Month: August 2012

It’s in the Hole…

If you believe the talking heads on CNBC, FOX and even some of the major newspapers across this country of ours, (purposely ignoring those emails from ‘reputable’ sources), Europe is on the brink of falling off the planet, the U.S. economy is repeating a 2008-09 plummet into recession, the world’s political class is unconcerned and unrepentant in their desire for the middle class to falter into oblivion, September is historically terrible for the markets, so run and flee into the hills with your guns, vacuum sealed food and ingots of Gold.  And by the way; there is no Santa Claus.

In nine of the past 11 weeks, we’ve seen U.S. equities post gains and record new highs on the S&P 500 and the NASDAQ 100.  Not too bad if you think about it but certainly not a tiptoeing on a razor’s edge towards disaster.  Globally, weakness was more widespread regarding Asian economic growth and the European debt crisis continuing as more fractures in the united shield appear.  Attention will be diverted to Jackson Hole this week, not only to deconstruct the comments of the Fed Chairman, but the even more keenly awaited speech to be given by ECB President Mario Draghi.  Central bankers, right in front of our eyes are preparing to move the world, again.  At this point anything is possible, so stay tuned and alert.  I think there’s more to that story but time will flesh that out eventually. There is weakness a plenty to go around and the time to act is now.

Treasury yields snapped a four-week run up with a sharp drop. The 5 year note closed just over 70 basis points, the 10 year under 1.7%, and the 30 year bond under 2.8%.  The falling yields ended, at least briefly, a correction in bond prices across most sectors.  WTI crude oil, after trading at more than $98, closed the week just above $96. Natural gas began the week by recovering some of its recent losses, but gave back the entire week of gains on Friday.  Corn reached another new closing high Tuesday, but erased most of the week’s gains by Friday. Wheat saw a comparable trading pattern, but remained above $8.50.

I remain optimistic, cautious and intrigued.  There is no reason for Chairman Bernanke to show his hand this Friday, realistically I’m waiting until after the August employment reports arrive before I can substantiate the ‘hints’  the Fed has been giving for weeks now.  The GOP convention will perhaps grab some more unwanted headlines this week, but I do not see a market moving event coming from it.  They will be more concerned with ‘Imaging’ as they do not need the visual of the GOP celebrating when some communities in the gulf region face the possibility of serious Hurricane damage and flooding.  It will be interesting to say the least.  I remain optimistic.

 

What if something good happened and nobody noticed?

Last week’s started us off with a negative head fake right up until Wednesday when the small and large caps took over and started a new round of peculiar party games.  By Friday, the Russell 2000 had a gain of nearly 2.3%; the NASDAQ came in just under 1.9%, the Dow and S&P 500 squeaking out less than 1%.  Not too bad actually, as the economic data from last week had a generally positive tone.  Globally, 8 of 12 major indexes posted gains with Australia leading the pack while Japan and the Shanghai composite decided to not to participate in the festive atmosphere.

Perhaps some of you noticed lately that the media, particularly CNBC (yes, I’m calling you out) have dived right into the Doom and Gloom, unmitigated fear and conspiracy narrative.  Yeah, funny how the crap I get in “factual emails from unsubstantiated sources” ends up being broadcast by what one would have hoped would be a fair and honest platform for real economic facts and conversation.  If I want to watch and listen to the droning of nonsense and political rubbish, well I can just walk into a restroom and flush the toilet.  At least that way, I know what’s swirling around will soon be where it’s supposed to be, in the sewer, and not broadcast to appeal to the unstudied Neanderthals among us.  CNBC you should know better; when ratings trump knowledge, we all lose. Shame on you.

CNBC withstanding, the data coming in is quite positive.  Building permits are up, inflation data remained pacified, business inventories were lower than forecast and leading economic indicators from the Conference Board remained above zero, and retail sales surged higher.  Yes, there is good news and a fair amount of bad news and we’ll still need more facts to have real confidence going forward however what we don’t need are bogus, pandering partisan stories declaring that the recent gains are the result of governmental adjustments, out of line with anything from the last ten years and in place to only sway to electorate.

Treasury yields rose for the fourth consecutive week: the 5 year crept to .8%, the 10 and 30 year bond yields closed above 1.8% and 2.9% respectively.  The sell-off extended across the bond market, as corporate and municipal bonds were down but within moderate measures.  The pullback in the bond markets should have been anticipated, as bonds have been overbought and it’s thought-provoking to see how anyone could have been flabbergasted.  Commodities continue to move in a sideways direction.   WTI crude oil closed above $95 for the first time since May.  Natural gas continued its retreat, giving back summer gains.   Copper and industrial metals saw irregular trading and the grains sold off on Monday and then advanced again later in the week, with corn back above $8.

The economic calendar is now pretty quiet. Earnings season is basically over.  US Politicians are on vacation (they worked really hard this year-NOT) and European leaders are returning from holiday as well.  A number of very positive trends are occurring right now, with increasing participation from the small caps and the major indexes are closing in on new highs; however there are a number of events on the horizon that have the potential to upset the markets (the Jackson Hole meetings, the European Commission meetings, and German Constitutional Court to name a few).  The markets are holding steady waiting for more information to solidify some conclusive decisions.  I remain optimistic but never foolish.  Keep the current news in perspective.  Politics won’t help the markets, separate that noise from your investments; the fiscal cliff is going to be here after the election like it or not (thanks Congress for a job well done).  There are many good opportunities for the individual investor to gain from.  I remain optimistic.

 

So…what do you call it when it’s a global stimulus?

For those of you that appreciatively noticed, I was on holiday last week, celebrating a reunion of sorts in Las Vegas with a college fraternity brother.  Completely harmless, he’s a physician now, and we aren’t that young anymore.  Wrong.  Names and locations won’t be given to protect the guilty.  Things were done; elegant, disastrously hilarious things were done. Call it our contribution to the ongoing measures of individual economic stimulus (all bar tabs were paid-we have the receipts to prove it!!)

Back in reality, global markets of late are in obvious expectation of accommodative monetary policies.  The recent rally is on the belief that central banks in China, Europe and the U.S. will print as much money as it takes to stimulate the economy and that would support risk assets.  China is signaling further easing and the Bank of England is favoring easing to interest rate cuts.  Germany is experiencing weakness which may create a few more ripples of discontent against Ms. Merkel and reopen the questioning of accommodation. These situations favor risk assets, thus our ‘rally’.   Here in the US…our legislators are off playing in the sand boxes like little children.  Accomplishing much of nothing once again, guess I shouldn’t be surprised.  Our problem is uncertainty.  When blind partisanship combined with poor leadership produce zero positive effects; we the people certainly should be paying attention.  The GOP Convention is now only two weeks away, with the Democrats’ a week later.  I’m so looking forward to the debates.  The verbal munitions will be chosen carefully with shrapnel and carnage brought to maximum effect. I can’t wait.

U.S. equity indexes posted gains last week and gasoline prices in California went surging higher due to a refinery fire. The stock market closed slightly higher on optimism the Fed will boost stimulus measures to stimulate growth.  Trade data showed higher exports and a lower trade deficit and initial jobless claims declined again, down 6000 from last week’s number.  Crude oil and gasoline prices on Friday closed mixed as China’s slowdown in export growth along with the action by the IEA to cut its 2012 and 2013 global demand forecasts supported energy demand concerns. Global markets were down with the European indices in the red and Asian indices ending mixed; further indicating a continued global weakness.

The 5 year Treasury note closed at 70 basis points, the 10 year at 1.65%, and the 30 year under 2.74%.  The dollar rallied on Friday on weak Chinese export data but those gains were vaporized after San Francisco Fed President Williams said it was time to move ahead with QE3.   The specter of inflation is rippling through the bond markets right now as the cyclical sectors of fall begin to churn into movement.  Second quarter was good for bond holders; third quarter has started to rattle their psyche.

I remain optimistic.  A brutal reminder that I’m not as indestructible as perhaps I once thought I was, has given me a new-found clarity.  Caution prevails and significant risk taking should be sidelined right now or assigned to lowly pledges.  I do expect a return to volatility perhaps as soon as Tuesday, more negative European and Chinese news and of course the shenanigans of our own political discourse.  No threat of the dreaded Vegas Technicolor yawn included.  I remain soberly optimistic.

PS.  I’ve received a few requests for access to my weekly stock, ETF and mutual fund list.  Feel free to email me directly (dcherry@nelsonsecurities.com) with ‘subscribe’ in the subject line and I’ll include you in the weekly distribution.