Friday, August 17, 2018

Is Tech Finally Giving Way?

Coming into this year our analysis of general conditions dictated that we maintain a moderate target weighting (presently 14% of equities) to technology. That's despite the huge momentum the sector had coming into the year, and our acknowledgement of the S&P 500's historically high weighting (presently 26+%) to the sector. We reference the latter because we recognized that we would likely under-perform the S&P should tech continue its epic run.

Thursday, August 16, 2018

Stat of the Day: Very Low 'Current' Recession Risk In This Consumer Driven Economy

While our PWA [Macro] Index has dropped from the low 80s to the low 40s (still a historically decent reading) during the course of this year, the driver of 2/3rds of U.S. economic activity -- based on his/her credit performance -- is doing just fine.
Here's Bespoke Investment Group on the subject:

Chart of the Day: No Pros When It Comes To tariffs!

Here's Bespoke Investment Group on the effect of tariffs on ironically the metals and mining industry group:
"You can say whatever you want about tariffs and the pros and cons on both sides of the argument, but with respect to the metals and mining companies, keep your ‘pros’ to yourself.  The group has been stuck in a downtrend ever since the topic of tariffs first came up, and it’s now basically in full flush mode."

Quote of the Day: Hoping Cooler Heads Prevail

We titled our August 11 blog post
"Hugely Broad Tariff Risk! But imagine the upside if/when cooler heads prevail..."
The Dow's up 324 points as I type, here's the story:

Wednesday, August 15, 2018

Quote of the Day: Markets Will Fall Despite the Fundamentals

Ironically, given this morning's economic reports (they were net strong) and the drop in stock prices (as well as this year's overall lackluster results despite the strong fundamental setup coming in), last evening I found myself going over my old notes in Jack Schwager's instructive book A Complete Guide to the Futures Market.

Tuesday, August 14, 2018

Charts of the Day: Small Business Owners Feeling Good About Their Prospects!

Being that small businesses employ 2/3rds of American workers, we take the National Federation of Independent Business (NFIB) monthly survey seriously.

Here are the three areas we track, updated this morning with July's results (note today's look versus heading into past recessions [red shaded areas]):   click to enlarge

Monday, August 13, 2018

The Week's Message: Near-Term Mixed

Here's the summary for our market/economic analysis for this week:


The Technicals (long-term trends)

Our long-term technical trend analysis remains notably bullish for the S&P 500. 

Saturday, August 11, 2018

America Prospers From A Prosperous China

In my August 6 blog post I made mention of the following recent commentary by the President:
Over the weekend he boasted that the U.S. market is "stronger than ever" and that Chinese stocks are "down 27%". The U.S. is therefore "winning the trade war."
After updating readers on the returns of U.S. stocks vs. Chinese stocks since the 2016 election (it's a dead heat by the way), I stated the following:

Hugely Broad Tariff Risk! But imagine the upside if/when cooler heads prevail...

UBS compiled its list of companies "most at risk from President Trump's trade war." 

I entirely agree that the present trend toward protectionism puts the listed companies at serious risk. But, my, we're only talking the tip of the iceberg here! 

Friday, August 10, 2018

Market Update: Why Shorts Have Been Losers This Year (video)

In this morning's video I update you on the state of the current market correction as well as general conditions:

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Wednesday, August 8, 2018

Chart of the Day: U.S. Government Borrowing -- and Foreign Investors Lending -- At Record Pace

Three key takeaways from the chart and highlight below:

Our Latest Log Entry: Washington's Pushing the Needle


Sharing the latest entry to our log:

8/7/18 (Tuesday)

The market continues to hold up remarkably well given the trade war threat, which I attribute 100% to favorable general conditions, as there’s absolutely nothing bullish in the prevailing rhetoric. 

My "remarkably well" comment notwithstanding, given the hugely strong setup coming into the year, the exceedingly positive Q1 earnings results, and I’ll say notably positive Q2 results, tax cuts, etc., the fact that the broad market isn’t up considerably more speaks to the ill-effects/uncertainty of protectionism.

Tuesday, August 7, 2018

Is Capitalism Only For the Elites?

Yesterday The Economist posed the following question to its readers:
"Is capitalism rigged in favour of the elites?"
 Its own Callum Williams set the stage for the debate with:

The Data Say There's Something Wrong With The Present Narrative

In my world -- and, most importantly, on behalf of our clients -- I can't let my politics cloud my thinking. And of course cloudy, no, make that foggy with virtually zero visibility, would be the state of my economic thinking if my guide happened to be a given political narrative. 

Monday, August 6, 2018

In Terms of The "Trade War" and U.S. vs China Stocks, If We Must Go There, Both Sides Are Just Now On Equal Footing

Preface:
Given the passion many folks have for their politics, I find myself prefacing more blog posts these days with the blunt reminder that we do not play politics at PWA. If, therefore, we strike a nerve, know that that's never our intent. That said, we're willing to run the risk, for if we weren't this investment/economic blog would be of little use to anyone, except perhaps for those only interested in commentary that jibes with their political ideology. We'll assume that's not you, or you'd have unsubscribed long ago. 

For our investment client readers, our willingness to remove our political biases from the business of economic research and portfolio management has to be utter music to your ears, for obvious reasons!


----------------------------------------------------------------------

In a recent CNBC interview the President said "we're playing with the bank's money", then followed with a proclamation that the market is up 40% since his election. Over the weekend he boasted that the U.S. market is "stronger than ever" and that Chinese stocks are "down 27%". The U.S. is therefore "winning the trade war."

Sunday, August 5, 2018

This Week's Message: General Conditions Remains Strong, But We're Seeing Some Cracks Here and There

For this week's message we're sharing the general conditions summary of our weekly analysis, which includes my view of the possibilities going forward: 

Open Letter to National Economic Council Director Larry Kudlow

Dear Mr. Kudlow,

On occasion over the years when I tuned into your old CNBC talk show I found my self appreciating your mostly free market way of thinking
.

Today I'm hoping you can shed some light on your recent change of heart.

Saturday, August 4, 2018

Chart of the Day: Copper's Flashing A Warning Sign!

Copper, the ubiquitous industrial metal, is considered an economic indicator in and of itself. In fact, its price is one of the 84 inputs to our macro index.

Friday, August 3, 2018

Quote of the Day: Service Sector Remains Strong, But....

The good news in today's QOTD is that the service sector is still humming along fine, signaling that -- for the time being -- we need not worry about recession (ISM above 50 denotes confidence and continued expansion). The bad news is that sentiment has waned a bit  of late, and the cause is a totally avoidable top-down creation:

The Trade Gap Widened In June, Great News for the U.S. Treasury!

Good news today for the U.S. Treasury!
"The total deficit in goods and services rose to $46.3 billion for the month, from $43.2 billion in May, the Commerce Department reported Friday. Imports increased by $1.6 billion, to $260.2 billion, while exports declined by $1.5 billion, to $213.8 billion."
Yep, no kidding. Despite all that you're hearing, a widening of our trade deficit is a good thing given the current state of U.S. government affairs.

Thursday, August 2, 2018

Quotes of the Day: "Had we frozen the economic structure in 1950"

The consensus estimate for the July employment report (due out tomorrow morning) is for 192k new jobs created. The unemployment rate is expected to come in at 3.9%.

This morning's jobless claims number extended the record below-300k streak to 178 weeks.

Wednesday, August 1, 2018

The ISM June Manufacturing Index: Telling It Like It Is!

The Institute for Supply Management's monthly manufacturing and services sector surveys are hugely important economic indicators. They essentially give you the take on present conditions and future prospects by the nation's purchase and supply executives. Who better to listen to?

Tuesday, July 31, 2018

This Morning's Data Looks Good! Inflation, while definitely brewing, reads tamer than I expected...

This morning's data dump is interesting.

As for what it says about the present state of the economy -- it's full steam ahead!

What's interesting is, save for the Chicago PMI -- notwithstanding the below-the-surface pressure you'll note below -- it's tamer on inflation than I might've guessed at this juncture. 

Monday, July 30, 2018

Persimmons, Cinnamon Rolls and Oatmeal, In Perfect Harmony!

So let's say that you love persimmons, and that I happen to grow the consistently best you've ever eaten, and at a great price to boot.

Charts of the Day: Do Not Blame the Fed!

This is stuff the White House needs to pay very close attention to:

This Week's Message: We'll Hope For Scenario 3, But We'll Work With Whatever We Get

My fundamental view of the world at large (and, thus, the trend in the dollar) remains basically what it was at the beginning of the year; that the U.S. economy’s relative strength will make for a higher dollar and, thus, a plunging gold price, etc. going forward (it was very much a minority call at the beginning of the year).

Friday, July 27, 2018

Q2 Top and Bottom Lines Coming In Strong, However....

In this week's weekly message we shared our view that earnings guidance was about take a hit, and explained why:

My Two Cents On Today's GDP Number

We said the other day:
"....we expect this week’s Q2 U.S. GDP report to come in at the high-end of expectations, and, thus, there’ll be the attendant “we-told-you-sos” and “see-we-know-what-we’re-doings” coming from White House officials – which, by the way, would be deserved self-pats on the back, given the justifiable optimism spawned over tax cuts and deregulation!

Thursday, July 26, 2018

Housing Woes Still Appear To Be More About Supply Than They Do Demand

Monthly new homes sales reported this week missed estimates big time, down 6.1% over the past three months, although they're still up 2.4% year-over-year. 

Protectionism's Silver Lining

If there's a silver lining to the protectionist dark cloud hanging over the global economy (and markets), it's that folks are now witnessing (learning) firsthand the below the surface reality that protectionism can hit the perpetrator just as hard (if not harder) than the target(s). 

Wednesday, July 25, 2018

Quote of the Day: Tariffs Undermining GM On Every Front!

Sorry to hammer the point home so often (btw: I did it every bit as much, if not more, during the last administration). Just can't help it!

While, as virtually every economist who's not politically captured will attest, protectionism has always been one of the most pernicious big-government endeavors (depression-era tariffs were an absolute economic disaster!), given the dynamics of the 21st Century U.S. economy it's more destructive now than ever.

Tuesday, July 24, 2018

Chart of the Day: Financials Looking Up?

We came into the year bullish on financials and cautious (but certainly not bearish) on tech. 

So What Happens When A Politician Meddles With a Central Bank?

So what stands to happen when a politician meddles with his nation's central bank? Well, Turkey is providing us with a 21st Century test case.

From The Economist this morning:

Quote of the Day: U.S. Stocks Get A Chunk of The Money You Spend on Foreign Stuff -- And -- Maybe Let's Not "Level the Playing Field"

While my experience doesn't entirely agree with Bloomberg's analysts' statement that a rising dollar is necessarily a net positive for stocks (the 20-yr monthly correlation is actually negative) -- although there have absolutely have been periods when it appears as such -- the point that equities receive foreign capital flows is, sadly, a seldom-spoken irrefutably inevitable benefit of trade.

Monday, July 23, 2018

Bull Market Consolidation Or Harbinger Of The Next Bear Market? (video)

In this morning's written commentary I suggested that 2018's stock market action so far looks more like a consolidation in an ongoing bull market than it does the beginning of the next big downturn. Here's more support for that notion:

Sunday, July 22, 2018

This Week's Message: The Setup's Fine, but less so than at the beginning of the year...

Long-term technical trends and macro conditions at this juncture have 2018’s market action looking more like a consolidation within an ongoing bull market than it does the saw tooth pattern that often precedes a looming bear market. The still generally strong macro setup explains how – as evidenced by a flat NYSE Composite Index on the year – equities have been able to buck the extreme headwind of rising protectionism.

Saturday, July 21, 2018

If You're Truly Interested In Understanding Global Trade

If you're truly interested in getting your head around the trade issue, and if you're willing to set your politics aside (trust me, my views here have zero to do with my politics! [more on that below]), take a few minutes and watch the President in an interview aired this week on CNBC. Then read my "A Consumer and An Economist Talk Protectionism". Then watch one of history's great, and purely objective, economists, Milton Friedman, on the topic. Then, lastly, take in the whiteboard lesson that I produced back when President Obama was going after our trading partners (as I recall, some of my friends on the left didn't seem to appreciate my lesson back then any more than some of my friends on the right appreciate my criticism of the same sort of shenanigans going on today):

Update On China/Africa Relations

While chatting with a well-traveled friend the other day she expressed how amazed she is by all of the Chinese investment she's seeing in Africa. "China is pouring money into Africa", I believe is how she put it. So what does that mean? Well, it means China is investing heavily outside its borders, which to some degree involves offshoring manufacturing to Africa (and other places); which means Africa (and other emerging countries) are picking up the manufacturing mantle as China moves further toward a services-oriented economy (like ours), while taking full advantage of the cheap labor and natural resources the developing world has to offer. 

Thursday, July 19, 2018

Today's Data Support Yesterday's Message On Housing, And An Important Note Regarding the Fed

Yesterday we reported on weak data from the housing market and suggested that -- while we are indeed taking note -- factors other than waning demand may be the culprits.

This morning's data releases support that notion:

Wednesday, July 18, 2018

Housing Headwinds

While June's homebuilder sentiment survey (released yesterday) was just fine with an overall score of 68 (above 50 denotes optimism), last month's housing starts and permits results (released this morning) were anything but!

Tuesday, July 17, 2018

Trade Deals Going On Everywhere! Well, almost everywhere...

Ironically, the threat of a global trade war is inspiring trade deals across the globe. Sadly, however, the traditional U.S. leadership in such agreements is missing.

Monday, July 16, 2018

Headlines of the Day: The Consumer's Still In Very Good Shape

The following headlines from this morning speak to what we're seeing in the consumer components of our macro index:

The Markets Hold Great Sway Over the Political Powers That Be

We've maintained that the saving grace for the market when it comes to the threat of a global trade war is the market itself.

This morning's news with regard to oil makes our case. Here's the headline:
Oil Falls 3%, Below $69, As Treasury Says Importers May Get Leeway to Buy Iranian Crude, Despite Sanctions

This Week's Message: General Setup Remains Constructive, But There's Undue Risk Resulting From Trade Disputes


The following are highlights from our weekly market and economic analyses:

Technicals:

The overall short/intermediate-term setup remained mostly unchanged last week across the cyclical sectors. The one exception was energy recapturing its 50-day moving average. Financials, industrials and materials continue to score poorly, while tech, consumer discretionary and now energy receive the highest possible scores.

Sunday, July 15, 2018

The Two Forces Changing Everyday Life for the Better!

I'm always a bit perplexed when I hear folks lament the ills of modern society. They tell tales of a hollowed out middle class and of increased poverty at home and abroad. All the while I know that they, in their own communities, see what I see as I meander along the trails in my own neck of the woods; which vividly illustrate for me that while life in 21st Century America ain't perfect, it certainly ain't all that bad either. 

Thursday, July 12, 2018

Unfortunate Headline of the Day -- Or -- The Stifling of Stagnation

The headline reads:
China's Trade Surplus With the US Grew In June
Yep, that's an unfortunate headline indeed! Unfortunate in its wording, that is.

No News Is Good News....

In this week's video I suggested that the recent rally at that point  looked to me like a "no-news-is-good-news" event. I.e., amid a bullish setup, any lull in THE headwind (trade war) would see prices higher. I also cautioned viewers to expect "more volatility because, clearly, neither side is willing to concede at this point." Then of course that evening (Tuesday) the Administration laid out its plan to tariff another $200 billion worth of Chinese imports and, of course, yesterday saw the Dow down 200 points. 

Stat of the Day: Good Inflation

Yesterday we described the circumstances under which inflation can be considered a good thing:

Wednesday, July 11, 2018

Stat of the Day: Good and Bad Inflation

Inflation can be a good thing, when the timing's right. In fact, it's what the Fed has been trying to create (to the tune of 2% annually) ever since the 2008 recession.

Copper's Catching a Cold

We were more than clear from the get go that if President Trump was to act on the promises of Candidate Trump, the bad (protectionism) would pose a major headwind for the good (tax reform, deregulation, infrastructure) when we're talking the markets and the economy.

Aside from the equity market serving up a pancake during the first half of a year when the setup coming in was better than the previous year (which happened to be a very good year for stocks and the economy), there's no more vivid a validation of our concern than the present state of the copper market.

Tuesday, July 10, 2018

Present State of the Market: Remains a Correction in an Ongoing Bull Market (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Monday, July 9, 2018

Sunday, July 8, 2018

This Week's Message: General Conditions Don't 'Yet' Justify The Recent Rotation To Defensives

The following is my summary of our weekly market analysis:

Last week showed some very short-term technical improvement – my subjective view in “daily chart character” -- virtually across the board. The binary (objective) technical analyses showed improvement in transportation stocks (recaptured their 200-day moving average), in home builders (recaptured their 50-day moving average) and in the positioning of the 50, 100 and 200-day moving averages for healthcare.

The S&P 500 Index itself continues to exhibit strong technical trends. The message being: probabilities suggest that the bull market has significant room to run, once it completes what, at this point, appears to be healthy consolidation.

Saturday, July 7, 2018

Where Do We Go From Here?

In conversations with friends and clients (also friends), I hear over and over again how they (many of them) are concerned about the latest on foreign trade, but that they appreciate that something is finally getting done to "level the playing field."

What that tells me is that many folks -- given that they have lives -- either haven't had the time or desire to really dig into the issue, and/or they don't fully grasp it, and/or the sources where they dig offer up biased depictions of the present state of affairs.

While our primary purpose herein is to keep clients abreast of the whys and wherefores of how we manage their money, we also feel compelled to offer up some clarity on economic-related waters that politicians and the media are so adept at muddying up.

The one thing we can promise is that there'll be no politics in our depictions. Our ultimate aim is to forever see, and present to our subscribers, the world as it is, not how we or they may like it to be.


Where Do We Go From Here?

As you know, the first shots have been fired in what we can legitimately call a trade "battle"; call it a border skirmish, maybe. Whether or not it escalates to all-out war remains to be seen.

Friday, July 6, 2018

In the Face of a Looming Trade War

To give you a feel for what's inspiring today's action, here's this morning's entry to our internal market log:

Thursday, July 5, 2018

A Very Brief Reprieve?

Here's what has the market jumping this morning (Dow futures point to a 200-point surge at the open):

Monday, July 2, 2018

This Week's Message: Technicals Mixed, Fundamentals Strong, However.......

We'll make this week's main message short and sweet (or sour, given our take on recent developments) by sharing my weekend entry to our internal market log. There'll be much more to come herein over the next few days: 

Saturday, June 30, 2018

Midterm Madness?

The data on market action during midterm election years is consistent with our present thesis for the balance of 2018. That is, a volatile -- potentially rougher than your typical midterm election-year summer (read tariffs) -- with a potentially strong finish for the year. 

Friday, June 29, 2018

Consumers Still Feeling Good, For Now

While the title to the following article on the June results of The University of Michigan's monthly consumer sentiment survey (an input to our macro model) may sound concerning, 98.2 is still a strongly positive reading.

There is a looming issue, however, that we've fully expected to begin rearing its ugly head in both the consumer and business surveys (and it is!); it's clearly showing up in expectations. The survey director's commentary in the last paragraph perfectly echoes our concern:

No Dollars Lost

So what happens to all of those dollars we spend on foreign stuff in excess of what foreigners spend on U.S. stuff?

Well, each week we track "foreign portfolio investment" in the aggregate, as well as to what extent stocks and bonds contribute to the total, across a number of countries  -- and therein lies a big part of the answer. Just completed the exercise and felt inspired to offer up the following lesson.

Wednesday, June 27, 2018

Quote of the Day: Where might we be ex the trade issues?

Today's narrative:

Industrial Stocks and The Trade Issue

In last week's video I touched on the action in the Dow and illustrated the huge hit Boeing and Caterpillar were taking due to trade issues. 

Here's that chart of the Dow components; the two lines at the bottom represented the percent changes in Boeing and Caterpillar stocks:

People Have to Have a Reason, And the Media's Forever Willing to Accommodate -- AND -- Our Present View on the Dollar and Gold

To steal from our title this morning -- particularly when it comes to markets -- people have to have reasons, and the media's forever willing to accommodate. Apparently, however, the quality of those accommodative efforts is of secondary concern.

Note that the following headlines crossed my screen 16 minutes apart (and there was no new news on "global cues" during that quarter-hour):
6/23/2018 4:32
Gold extends gains on positive global cues
6/23/2018 4:48
Gold, silver prices fall on weak global cues

Tuesday, June 26, 2018

The Thinking Behind Our Top Holdings

For client subscribers in particular, we think it's important to keep you abreast of why we're doing what we're doing within portfolios. 

Below are our latest summary narratives for our top 5 sector targets:

Monday, June 25, 2018

The Current State of the Market (video)

This morning I touch on the state of the current correction, this morning's selloff, trade relationships developing outside the U.S., political risk and current conditions, all in 4 minutes.

Sunday, June 24, 2018

THE Problem for the Market

As we've been harping herein continually, the current environment around trade is, in our view, the problem for the market so far this year.

Bespoke's analysis overwhelmingly agrees:

Saturday, June 23, 2018

Ronald Reagan on Trade (video)

President Ronald Reagan in his August 31, 1985 radio address shared his wisdom on trade. 



HT Dan Mitchell

CFOs On Current Conditions

The first paragraph in yesterday's blog post captures our view of near-term prospects for the market:
"Clearly, global equities have little upside (and notable downside) potential as long as Washington holds the line on its current trade stance – despite a generally good macro setup (particularly in the U.S.)." 
The responses, encapsulated below, to CNBC's latest Global CFO Council Survey support that view:

Friday, June 22, 2018

Please, Don't Hold Your Breath On This Morning's Rally: Yesterday's and This Morning's Log Entry

06/21/18 (Thursday)

Clearly, global equities have little upside (and notable downside) potential as long as Washington holds the line on its current trade stance – despite a generally good macro setup (particularly in the U.S.).
Per Bloomberg this evening there’s quite the division on the issue among White House officials. Thankfully, some on the staff of the National Economic Council understand the fundamental flaws in the current path we're on:

Thursday, June 21, 2018

A Quick Dive Below The Surface (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Wednesday, June 20, 2018

Like We Said

From our weekly message posted Monday:
The thing about the U.S.'s protectionist ambitions is that they're being imposed on virtually all of our major trading partners at the very same time. In essence, we are doing "battle" with a number of armies, none of whom are battling among themselves. In fact, our recent actions are sowing a newfound kinship among our now trade adversaries and a great deal of global deal making (that excludes us) in the process.

Tuesday, June 19, 2018

Putting Current Market Action In Perspective (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

 

Monday, June 18, 2018

This Week's Message: Good Time For A War? Well, That's What Pyrrhus Once Thought....

Three of the world's major central banks held their policy meetings last week and issued statements in line with what we anticipated and  expressed herein. Asset prices responded as we suggested they would as well; that is until the threat of a global trade war was thrust back onto the scene in a big way.

Friday, June 15, 2018

Thursday, June 14, 2018

This Morning's Log Entry: A Followup To Yesterday's Blog Post

6/14/18 (Thursday)

The Fed and the ECB meetings played out precisely as we scripted  yesterday: The Fed was more hawkish with 4 hikes this year now being the consensus, and the ECB softened up by pushing QE through year-end, and announcing that – as economic things currently stand -- interest rates won’t be touched until we’re well into 2019.

Wednesday, June 13, 2018

The Fed Says The Economy's In "Great" Shape, And Won't Weigh In On Fiscal Policy, However.....

As you've noticed, we're not the least bit shy in expressing our concerns over the potential for an increase in protectionism between us and our trading partners. Listening this morning to Fed Chairman Powell's post-meeting press conference, he had to field a few questions on the topic.

Today's Log Entry: The Dollar vs The Euro

Currencies have my attention this week; particularly the U.S. dollar and the Euro.

Monday, June 11, 2018

This Week's Message: Many Things Have Gotten Better With Time

Keeping this week's message brief, as there'll be quite the number of pending issues we're likely to circle back with over the next few days...
----------------------------------------------------------------------
We here at PWA, on behalf of our clients, have to set aside our personal politics -- as well as our proclivities toward optimism or pessimism -- and forever let the data instruct what we do inside of client portfolios. While I know that can be frustrating at times -- particularly when we state empirically proven facts that conflict with certain public policies -- trust me, you shouldn't want it any other way!

Sunday, June 10, 2018

Quote of the Day: Moving On Up

The notion that the U.S. middle class is being "hollowed out" has been a curiously popular one for years. This morning I'm borrowing Don Boudreaux's quote of the day, including his followup comment:

Saturday, June 9, 2018

A Consumer and An Economist Talk Protectionism

Experience compels me to preface the below with a statement about politics. I've found over the years that when I go to a place that conflicts with a position taken by the party in power I generally touch a few nerves. Thus, over the past few years I've devoted far less time herein than previously to topics other than those directly related to the business of investing. That said, some of the topics that tend to touch political nerves -- such as tariffs -- are indeed related to (impact) the business of investing. 

Gauging Smiles and Wrinkles

Confirmation on the strength, or lack thereof, of the economy can come from multiple sources. In that the consumer accounts for 2/3rds of U.S. economic activity, we are forever digging deep for data that instruct us as to how the everyday American is faring (we recently touched on  the presently high hotel occupancy rates).

Apple Amid the Noise

Apple's performance amid the news flow, with regard to its messaging to suppliers, of the past couple of years speaks to the importance of not  relying on media accounts, on doing your own research and on properly assessing current conditions.

Thursday, June 7, 2018

Chart (and quote) of the Day: Banks Well Positioned and Undervalued

Oppenheimer's Chris Kotowski shares our present view of the financial sector (our current top target weighting):

Wednesday, June 6, 2018

Quote of the Day: What 'Might' Happen If We Abandon the Trade War Notion?

While I'd never pretend that I could quantify to what percent a rally might ensue should we survive the current onslaught on global trade, in a note to (I presume) JP Morgan's clients today its top quantitative strategist, Marko Kolanovic, basically echoed the sentiment in our earlier blog posts, here and here:

What's Driving This Week's Rally?

The Dow's having a heck of a week! Closed over 300 points higher today alone. And while that makes some sense in that, amid a notably positive backdropthe index was negative (-1.23%) on the year less than a week ago (5/31)  -- i.e., in theory it's only a matter of time before stock prices reflect the fundamental backdrop -- make no mistake, news that this year's primary headwind may be abating is the present  driver:

Economic Data Looks Very Good to Start June, However....

June is starting off very nicely in terms of economic data reported. Here's from our June 2018 trends file:

Thursday, May 31, 2018

Stat of the Day: The Consumer's In Good Shape

This morning's release of the Bureau of Economic Analysis's Personal Income and Outlays Report confirms what we've been seeing consistently in our weekly macro analysis; that the U.S. consumer -- who's responsible for 2/3rds of U.S. economic activity -- remains in pretty good shape.

Today's Podcast: Why The Market Hates Protectionism

In yesterday's "Headlines of the Day" my closing line included:
....the market reaction to a U.S./China/EU trade war will be the definition of ugly.
Per this morning's headline -- "Trump Slaps Steel Tariffs on EU, Canada, Mexico as Tensions Rise" -- we can add Canada and Mexico to the list of combatants in a potential trade war.

Wednesday, May 30, 2018

Headlines of the Day

As I type ahead of this morning's open Dow futures point to a nice rebound after Tuesday's bludgeoning. 

In yesterday's podcast I suggested that while the market's reaction to Italian politics was understandable, given the time frame and the process to come before Italy succumbs to populist rule (if it indeed does), the quick, steep decline could only be described as knee-jerk (Italian stocks are up 3% in the premarket this morning).

Unfortunately, stocks had something else to contend with in yesterday's headlines; a something else that stands to dampen what could be a substantially strong rally off of yesterday's lows:

Tuesday, May 29, 2018

Stat of the Day: A Little More On Housing

Over the weekend we offered up our tracking of 4 key data points that suggest that the housing market is a-ok for the time being. Today's release of the S&P CoreLogic Case-Shiller Home Price Index says essentially the same thing:

The Present State of the Correction (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

This Week's Message: The European Problem and Probabilities Going Forward (podcast)

A quick note on financials to add to this week's commentary: The financial sector -- our largest target weighting -- is leading the way lower this morning amid a global equity market selloff. This looks to us to be a reaction to a strong move into U.S. treasuries, forcing yields lower, in response to present Eurozone woes (which I touch on in the audio). Lately, financials have shown strong correlation to interest rates, as higher rates would lead to higher earnings on loan portfolios. Therefore, a move lower -- the likes of what we've seen the past few days -- virtually has to hit the sector harder than we might've otherwise expected. 

Sunday, May 27, 2018

The Current Look of the Housing Market

Seems like folks are thinking a lot about housing these days, as I've been fielding more than the usual inquiries on the subject of late. Just this morning a young mortgage broker solicited my opinion on the basketball court, of all places. 

Friday, May 25, 2018

The "Key to Understanding the World" (video)

While I am certain that I have personally viewed this video rendition of Leonard Read's 1958 classic essay I, Pencil  dozens of times over the past 6 years, I find myself as awestruck today as I was during my first viewing, and as I was when I first read the essay umpteen years ago.

Thursday, May 24, 2018

Today's Podcast

On the Auto Tariff News

Here's the close to my note to staff this morning regarding yesterday's announcement that the Commerce Dept will explore, on national security grounds, the prospects for imposing tariffs on foreign-made cars:

Wednesday, May 23, 2018

Charts of the Day: Trade and the Dow

We'll just keep this thread going as the headlines on trade roll in:

Hugely Successful People Can Be Hugely Bad Economists

In Don Boudreaux's reply (below) to a concerned reader he makes the point that I find myself making over and over again to family, friends and business associates about the likes of Warren Buffett, Bill Gates, Mark Zuckerberg, Wilbur Ross and other famously successful people in their chosen fields: That is, having mastered the art of, say, locating and buying undervalued companies, technological innovation, social media or spanning the globe in search of distressed debt to buy, does not, in any way shape or form, make one a great, good, or even mediocre economist. Fact is -- based on notions these gents have passed along over the years about taxation, regulation, universal income, trade and per below the relationship between technology and employment -- they are at times profoundly bad economists.

Tuesday, May 22, 2018

CEOs Feeling Good

The latest Fortune 500 CEO Poll jibes with our analysis of present conditions. I.e., looks (at this juncture) like there's room for the expansion to run.

Here are the highlights from this morning's Fortune CEO Daily Report:

Monday, May 21, 2018

Charts of the Day

Last Thursday we got this headline:
Trump Says He Doubts China Negotiations Will Succeed
And we got this price action in the Dow:

Sunday, May 20, 2018

This Week's Message: Don't Be A Bull Or A Bear: Be What Conditions Dictate!

Seems like I'm getting more emails lately with folks forwarding often pithy analyses of why some data point spells imminent doom for the economy and, by default, for the equity market. Problem being, the last few have featured, as I just hinted, merely one data point.

Friday, May 18, 2018

Way Wrong Wilbur!

The protectionism debate has been a fascination of mine ever since I read the 1946 classic Economics in One Lesson (still my top economics book pick) many many moons ago. 

Tuesday, May 15, 2018

Market Brief

Here's this morning's entry to our internal market log:

5/15/18 (Tuesday)

After 8 up days in a row, the Dow is off ~200 points this morning. Headlines say it’s Home Depot’s earnings miss and positive econ data pushing up interest rates.

Monday, May 14, 2018

This Week's Message: Our Present View of Conditions; Technically and Fundamentally (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Sunday, May 13, 2018

Better Book Your Room Now!

I read somewhere that there's presently a bull market in recession predictions. That is, there are these days a lot of folks, some credentialed, some not, desirous of making names for themselves by calling the next great downturn. 

Friday, May 11, 2018

Don't Get Too Excited Over This Week's Inflation Data

While we should all welcome this week's tamer than expected inflation data (bonds, gold, and emerging markets bulls, and dollar bears, certainly have), 

Thursday, May 10, 2018

This Morning's Log Entry

Thought I'd share with you this morning's entry to our firm's market journal:

5/10/18 (Thursday)

Equities are having a strong week thus far, with the S&P up 1%. 

Tuesday, May 8, 2018

Stat of the Day: Yep, More Jobs Than Workers

In this week's message (posted yesterday) we suggested that last Friday's weaker than anticipated jobs number may have had more to do with a lack of workers than it did a lack of jobs:

Monday, May 7, 2018

This Week's Message: Four Hikes Are In The Cards, But That's Totally Okay

Friday’s jobs number missed the consensus estimate by 29k, and wage growth was a bit softer than expected. The unemployment rate fell to 3.9%, although that can be explained away (and is by naysayers galore!) by a drop in the labor force participation rate (LFP).

Sunday, May 6, 2018

Coming Treasury Auctions Will Be Telling

We've made the case from the get-go that a serious risk (one of many) of inciting trade disputes is the potential to notably hurt the demand for U.S. treasury debt -- at a time (tax cuts and spending increases) when it's needed most.

Thursday, May 3, 2018

Quotes of the Day

The Non-Manufacturing (services) Institute for Supply Management survey for April was just released. Like the manufacturing report it was on balance a positive read on the present state of the economy.

Here we'll do what we did yesterday with the April manufacturing survey and highlight the comment section as follows:

What It Is


I keep hearing that the reason the market isn’t rallying hard during this amazing earnings season is that “it was all priced in”. Nothing new here. Everybody knew earnings were going to be great, so now what?” Nah… I don’t buy it… If it were all priced in so many companies’ stocks wouldn’t be screaming higher as earnings are announced, only to give it all back the next day…

Wednesday, May 2, 2018

Quotes of the Day

We view the Institute for Supply Management's (ISM)'s monthly purchasing managers surveys as critical inputs to our macro index.
We've added highlights as follows to the April manufacturing report's featured respondents' comments below:

Tuesday, May 1, 2018

Monday, April 30, 2018

This Week's Message: The Good, The Bad, And The Probabilities...

You'd think investors would be feeling pretty good right about now.

After all, the earnings season thus far has been all (actually, more than) it was billed to be; 73% of reporting companies have beaten expectations on the bottom line, with growth rates at multi-year highs. As, if not more, importantly, top line beats are coming in at a remarkable 71% clip. 

Not to mention the fact that the economy (the U.S. economy in particular) continues to expand at a healthy pace; our PWA Macro Index has increased in 3 of the past 4 weeks, with this morning's reading coming in at an historically healthy +61. 

Yet the market hasn’t been able to make any real headway, despite having set the stage with a double-digit correction heading in.

Friday, April 27, 2018

So What Gives?

If you're wondering why, amid exceptional earnings reports and on balance strong economic data, the market remains in a technical downtrend from the January 26 high:

Thursday, April 26, 2018

Wow! And Dang It!!

The first chart below jibes perfectly with our reporting herein on general conditions for stocks:

Tuesday, April 24, 2018

Weaning Ain't Fun!

Well, dang! 

Thanks – more than anything else -- to threats of a global trade war, stocks essentially missed out on (unless of course we see a big advance as we close out April) what was a really nice setup going into the seasonally-special March/April period. I.e., having just suffered through the first 10+% correction since early 2016, the market was ripe for a rally as it entered the historically two best months of the year. 

This Week's Message: Should We Fret The Yield Curve?

As we've been reporting, our analysis of current conditions suggests very low risk of recession on the near-term horizon. However, to some, one popular economic indicator -- one that happens to be an important input to our weekly analysis -- is flashing red! That would be what's called the treasury yield curve. 

Sunday, April 22, 2018

Quote of the Day: The Post Office Needs A Large Dose of the Free Market

Ironic how the U.S. Postal Service remains mired in government bureaucracy while Germany and Britain turned theirs over to the private sector, and they're fixed.

Monday, April 16, 2018

One Example of Why Tariffs Really Bug Me!

A friend, and BTL reader, told me recently that in reading the blog he senses that talk of tariffs for me is akin to someone scraping their fingernails on a chalk board.

I must confess, he was spot on!

This morning's Empire State Manufacturing Survey release gives you one reason (among multiple) why:  emphasis mine...


note: Paragraph 3 supports our bullish view of current conditions; paragraph 1 explains why we stressed at the beginning of the year that protectionism poses the greatest threat to our thesis...

Sunday, April 15, 2018

This Week's Message: Long-term trend intact, short-term setup in question...

Bringing you this week's message early, as I'll be away from the office Tuesday through Friday (what'll you do with all that extra reading time?). 

While recent volatility has delivered some short-term technical damage to equities, the longer-term bullish trend remains intact; per the three long-term trend indicators (the slope of the S&P 500's 200-day moving average, the positioning and slope of our weekly moving average indicator, and the signal indicated in our monthly Bollinger Band chart) featured below: 

Saturday, April 14, 2018

From Our April Current Trends File

The entries thus far to our April current trends file pretty much jibe with the latest reading from our macro index. 

In a nutshell: Under the weight of rising geopolitical uncertainty, global trends are not what they were a few months ago. The U.S. economy nonetheless remains in good shape with probabilities pointing to no recession on the near-term horizon. In the meantime, inflation is picking up at a healthy enough pace to justify at least 3 Fed rate hikes this year. 

Friday, April 13, 2018

Stat of the Day: Workers! Workers! Workers!

You and I can have a legitimate debate about the good and bad of employment trends in manufacturing. And we can legitimately debate the quality of jobs available across all sectors. But, frankly, there's no debating the fact that the U.S. economy is in no way shape or form wanting for job opportunities. 

Don't Celebrate This Stronger Week Just Yet -- And -- Is China On The Ropes Or Playing Rope-A-Dope?

While we're ultimately concerned with general conditions, and allocate accordingly, we nonetheless pay very close attention to the day-to-day developments that impact short-term market moves. 

Two reasons: One, the media, in an effort to capture our attention, often doesn't capture the true catalyst(s) for a given market move; we thus feel compelled to offer our readers what we view to be the straight unbiased scoop. And, two, we want to help our clients keep the noise in perspective, as, often -- as it pertains to our/their time horizon -- that's all it is.

A 'Fundamental' Silver Lining To A Volatile Market

If you're our client financials is presently your portfolio's top sector weighting. We outlined our bullish thesis in our 2017 year-end letter. Per point #5 in the excerpt at the bottom, we saw market volatility in 2018 as a distinct positive for the sector's earnings prospects.

Citigroup's earnings announcement this morning confirmed our suspicions:

Thursday, April 12, 2018

Quote of the Day: Market-Friendly Stuff

While commentary from Washington has been the definition of volatile/uncertain of late, some of the latest is market-friendly stuff:

Wednesday, April 11, 2018

Quote of the Day: Anything can happen in three months time...

Jack Schwager -- in an interview for his highly insightful book Hedge Fund Market Wizards -- asked GMT Capital (multi-billion dollar money management firm) founder Tom Claugus about his early years as a hedge fund manager. 

We entirely sympathize with his response; which describes plain and simply why we decline all requests to manage short-horizon portfolios:

Tuesday, April 10, 2018

This Week's Message: It's All About Trade, For Now...

About mid-morning yesterday at the office we discussed the then big rally in stocks (the Dow peaked 450+ points higher on the day). We concluded that the advance had little chance of lasting the day as it was clear from the open that it was predicated upon softer trade talk out of Washington. I.e., given that Chinese President Xi's address at the BOAO Forum was scheduled for the evening, it simply didn't make sense that traders would want to be long at the close.

Monday, April 9, 2018

Our Present View of the Tech Sector

Thought I'd share with you our updated internal narrative on the technology sector. In addition to summarizing our assessment of the tech space, it offers some insight into the dynamics presently pushing stock prices in both directions:

Sunday, April 8, 2018

Lee and Li Do a Deal

Let's say that Lee, an American, gets together with Li, a Chinese artist, via the internet and buys one of his paintings for $2,000. Li is happy to have 2,000 U.S. dollars, and Lee and his wife are thrilled with the beautiful piece of art now displayed above their mantel: A win/win by definition.

In my story, Lee happens to be a spender, while Li happens to be a saver; Lee likes nice artwork, Li likes to save and invest.

Saturday, April 7, 2018

"The Sensible, Rational Thing For Us To Do"

I'm with Milton Friedman on this one (have been for decades as I've watched both sides of the aisle exploit the American consumer's confusion and abuse him/her in the process):

Friday, April 6, 2018

Where the Jobs Are, and Comparative Advantage

There's a thing called comparative advantage; I actually did a Youtube video on it a few years ago (first video below) -- you'll find it instructive.

In a nutshell, different countries do different things more efficiently, and when we allow for/exploit those comparative advantages we ALL get richer.

Stat of the Day: One more on why we like financials (our highest present conviction) right here...

Bloomberg's Chart of the Hour:

Median and Meek

While the headlines and price swings may feel freaky, it's always good during times like these to step back -- as we did in last night's video -- and put things in historical perspective:

"Selloffs can be waved off. However..."

Market researcher Bespoke Investment Group did an excellent job this morning outlining present risks:   emphasis mine...
It is impossible to view the announcement of expanded tariffs by the US last night as anything but a major escalation. Thus far, every tariff announcement by the US has been responded to in similar size with Chinese proposals, so China’s response is likely only a matter of time.

So, Was the Market Right About Trump to Begin With? -- Or -- How This Likely Plays Out...

Thought I'd share with you my entry this morning to our internal market log:

4/6/18 Friday

Upon leaving the office the afternoon of the 2016 Presidential election, I recall telling Jeannette that “Trump’s not going to win, but if he does the Dow will be down a thousand points tomorrow.” Well, of course I was wrong on both counts; he won, and the Dow opened only a couple hundred points lower (although Dow futures were down nearly 900 points overnight after the results were announced), and closed I believe 300+ points higher.

So why all the pessimism going in, and the ~900-pt drop the night of?

Thursday, April 5, 2018

Video Commentary: Very Much the Norm 'So Far'...

Well, like I said yesterday, we do video commentaries during unusually rough days for the market. While the night's still young, it looks as though the market may be in for a rough ride come tomorrow morning.

In this evening's video I apply a popular technical concept throughout the current bull market to make the point that present volatility is -- to this point -- very much within the norm:

Service Sector Purchasing Managers are Upbeat, Save for one big concern....

The ISM Non-Mfg (Services) Survey -- a highly regarded indicator of economic prospects -- came in on balance strong for March. Which is consistent with how our macro index is scoring.

Wednesday, April 4, 2018

Kudlow Breaks His Silence!

Had a technical difficulty with this morning's promised video commentary. In that we tend to produce those during major down moves, we've decided to hold off till the next one of those days. 

Where This is Coming From, The Facts, and Simon and Garfunkel on the real problem...

As you readers should absolutely expect (and, at this point, be unrattled by) -- based on the headlines of the past 18 hours or so -- Dow futures are pointing to a 500 point decline at this morning's open. We'll put a video commentary together a little later this morning.

In the meantime, here's something to help you understand where this all is coming from:

Tuesday, April 3, 2018

This Week's Message: The Long and the Short of Current Conditions

As managers of what we'll label long-term (retirement, generational wealth, institutional, etc.) portfolios, it's general conditions and the long-term setup that we're ultimately concerned with. That said, in that in our view good communication ultimately leads to emotional comfort among our clients (our ultimate aim), we believe it's important to continually offer insight into the day-to-day goings on that influence short-term market movement and, alas, the financial media's messaging. 

Monday, April 2, 2018

Some Good News Amid the Noise

We view the Institute for Supply Management's monthly manufacturing and service sector surveys as very important inputs to our macro model. 
As we suggested in a post this morning, February's manufacturing survey suggests that the economy remains in decent (in fact, very decent) shape.

Same Story, Same Macro Setup... For Now...

The Dow's down 670 points as I type. Ironically, exactly one week ago the Dow closed up 670 points. While you might think it's all about Amazon, don't! Not that the signal the President -- in his attack of Amazon -- is sending to the market isn't concerning on a number of fronts, the energy underneath today's selloff generates from the same issue du jour that inspired last Monday's rally; trade.

Economy Looks Decent, So What's the Problem With the Market?

This morning's selloff in stocks isn't about the economy, per the following results from two key manufacturing surveys just released. Ironically, however, the Manufacturing Purchasing Managers report offers a clue (my highlight):

Sunday, April 1, 2018

Headline of the Day -- And -- Near-Term Prospects

In last Sunday's "Headline of the Day" we suggested that the market would warmly greet Secretary Mnuchin's comments that he was hopeful that the U.S. could come to a workable, non-tariff, solution with China. As it tuned out, the Dow screamed higher on Monday to the tune of 667 points.

Unless the headlines out of Washington improve on this Easter Sunday 2018 (by the way, Happy Easter!!), we won't be looking for another monster Monday rally tomorrow. 

The President has been active on Twitter this morning:

Friday, March 30, 2018

Quote of the Day -- And -- Protectionism is a Bipartisan Affliction...

Last Tuesday we explained why the market aggressively sold off (after opening with strong momentum following Monday's 660 point rally in the Dow) on news that Washington was about to take serious measures to limit foreign capital investment into the U.S. economy. 

Wednesday, March 28, 2018

More On Why We Like Financials Right Here

On March 13th we devoted our weekly message to why we like financials right here. Sharing our view of a given sector's prospects serves to accomplish two aims: One, it helps clients understand what they see us doing within their portfolios and, two, it can offer some insight into general economic conditions -- as each sector's prospects are largely dependent upon the macro setup.

The Trade Deficit Was Perfect Last Month!

Now hear me out, I'll keep it short:

While this morning's trade report provides yet more fuel for the Administration's fire (the "deficit" came in above consensus expectations), I would argue that it was actually a very bullish report and totally supports Washington's ambitions going forward.

Tuesday, March 27, 2018

Quotes of the Day: Can't Have It Both Ways!

From the get go, we've expressed our concerns with regard to the risk of the Administration making good on what many thought was mere protectionist rhetoric; while all along acknowledging that its other ambitions, like tax reform and deregulation, had absolutely moved the business sentiment needle in a positive direction. And the latter is no small deal when it comes to the economy. I.e., when producers and consumers feel good about their lots, they become very stimulative economic agents.

Like I Said, Still in the Woods!

Like I suggested this morning, we're still very much stuck in the short-term woods. Here's the latest out of Washington:

This Week's Message: Rally Makes Sense, Not Out of the Short-Term Woods, and Long-Term Continues to Look Good...

In Saturday's blog post we said that the backdrop for equities is such that if the U.S. protectionist push 
"doesn't get drawn out long enough to crack the general setup we'll see a sharp rally in stocks, likely to new highs." 

Sunday, March 25, 2018

Headlines of the Day: Mnuchin Looking To Calm Markets Come Monday

While the market's understandable tanking last Thursday and Friday -- along with the accelerated selling right at the close for the week -- bodes bearish for tomorrow morning, here are a couple of news items that could offer stocks a respite:

Saturday, March 24, 2018

Quick Thought On Near-Term Prospects For The Market

Here's a snippet from this morning's entry to our internal log. In essence, it's what I'm thinking about the immediate market impact of recent events, as well as the near-term prospects for equities: 

Friday, March 23, 2018

Durable Goods Orders are Encouraging, Big Time! -- AND -- From whom would you take counsel on trade?

Durable goods orders for February were exceptionally strong! The bright spot to us being core capital goods; i.e., businesses in the U.S. are expanding, which should help you understand why our country's business leaders, virtually across the board, are literally pleading with Washington to rethink its position on trade:

Thursday, March 22, 2018

Still a Sissy of a Correction!

Days like this (Dow down 724) virtually require, say, 4 blog posts (by 3 pm). 

You may recall, or perhaps not (given recent action), that 2018 started out like gang busters. In fact it was the 7th best start to a year (as of Jan 23rd) in stock market history. 

Video Commentary: Current Conditions

We featured a beautiful eagle flowing over a snowy mountain range as our visual in the intro, then I completely forgot to share the analogy. So you'll find it in print below the video player:

The market -- per this morning's futures action -- is bracing for the tariff announcement...

Regular readers by now are well-versed on our position with regard to protectionism. A few minutes ago we posted a quick piece on its impact on the Dow Jones Industrial Average's most influential (from a volatility standpoint) constituent. 

Quote of the Day: A Happy Day for Boeing's European Competition!

The following from Bloomberg Intelligence's aerospace and defense analysts should help you understand why the stock market hates protectionism:

Wednesday, March 21, 2018

Uh Oh! The Tariffs Have Been Announced! But Wait!

Uh oh, the tariffs have been announced (well, the announcement of the coming announcement of the tariffs has been announced)! But wait, after freezing in place while details were dispensed, the Dow rallied to up 150 (+117 now). So, tariffs good? No, not at all, but at least round one appears to be substantially muted relative to the rhetoric going in.

Headlines Speak a Thousand Words -- And -- Look for 4 Fed Hikes This Year, Regardless of Today's Comments

More often than not, when a headline inspires me to click through to an article (typically they don't), I can glean all I need from the first few lines.

Here's a handful from this morning, and one from yesterday. There's a theme here:

Tuesday, March 20, 2018

This Week Message: The Fed and the Market -- And -- The President and the Market

I recall early in my career growing frustrated over what I viewed as Alan Greenspan's obsession with the stock market. I remember thinking that it wasn't the Fed's responsibility to hold the market's hand through volatile times; that its members should just focus on their mandate, which makes no mention of the stock market, and let equity prices react accordingly. 

Monday, March 19, 2018

Headline Update -- And -- As For What Matters

Not to belabor one morning's worth of volatility, but since I jumped out early with an always-to-be-questioned-headline (and based on the unusual number of hits it fetched) I figured I'd offer a quick followup since that first headline reason for the selloff has been basically abandoned by the media. 

Now it's:
Dow drops 300 points, S&P slides more than 1% as Facebook drags tech stocks lower

This Morning's Action

This morning's always-to-be-questioned headline says:
Dow falls 200 points on Trump's Twitter meltdown

Sunday, March 18, 2018

Headline of the Day: Bitcoin a serious threat, not! -- And -- Blockchain itself, however, is another proposition altogether.

From day-one, when anyone asked me how I felt about bitcoin I'd reply, "I absolutely love the concept, but fuggetaboutit if you think it's going to take over the world. I mean, imagine the threat to the global monetary system. The powers that be will have nothing of it, I promise."

Saturday, March 17, 2018

We Still Think the Market's a Bit Behind the Inflation Curve

On balance, last week's economic data releases were decent; better than decent when we look at consumer confidence, jobs-related data and industrial production. We're seeing virtually no signs presently of any heightened risk of a near-term recession; which is of course what we're forever on the watch for as we consider our equity exposures.

Friday, March 16, 2018

Don's Mom

The mother of the best economist I know passed away on this day in 2008. The tribute he penned to her a decade a go is timeless, and most inspiring. 

We Had A Huge Trade Surplus In January!!

Wow! We had a huge trade surplus in January!

Well, not by popular definition, but certainly by your investment consultant's 😇.

Wednesday, March 14, 2018

Why Media Headlines are Virtually Worthless

Now, it is true that the Dow is down over 100 points as I type. And it is true that retail sales unexpectedly dropped last month (something we'll dig into and apply to our model). However, does the message implied by the following headline paint an accurate picture of this morning's move in the Dow?

Data of the Day: Small Business Owners Continue to Like What They See

Small business is the employer of U.S. citizens, and, thus, the internals of the National Federation of Independent Business monthly survey account for 3 (of the 49) inputs to the economic component of our macro index. 

Tuesday, March 13, 2018

This Week's Message: Why We Like Financials Right Here -- And March Trends

This week we raised our financial sector target weighting to 18% (from 16%) of equities, making it our single heaviest position (previously tied with materials and industrials [still at 16% each]). Here's why:

Market News of the Day: Protectionism putting the bull market to the test...

For the umpteenth time, we emphasize that, while our analysis of current conditions favors equities going forward, we see a U.S. push toward protectionism as the development that will put the data, and, thus, our thesis, to the test. 

We Remain Constructive on Tech, However........

The following headline crosses my screen after what was a strong start for the market this morning:
The S&P 500 and the Nasdaq turn negative as tech rolls over.
We do remain constructive on tech going forward, however, per the following, not as much as we were this time last year:

Sunday, March 11, 2018

Milton Friedman on Steel Tariffs (VIDEO)

If you suffer any ambiguity over the steel and aluminum tariff debate, allow Milton Friedman six minutes to clear it up for you:

Saturday, March 10, 2018

Data of the Day: Capex easy to do going forward...

While getting a jump this morning on our internal weekly macro update, one of the inputs to our index -- the "corporate financing gap" -- jumped out at me. By comparing non-residential fixed investment (i.e., business capital investment) to corporate cash flows this indicator gauges corporate America's wherewithal to expand. 

Quote of the Day: More than Goldilocks

In yesterday's blog post we suggested that the stock market (participants in the aggregate) -- based on its strong positive response (Dow +441) to the February jobs report -- is betting that interest rates will remain tepid despite the economy picking up some real steam. 

Our suggestion lies partly in the fact that when January's healthy jobs report featured a surprise pickup in wages (exceeded estimates, while February's missed) -- presumed inflationary -- the market tanked (Dow -667):

Thursday, March 8, 2018

Let's Talk Economics, Not Politics!

Here's the headline:
(Bloomberg) -- China’s exports surged and its trade surplus unexpectedly widened in February, illustrating the lopsided nature of global commerce that Donald Trump is preparing to introduce protectionist measures against. Overall exports rose 44.5 percent in February from a year earlier and those to the U.S. surged 46.1 percent, customs data showed...
Here's one possible spin:

Wednesday, March 7, 2018

Video Commentary: More On Current Conditions

This morning's video commentary piggy backs onto last night's with a little deeper dive into our ongoing research and assessment of current conditions.

Highly recommended for clients!

A Little Clarity on the Mucky Protectionism Debate

Here's a slice of my end of a friendly dialogue regarding current events. I'm offering this up to inject some clarity into the very mucky protectionism debate:

Tuesday, March 6, 2018

Video Commentary: Putting Tomorrow's (literally tomorrow's) Volatility Into Perspective, and More on the Current Setup

The President's chief economic adviser -- one the capable advisers (who adamantly opposed the recently unveiled tariff scheme) we referred to in an earlier post -- announced his resignation this evening. As I type, Dow futures are pointing to a 400 point decline at the open. 

Here's some perspective:

This Week's Message: Hey, Chicken and Paper Clips Say There Ain't No Inflation -- And -- This Week's Vision Test

In a recent weekly message we suggested that a strong two-day rally in stocks at the time was based on false pretenses: the notion that the economy isn't in fact exhibiting the kind of strength that would see interest rates notably higher over the foreseeable future, and that that's a good thing for stocks. 

Again, we think the data, and market history, fly directly in the face of such thinking.

Monday, March 5, 2018

Quote of the Day: What Could Bring the Bears Back...

Economist Ed Yardeni echoes our chief concern for the market coming into this year (as expressed in our 2017 year-end letter), and the idiosyncrasy that we've stated will likely mute the specifics of what might otherwise test our bullish thesis going forward:

February Surveys Confirm Our View of Present Conditions

This morning's releases of the services sector surveys by Markit Inc. (PMI Services Index) and the Institute for Supply Management (ISM Non-Manufacturing Index) essentially confirm what our macro analysis tells us about the current state of the U.S. economy.

Sunday, March 4, 2018

Pins and Needles Over Protectionism

Much like other head-scratching phenomena (read tweets and other public commentary of an impulsive nature) of the past year+, the latest calls for anything but knee-jerk reaction. It does, however, demand that we assess our various areas of exposure to what in my humble view is the most ill-advised impulse thus far. 

Saturday, March 3, 2018

Quote of the day: These things take time...

Bespoke Investment Group's guidance on present circumstances mirrors ours:

One More on Tariffs

Okay, we'll do just one more very quick post on the potential economic/market/political effects of tariffs. 

Going forward we'll wait for the details and monitor the immediate impact on market technicals and begin assessing the potential longer-term fundamental implications for both our U.S. and non-US exposures, if any:

So much for this being about U.S. Jobs:

Friday, March 2, 2018

The Simple Sad Truth About Tariffs (Q&A)

In this morning's video commentary I suggested that I'd offer up more on protectionism and markets over the weekend. Thinking about it, the brief mention in this morning's written post pretty much sums up the why of the market's negative reaction:

Video Commentary: The Correction and Our Assessment of Present Conditions

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Present volatility -- per all of our commentary -- makes sense, however....

We've been strongly suggesting that the correction has yet to run its course, which means days like the last three (we'll see about today) were in the offing with or without the ill-timed (always ill-timed!!) announcement that the U.S. is about to do a number on its own consumers, its exporters, its manufacturers who import all manner of components, and of course its key international relationships.

Thursday, March 1, 2018

Oops! Scratch the Earlier "Market-Centric Trump!" Post

Forgive all of the intrusions this morning, this should be the last time I bug you today! But I want you to understand that recent volatility has at this point nothing to do with the fundamental market setup.

Headline from a minute ago:

Quote of the Day: The Fed and the Financial Sector

Bloomberg sees financials as the sector to benefit the most under the new Fed regime. As evidenced by it being our current top sector weighting, we happen to agree (although a financials-friendly Fed is not the only thing that has us bullish on the space):

Market-Centric Trump!

Per this morning's blog post, I'm thinking the pending tariff announcement could (depending on severity) be a negative event for the stock market. I suggested that the President is very market focused and would ultimately look to escape any measure that clearly hits stocks in a bad way.