suggest that expectations are in the gutter, Bespoke Investment Group tells a different story:
When we last looked at trends in earnings revisions for the S&P 1500, it was right in the middle of the last quarterly earnings season, and sentiment was extremely negative as more than one third of companies had seen earnings estimates cut over the prior four weeks. Now, as we head into the start of Q1 earnings season on Monday, the picture has changed immensely. While we’ve heard a lot of chatter on the financial networks over the last couple of weeks suggesting that sentiment towards earnings season is extremely bearish, that’s not actually the case. Over the last four weeks, analysts have raised earnings per share forecasts for 443 companies in the S&P 1500 and lowered forecasts for 495. This works out to a net of –52, or –3.5% of the stocks in the index. That’s still negative, but it’s the least negative earnings revisions spread we have seen since June 2015. Analysts are now much less bearish on S&P 1500 earnings than they have been at any point over the last 10 months. If the recent trend keeps up, we could be seeing a positive overall earnings revisions spread for the first time since July 2014!

Now, I don’t know if that’s a good or a bad thing; if expectations are up, will earnings beats be down? Hmm… we’ll see. I have a sneaking suspicion, however, that forward outlooks may be looking up, particularly for those companies whose revenue comes largely from abroad---as a lower dollar is a lower barrier between them and their customers. I’ll keep you posted.

Of course there’s much more I can bore you with, but a lot of it I’ve been covering in the daily updates. If you haven’t been watching the videos, you might give them a shot; I get a little wonky at times, but if you take the few minutes each day they’ll begin to make sense, and you’ll have a deeper perspective---than the media offers---on what’s moving markets in the near-term. 

Have a wonderful weekend!


Thursday, April 7, 2016

Market Commentary (video)

Click the icon in the lower right corner (after clicking the play button) for full screen, then wait a few seconds—or adjust the settings (left of the youtube logo in lower right corner)—to focus.

Wednesday, April 6, 2016

Market Commentary (video)

Click the icon in the lower right corner (after clicking the play button) for full screen, then wait a few seconds—or adjust the settings (left of the youtube logo in lower right corner)—to focus.

This Week's TV Segment (video)

Tuesday, April 5, 2016

Market Commentary (video)

In the first video below I talk about the global market-(potentially)-impacting news to the start this week, then quickly take you through a couple charts. The second is the video attached to last weekend's update. If you missed it, I dove a little deeper into the technicals and explain why I've been a bit near-term cautious of late:

Saturday, April 2, 2016

Your Weekly Update: The Dollar's Working For The Fed...

Here's a look at the dollar (Bloomberg USD Index) year-to-date (the decline began immediately following the Fed's January meeting where all but one member voted to not raise their benchmark interest rate):    

click each chart to enlarge, then wait a second and click again...

Bloomberg USD Index


Let's layer on Citigroup's Economic Surprise Index:



How about the Fed's preferred inflation measure, the core PCE price index (moving in the right direction, yet comfortably below their supposed 2% target):



Now the ISM Manufacturing Survey (hmm...):



And jobs (not that job growth can't occur amid a strong dollar, but a falling dollar doesn't seem to hurt):



Oh, and stocks!


Per the above, under present circumstances, a falling dollar can lift many boats. And, with seemingly non-threatening inflation---or a Fed unpublicizingly willing to let (or encourage) it (inflation) to get out ahead (my view)---the Fed has no interest in yet upsetting the applecart.

Ashraf Laïdi, in Currency Trading and Intermarket Analysis teaches us that:
...currencies with higher interest rates characteristically appreciated rather than depreciated on the reward of future containment of inflation and a higher-yielding currency.

And that's the overwhelming narrative among today's punditry and is clearly the concept the Fed clings to (thus their hesitancy to raise their benchmark rate). As this 30-year chart (white ovals tell the story) illustrates:

green=dollar, blue=fed funds rate...

Although, later in the his masterpiece, Laidi states that:
The multicurrency performances of 1999-2007 have also proven that interest rate differentials do not always succeed in solely influencing currency values. Other important factors such as global growth, risk aversion, carry trade unwinding, and the direct relationship between commodities and their currencies have had significant weight.


And that:
Capital flows are another reason why interest rate differentials may not work in driving currencies.

As illustrated (red ovals) in this chart ... (I only highlight where the dollar declined despite a rising fed funds rate [periods when the dollar rose despite a declining fed funds rate essentially make the same point]:


So, will the Fed squander a much needed opportunity to normalize interest rates (I think the data allows for further nudging) in fear of a bulging dollar that, in my (and history's) view, may not bulge at a time when perhaps better growth opportunities lie abroad (i.e., in other currencies)? Time will tell, and, if so, the market will like it---at least a while longer...

Speaking of the data: Here are the headlines from my "Current Trends" files for March and, as of today, April. It's not all great, hence I say "nudging" of interest rates: I'll color code to express their implications:

Wholesale Inventories Way Up
VIX vs High Yield Signals Potential Selloff in Equities
Emerging Markets Equities and Bonds See Huge March Inflows
Wages and Salaries Up as a % of GDP
Profit Margins High But Declining Rapidly
Q4 GDP Positive Revisions
Consumer Data Weaker in February While Inflation Ticks Higher
Short Interest Shows Some Drop But Mixed by Sector
Durable Goods Off But Not Bad in February
Stocks Extremely Overbought
Buyback Blackout Period Begins
Breadth Remains Very Bullish
Stocks: Sentiment Rebounding
Longest Streak of Below 300 Jobless Claims Since '73
Jolts (Job Openings and Labor Turnover) Report Mixed
Port Traffic Strong
Housing Starts and Permits Up
Regional Manufacturing Surveys Picking Up
Industrial Production Up, ex-energy and utilities
Inflation, via CPI, is Heating Up
PPI, ex-food, energy and services, on the rise
Global Market Overboughtness
Credit Conditions Improving and Bullish for Equities
European Construction and IP Looking UP
Retail Sales Miss
German Industrial Production at 7-year High
Strong Seasonality for Stocks
Charts Still Weak, But Breadth Very Strong
Evidence Does Not Support Bull Market Peaking
Employment is Being Driven By Full-Time Jobs
Average Hourly Earnings Rising
Federal Tax Receipts Rising

Before I finish up with the video below, I'd like to offer some perspective on a weaker dollar: 

Consider the labels "weak" and "strong": When we're talking about the currency you---the consumer---transact in, what sounds better? Exactly! A "strong" dollar affords you a richer lifestyle. The stronger your dollar the more affordable the stuff the rest of the world supplies you. A "weak" dollar, on the other hand, creates the opposite---the weaker your dollar the more expensive your lifestyle. So, when a political wannabe (or the CEO of U.S. Steel, or a union boss [both contributors to the campaigns of forever pliable political wannabes]) screams foul when a trading partner presumably "devalues" its currency, he/she is not advocating on the American consumer's behalf, he/she is indeed advocating on behalf of non-U.S. consumers (and big U.S. business, and unions): He/she is essentially saying to other countries "damn it, prop up your currencies so our consumers' have to pay more and your people can buy more of our exports!"

Back to the present economic/investment equation: The question, again, is, is the dollar dropping because the Fed is walking back its interest rate stance? Or is it dropping because, say, emerging markets and Europe offer greater growth opportunities? Could be a little of both. And, yes, a weaker dollar is indeed---at this juncture---very bullish for the market.

Click the icon in the lower right corner (after clicking the play button) for full screen, then wait a few seconds---or adjust the settings (left of the youtube logo in lower right corner)---to focus.

Friday, April 1, 2016

Market Commentary (audio)

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