Tag: economy

What Im Watching This Week – 3 December 2012

Published on by dredheadz

A Bold Bluff

In my office on the wall, there are many items attached and displayed in the general per functionary manner.  Upon this wall there are licenses, shingles, and commissions, slogans, pictures and calendars. But the most significant and obvious is a print of Dogs Playing Poker.  Yes, dogs playing poker.  Several dogs sitting around a table, cards, chips, drinks and cigars abound.  The caption of this print is “A Bold Bluff”, by C.M. Coolidge, circa 1903.  Aside from the history behind this painting and it’s diagnosis as an example of “working class taste” (http://en.wikipedia.org/wiki/Dogs_Playing_Poker).  The more I study this picture again today I reflect upon how much it epitomizes, to me , the situation we are witnessing today in Washington D.C.

Congress is faking it.  On both sides, committed to the end, they are faking it.  A bold bluff indeed; Like Dogs playing Poker. Those at the table are at pause with curiosity and bewilderment as they witness the call, in play.  There will be a deal, we’ve seen these ‘children’ play this game before, it shouldn’t come as any surprise, they will posture, rant, point fingers, gnash their teeth and stomp their feet.  Both sides have already realized they have played their best hands, there’s nowhere else to negotiate to and there isn’t really any time left.  The past three Decembers have begot important eleventh-hour advancements on health care in 2009; tax cut extensions in 2010 and the payroll tax holiday in 2011.  As I said earlier in the year, a Pox on both of their houses (sorry Shakespeare), I’ll temper my rant, right there, for my sanity and yours.

For the week ahead, I expect to see the U.S. markets continue to tread water despite the political theater.  The markets have priced in a deal and regardless to what the mongrels in Congress are blabbering on about, a deal is coming soon and that it will be functional.  Europe is showing a holiday rally with the German and French markets cresting at 52 week highs and the Euro sustains a six-week high.  The Greeks announced terms under which they will (somehow) be buying their debt back, and Spain officially asked for European funds to recapitalize its banking sector.

I remain optimistic.  No if’s, and’s or but’s about that.  I’m also a horrible poker player and I couldn’t win a hand even if I had expert guidance whispering in my ear on which cards to play.  I accept that and respect that I know what I know and that poker simply isn’t my game. However, as a student of History, Politics and Finance, the risks of an impasse in the talks that leads to either a deal or no deal at all are quite real.  The great divide between the parties on how to proceed isn’t real; it’s imaginary and made for TV.   The Republicans and Democrats both feel empowered by the election, that empowerment is like a cheap poker chip you buy at the mall.  It’s worthless.  They both know that the cashier (the American Public) expects a transaction and the currency that Congress wants to utilize isn’t going to be accepted anytime soon.  Congress is expected to adjourn by the 14th, and the last thing the American Public wants to wake up to on Christmas day is a massive lump of coal hanging in a stocking above the fireplace.  That would literally entail a new Christmas Day massacre for Congress and they are well aware of it.  I remain cautious, slightly uncertain but completely optimistic.

 

 

What I’m Watching This Week – 19 November 2012

Published on by dredheadz

Cliff Hanger

Congress returned to work for a few days after the elections to begin ‘serious’ deliberations on the “fiscal cliff’ and other matters last week.  This week they will be back on vacation recess.  Pardon me while I clear my throat.   Given that the country now has more clarity on the fiscal cliff issues due to the non-stop media coverage since the election, I still believe that a plan will come about rather quickly.  There are specific consequences for taxpayers and the motivations have changed for all the accomplices this time around.  I don’t expect anything like the theater of events that were the debt ceiling agreements.

U.S. financial market volatility continued last week, where all major U.S. equities indexes posted a fourth consecutive weekly loss.  However by week’s end there were sparkles of confidence and I wouldn’t be surprised if this week provides the markets with a nice, moderate bounce into the holiday.  As we begin to close out the month, we see that Job growth is better than we thought and the pace of job creation is impressive with about 6.9 million jobs for the quarter.  Third quarter earnings improved in the final reports, however corporate revenues remained discouraging on a broad scale. The forbidding dark cloud on the horizon is the continuing Gaza Strip conflict and the greater risks to the energy markets and with no clear solutions from both Israel and Palestine, I do expect negative market reaction within the next few days if Israel moves forward with a ground assault into Gaza.

I remain optimistic.  My conversations in the last few weeks have been dominated by one topic, “How to protect your portfolio from the fiscal cliff.”   The fundamental context of this issue hasn’t been a secret.  The best way to protect your portfolio is to construct the right asset allocation, there will always be market volatility, how you are positioned against and within that unpredictability dictates how you emerge on the other side after the turmoil subsides.  If you are just now getting interested, the best place to start is with a conversation regarding this fundamental issue.  I expect Congress to utilize all of 2013 to create a resolution to tax issues about the Bush-era tax cuts, capital gains and dividend taxes, the Alternative Minimum Tax and the Medicare ‘doc-fix’.  Everything should be on the table regarding a revenue package.  Hopefully gone are the days of ‘let’s not make a deal and say we did’.  I’m optimistic and cautiously encouraged.

What ‘m Watching This Week – 12 November 2012

Published on by dredheadz

An eye-opening moment

With great fanfare, the big news of the week was that finally the Silly Season has ended; to the winners go the spoils, to the loser…soul searching.  The election essentially unspoiled the status quo and now the frenzied media, realizing that there’s no real story to be had there anymore, attention immediately shifted to the impending “Fiscal Cliff.”  Ahem, dear media, by the time you hear the sirens, it’s already too late.  You’re about as useful as a football bat.  Anyone paying attention has followed this issue for months, literally.

For the record, I sincerely believe, that with the election results being what they are and as the demographic and political landscapes are forever changed, that the real possibilities of a “Grand Barging” being achieved in the next few weeks / months are entirely realistic.  Yes, we still have the same moronic players in the Congress but the circumstances are different if not historic.  The consequences for non-action will touch nearly every segment of American society in regards to increasing taxes.  I would not be shocked to see specifics emerge before the end of the month as the adults in the room finally decide to speak up.

Last week other big news was the highly volatile markets.  Wednesday opened with a severe move downward and gave us a 2% down day on the heavy volume.  Thursday carried the markets further to the downside and by Friday’s closing bell; all of the major U.S. equity indexes were negative by more than 2% on the week.   The S&P 500 closed below 1,400, the Dow Industrials below 13,000, the NASDAQ below 3,000, and the Russell 2000 below 800. It wasn’t only the political candidates who were made slack-jawed immediately after the elections.  Can it be called the Obama pullback?  It’s no secret that Wall Street wanted different electoral results however I reason to suggest that Europe held significant sway over last week’s market actions.  And by the way, there’s more of that to come, I suspect as European economic reports showed further deterioration.  Mario Draghi’s (European Central Bank’s President) comments regarding Germany on Wednesday actually sent the European market into a tail spin which in turn took down the US Market.

I remain optimistic.  While some in regards to the election results, will sulk and murmur “What went wrong?” they really should be wondering why they were the last to know.  How they did not see it coming is what is astounding.  The same can be said for our Fiscal Cliff.  The time to ignore reality and remain in an information free cocoon must come to an end.  Had enough with the conclusions from the ideological hacks, and their self-imposed, fantasy land of disinformation to the masses?  The American public sent a clear indicator of their risk off sentiment.  Americans voted against this nonsense and it ought to be an eye opener for many that hopefully won’t be quickly forgotten.  I remain optimistic, cautious and conspiracy free.

What I’m Watching This Week – 5 November 2012

Published on by dredheadz

Motion sickness

How many changes in direction are you realistically supposed to tolerate in one week?  Wednesday through Friday we witnessed dramatic market movements across the broad indexes.   The markets appeared to be waiting, then panicking and then again waiting.  Granted, the unpleasant impact of Hurricane Sandy added a new level of uncertainty to an economy moving slowly towards recovery; last week’s economic data was respectable on the corporate earnings fronts.   Private sector payroll numbers, with the August-September upward revisions, were favorable, as was the upward gains in personal spending and in consumer confidence.   Internationally, eleven of 12 major markets turned positive, significantly.  Based on valuations, European, Asian, and Brazilian equity markets are becoming more eye-catching.   Comparatively, these foreign markets are cheap versus U.S. equities.

Internationally, with unemployment running above 25% in the twelfth largest economy in the world, the European Central Bank (ECB) has made it clear that it won’t let Spain collapse, as that would be the lighting of a fuse that would explode what is now known as the European Union.  As for another troubled country in the EU, specifically what needs to be paid attention to are the actions of the Greek parliament, as they are set to vote on new austerity measures and the 2013 budget.  If those measures don’t pass, the next tranche of bailout money from the ECB will not be given to Greece and the country could go bankrupt in November.  Not as calamitous as Spain going into a death spiral but a Greek exit from the Euro and a return to the drachma would no longer be unforeseeable in the near term.

I remain optimistic.  The ongoing hiatus of U.S. business investment where deferred decisions reign supreme and cash is stacking up is about to end, I sincerely have a confident feeling.  Businesses will receive certainty from the election (even if they don’t get the rules or politician they want).  I expect a period of each party licking their respective wounds and realizing that now that the silly season is over, it’s way past time to get to work for the American people.  I’m optimistic and confident for the week ahead.

What I’m Watching This Week – 29 October 2012

Published on by dredheadz

October Flummox

It was a week that should have resonated differently as it’s reasonable to conclude that it was important for the average investors’ psychology to see GDP data beating estimates.  The expectation was a 1.8% increase, so when U.S. GDP grew 2% in the third-quarter, the clouds should have gone away and the sun should have come out.  That pesky little rumor of burgeoning growth is becoming evident and there is some actual momentum happening.  Consumer spending was the principal factor of the increase, furthered by purchases of durable goods.  Not too shabby it would appear right?  Ahem, for the week, the Dow fell 1.8 percent, the S&P 500 lost 1.5 percent and the NASDAQ dropped 0.6 percent.  D’oh!

The familiar culprit of lack of business investment provided a headwind to stronger growth.  Lighter revenues are a concern this earnings season with just about 37 percent of S&P 500 companies have reported revenues that beat forecasts, compared with the 62 percent that typically exceed expectations, according to Thomson Reuters data.  Sales missed forecasts at 59 percent of companies, the data also showed.  Third-quarter earnings at about 71 percent of the index’s companies beat analysts’ estimates, according to data compiled by Bloomberg.   The data and the overall GDP sentiment have presented a sort of alternative reality where the confused and perplexed reign supreme.   Hurricane Sandy is only going to add a new twist to the narrative, with the potential of market closures into Wednesday, Insurers preparing for the worst in storm damage to property and lives of as much as $4.9 billion, according to Kenetic Analysis Corp.  Home and business owners are bracing for potential economic losses ahead during what may be a challenging storm recovery.  This wasn’t the October Surprise they were expecting, not even close.

I remain optimistic.  This earnings season has been a very challenging one and Investors should look beyond some disappointments and focus on an improving economy.  A growing economy will underpin growth in stocks and all other instruments.  External bearish factors include concern about the European debt crisis after Spanish unemployment rose to a record 25% and after Germany expressed more doubts about whether Greece will be able to meet requirements for its European bailout.  Our own ‘Fiscal Cliff’ is rapidly approaching, not to mention the elections next week.  It’s understandable why confidence is missing; present circumstances present a mixed bag of joy and distress concerning weaker global and domestic economic growth.  I remain optimistic, but cautious and defensive.

What I’m Watching This Week – 22 October 2012

Published on by dredheadz

Expectation and interpretation

The U.S. market began the week with better than expected economic data and by the end of the week, earnings results actually had beaten expectations (true, the bar had been lowered) but the revenue beat rate and outlook have been disappointing.  Approximately 20% of the S&P 500 companies have reported thus far, only 42.3% of them have beat Q3 revenue expectations and 57.7% have missed.  However, 64.9% have beat earnings per share (EPS) estimates.   As I’ve mentioned before, this market is all about expectation and interpretation.  To close the week off, the S&P and Dow finished the week with minuscule gains, the Russell 2000 with a small loss, and the NASDAQ proved to be the worst performer with a 1.26% drop.  There is a noticeable change in sentiment, again with little response to good news. Stocks had the worst week in a few months all the while the data has actually been somewhat positive.  On the global perspective things were considerably better, with eleven of twelve major foreign indexes posting gains.  The under performer was Brazil and they missed by .41%.

Overall it was a quiet but positive week for economic data.  Retail sales, industrial production, housing starts and building permits all beat expectations right on up until Thursday’s employment numbers.  First time unemployment claims took the wind right out of the swelling sails and then Friday’s sell off, which just by coincidence happened on the 25th anniversary of the Crash of 1987, capped off a surprisingly vexing week.  Uncertain outcomes remain and the market’s fluid reaction bears caution.

I remain optimistic.  I won’t be making any predictions when the overall earnings story is this mixed, the Doom and Gloom crowd will be providing more than enough downbeat outlook commentary.  Adding to the neurosis of the market, the last Presidential debate happens Monday evening.  I am curious which candidate (the fake Mitt or fake Barack) will play to undecided voters via their foreign policy positions.  The last two events were certainly eyebrow arching to say the least.  My short-term outlook predominately screams for caution and risk control due to market psychology and sentiment.  Mid to long-term, I remain optimistic as there are many immediate opportunities for long-term growth potential; once the equilibrium shifts and the fundamentals are once again recognized by a sane market place.

 

 

What I’m Watching This Week – 15 October 2012

Published on by dredheadz

Momentary lack of muscular coordination….

It wasn’t just me, last week, who noticed again that even with good economic news, the market and the purveyors of doom and gloom greeted earnings season with little if any enthusiasm. Yes, the rally coming out of 3rd quarter hasn’t been sustained. The markets were tap dancing on 4 year highs and a noticeable pullback was more than anticipated. The U.S. market has performed as expected, mainly consolidating and building a new base. The possibility of a larger pullback remains, and there is enough evidence to warrant a cautious approach as we move deeper into the month. Especially during earnings season, when it’s not the news that holds primary importance, it’s the market’s reaction to that news.

Last week’s losses ranged from just over 2% on the Dow to nearly 3% on the NASDAQ. Internationally, it wasn’t exactly pretty either with nine of the twelve major markets posting losses. There’s significant caution across the globe, the world economy isn’t deteriorating disastrously as some would have you believe, but also the world economies aren’t reacting particularly well either. Europe is fretting over its possibility of double dip recession. The populations in a few European countries aren’t exactly ‘dancing in the street’ in support of austerity. Spain is in need of financial rescue, Cypress needs a bailout and Greece is pleading for a new debt program. In a counter signal to Europe, the Chinese economy is showing tiny signs of improvement; Chinese export and inflation data for September came in better than expected, with exports jumping 9.9% on year to a record $186.4B. The infrastructure projects that have been proceeding are assisting the steel sector and prices for Iron Ore are up from multi-year lows.

I remain optimistic. This week brings Retail sales reports Monday morning, and per my calculations, should be nicely surprising. A second round of the Presidential debates arrives on Tuesday. Building permits and housing numbers on Wednesday (which I also expect to be better than expected). And then the Initial Jobless claim numbers on Thursday, spiced with a little extra intrigue after last week’s silliness. A little positive coordination and the markets could spring back towards the upside. A little more positive global coordination and we could see a very bullish posture continue for the next several weeks. It’s a very close call and much depends on psychology and sentiment. I’m feeling quite agile right now, while I look to the week with a cautious eye and expect many to present a downbeat outlook; I see opportunity to seize the day even when the overall earnings story is mixed. I remain optimistic.

And now the list, as of close of market 12 October 2012.

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What I’m Watching this Week – 8 October 2012

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Fear can’t kill you, but it sure as hell will make you sweat profusely

The “October Effect” is the theory that stocks tend to decline during the month of October.  Historically, October hasn’t produced the most confidence building events on record to be honest (the crash of 1987 occurred on the 19th which saw the Dow plummet 22.6% in one day is in recent memory as is October of 2008 where the S&P 500 was down by more than 27% at one point in the month).  I don’t buy into the theory as the statistics produce a different reality.  However a recent survey shows that a majority of individual investors were unable to correctly identify the fact that the S&P 500 index has risen in the last 3 years (2009, 2010 and 2011).  The barrage of confusing and outright false headlines, often with a political motivation, has sent some ordinary Mom and Pop investors fleeing, waiting to see the election result, what happens in Europe, whether there is a recession, and what happens with the fiscal cliff.  They are traumatized and that disaffection is widespread.  Many are just simply unwilling to commit, out of pure fear.

Others, not paralyzed by emotion or the bloviating of the “talking head political pundit’; haven’t let the rhetoric distract them from their analysis of data.  They didn’t sell in May – In fact they bought, and it wasn’t bond or money market funds it was equities.  The callous influence of politics gave these investors’ confidence. Why?  Because their understanding of the data accurately reflected what we fundamentally see:  modest growth – far less than what is needed for a healthy recovery but certainly not a recession. They were rewarded again by last week’s ISM manufacturing index registering in expansion territory at 51.5, that’s baseline but solid growth.  The employment situation is consistent and its ongoing improvement is respectable.  The payroll job increase was within expectations and the upward revisions to the prior months obviously proved to contribute a significant benefit.  The hourly wage moved higher. Household employment gains revealed a swell in part-time employment, about 2/3 of the newly employed. This is better than unemployment, but less than ideal.  And lest we forget, the controversial decline in unemployment.  Jack Welsh and the other conspiracy believers, be damned, I doubt a department full of career bureaucrats (republican and democrat) would destroy their careers to provide political cover to this President or any other President.  Didn’t Nixon try something like that?  I don’t recall that as working out so well.  Allowing a political opinion to influence the interpretation of data and its judgment is indicative of a culture of pathetic panic.  Facts are pesky little things you know.

I remain optimistic.  How much risk am I or should anyone else be willing to take at this point in time?  The correct answer is different for everyone and currently a large number have decided to watch from the sidelines.  “Markets can remain illogical far longer than you or I can remain solvent” are words from John Maynard Keynes and words to follow.  And when they do regain some logic and the markets rally, many are afraid that they have arrived too late to participate.  Dennis Gartman states “In trading/Investing, an understanding of mass psychology is often more important than an understanding of economics.   The news has been encouraging, if you care to look beyond the noisemakers.  I remain optimistic, cautiously attentive.

And now the list, as of close of market 5 October 2012.
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What I’m Watching This Week – 1 October 2012

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Everything is debatable

Its 4th quarter and it’s been an incredibly interesting year hasn’t it?  The world should be transfixed with fear, doom and gloom as some commentators continue to be shout out at full volume.  The U.S. and Asian economies are like the dinosaurs of ancient.  Stuck in the tar pits, no quick escape, the more you fight the deeper into the muck you sink and a complete rescue from the situation is becoming more difficult to rationalize.  The U.S., in particular, behaving like Thelma and Louise, moving at top speed towards a financial cliff, fully cognitive of the effect of what a failure to compromise will bring but indignant to the reality of having to do so.   In Europe, they are chest deep in yak droppings.  (That’s about the prettiest way I can verse it, actually).   Social unrest is slowly beginning to bubble to the surface, a possible financial catastrophe remains on the horizon for Greece, Italy and Spain.  Yikes.

Remarkable as it is significant, with all the risk present, the U.S. stock market is up double digits for the year and hovering near post crisis highs.  Housing prices are moving higher.  Growth, albeit weak, has resumed with assistance from the expansionary Fed policy of Quantitative Easing.  Consumer confidence has spiked higher and the jobs picture is actually a little better than we are giving it credit.  The Bureau of Labor Statistics (BLS) announced a preliminary benchmark revision for payroll employment.  Net job creation was actually about 350K better than previously reported and private job creation was 400K better for the twelve months ending in March, 2012.    All isn’t beautiful however, as business confidence is still lacking.  Some businesses are ultra conservative right now, waiting until after the election to commit to expansion or new hiring.  Corporate earnings forecasts have moved lower.  This is the basis of the weakness in the manufacturing sectors.

I remain optimistic.  This week if we get good data, the market will rally.  If Spain gets closer to a bailout, the market will rally.  Tuesday we get the Auto Sales reports, Wednesday is ADP employment changes data and non-manufacturing PMI numbers.  Thursday we get initial unemployment claims and continuing claims.   Friday the Non-Farm Payrolls numbers arrive, President Obama will know what that number is on Wednesday – candidate Romney will not.  (I’ll be paying close attention to the President’s body language on Wednesday evening- it will be an indication on his confidence or lack thereof).   Oh by the way, we have the beginnings of 3rd Quarter earnings season.  That’s just this week.  There is a good deal of upside for the U.S. economy, regardless who wins the election.  How that upside will be acknowledged and utilized is the phantom issue.  Some policies of the past and some of the present have proven to be failures, other have been successes.  It is reasonable to expect that we could see further gains in stock prices regardless of underlying economic conditions.  It is also prudent to protect against the very real risk to the downside.  I remain optimistic, defensive and alert.

 

What I’m Watching This Week – 24 September 2012

Published on by dredheadz

Cliff diving anyone?

As expected, the stock market pulled back slightly after setting new highs after the announcement of QE3.  At the end of the week, the Dow Industrials, S&P 500 and NASDAQ Composite were all off marginally, while the Russell 2000 was down 1%.  Eight of twelve major foreign indexes were mired in the red, with the Shanghai Composite sliding the most with a loss of more than 4.5%.  The overall global equity picture has become very defensive, Europe is having mood swings like a manic-depressive, in China, a symphony of bad news is bringing to daylight areas of significant weakness and vulnerability, and here in the U.S., our Congress, ran out the backdoor like their collective hair was on fire.  Wait, weren’t they just on summer vacation?  And now they are gone again, not to return until after the election?  Returning to their districts and constituents these Mongrels, will proudly exclaim that they have done a good job this year legislatively and that they should be rewarded for such heroic actions by being re-elected to Congress.   If I had my way….

The US Treasury 10 year notes close under 1.8%. The 30 year closed to yield at less than 3% and the 5 year closed under 70 basis points.  The flight to safety has been reasonably successful for those who kept the durations short.  The opportunities to buy more at better yields remain on the horizon.  There was extensive profit taking with commodities last week, WTI crude oil fell on aggressive selling, closing just above $93 and Corn pulled back under $7.50.

I remain optimistic, but highly cautious going into this week.  Monetary expansion is the charge of the global day.  Many integral economic indicators continue to give me that lower back tingle; you know that feeling when something isn’t as solid as it should be.  A little bearish maneuvering wouldn’t hurt the positioning this week as the quarter comes to an end.   First time unemployment claims look to again exceeded forecast and very weak outlooks from FedEx confirms again a slowdown in the global economy. Last Friday’s across the board reversal action in stocks significantly caught my attention.  While purely a technical signal; that rose up enough of a flag that now requires further analysis.  I remain optimistic but cautiously defensive.