Tag: economy

Good things come in 3’s??

Depending upon how your mind warps reality:

1)      Quantitative Easing has no positive economic effect and never will.  It is all smoke and mirrors, and it will end badly either through deflation, or hyperinflation, or both.

Or

2)      QE has lowered interest rates by a few basis points and generated a gain of about 2+ million jobs over what otherwise would have happened. Stock price increases reflected the improved economic prospects from the program, and also created a virtuous cycle of confidence and wealth effects.

That’s kind of it in a nutshell.  A week after the European Central Bank introduced its Outright Monetary Transactions (OMT) program, the Federal Reserve unveiled its newest version of monetary easing or QE3 as the media have begun to call it.  This time around it’s an open-ended program to buy mortgage bonds, plus an extension of the earlier Operation Twist to suppress short-term rates out to mid-2015.  Its immediate byproduct helped risk asset extend their rally for a second week.

The Dow Industrials, S&P 500, NASDAQ, and Russell 2000 all recorded new 52 week highs and eleven of twelve major foreign indexes joined in the global equity rally.  Only the Shanghai Composite didn’t participate, as investors realized the 1 Trillion Dollar Chinese infrastructure spending program had begun with initiatives that were already underway in that economy and there really wasn’t any cause for a victory lap.  Like having your own party, the day after everyone attended the bigger party; not too many showed up and those that did were hung over.

U.S. Treasury yields continued to move with the 30 year seeing 3.1%, the 10 year settling at 1.88% and the 5 year cresting at 73 basis points.  Yields on investment grade corporate and municipal bonds charted alongside Treasuries higher, but junk bonds were bid much higher.  TIPS on the other hand saw yields fall, as bond investors sought inflation protection.  To be clear, inflation anticipation on a macro level is the 800 pound gorilla in the room, but given the surge in commodity prices, bond buyers are being realistic in seeking protection.   Gold and silver continued their torrid upward advance, with gold adding another 2% and silver more than 3%.  Copper advanced more than 4.6%.  Crude oil briefly topped $100 before settling at $99 at the close on Friday.  Natural gas couldn’t hold above $3. The grains remained mostly flat while the softs began to show some momentum and strength, with sugar coming off a bottom and coffee making an 11% move.  So much for the quiet but effective stimulus of lower prices that actual consumers enjoyed over the summer.  Unmistakably, Fed policy and a declining U.S. dollar is bullish for the commodities and in the case of oil; unrest in the Middle East is helping to raise prices measurably.

I remain optimistic.  The current mantra of “The trend is your Friend” or “don’t fight the Fed” (or the ECB for the matter) holds true. The S&P 500 has gained more than 4% in the last two weeks, reaching its highest level since December 2007; the Russell 2000 has registered an even larger 6% gain.  However, I absolutely expect a pullback, and soon.  Many stocks are extended to the upside, and chasing those that have already made significant upward moves isn’t the best game plan.  I suspect that this rally is real and stocks will continue to move higher but I would not be surprised to see a number of down days before we get to October.  Europe hasn’t resolved its situation, Asia in mired in a slowdown and we have a Fiscal Cliff staring us in the face with no adult sitting behind the wheel, willing to slam on the brakes before we go over that cliff.  My eyes are open for a surprise ‘left hook’ within the next 50 days.  Whether I’m right or wrong, time will tell.   I remain cautious but optimistic.

What now?

After all the buildup concerning Fed Chair Bernanke’s Jackson Hole speech, European Central Banking President Mario Draghi’s speech, and both the Democrat and Republican political (theater) conventions, have we been left with a clear picture of what’s to come?  While some of the economic data is better, the jobs picture remains underwhelming.

U.S. equities participated in a global rally following Thursday’s ECB announcement.  By Friday’s close the major indexes had all recorded solid weekly gains, led by the Russell 2000 with an advance of more than 3.7%. The S&P 500 and the NASDAQ made new, year to date highs, while the Dow and Russell came up just short.  The Twelve major foreign indexes were also positive.

The 30 year bond ended the week above 2.8%.  Gold pushed past $1,700 and silver kept pace. Copper broke out thanks likely to the announcement of a Chinese 1 trillion-dollar infrastructure initiative.  (Infrastructure spending…what a concept – our moronic Congress somehow doesn’t understand this unfortunately).   Crude oil did not move and Natural gas continued to trade under $3.  Grains were mostly flat as were the softs.  The (King) U.S. dollar was down against most of the major currencies.   If the Fed doesn’t open a new round of Quantitative Easing, we could see the dollar index firm up and regain strength.   Cautiously, I’ll be watching to see what the week brings, as soon as Wednesday, as the German Federal Constitutional Court is expected to issue a favorable ruling to allow Germany’s participation in the permanent European Stability Mechanism bailout facility, there is the outside possibility that the Court could rule against the ESM, which would cause an immediate and sharp drop in the euro and European stocks.  Expect a significant correction (not panic) if the court rules against ESM participation.

I remain optimistic.  Home prices continue to rise, job creation was strong (according to ADP and various other analysts) and Auto sales are rebounding.  The official jobs numbers reflected a weak economy as the official employment data is roughly consistent with the GDP numbers; growth of 2% or so.  Not great but positive regardless.  The ECB purchases will be “sterilized” so that the overall balance sheet does not expand.  This is not the money printing that some hunger after (like we did here in the U.S.), to some, this sounds good, but could prove difficult to sustain in the long run.  Also the ECB will not have seniority to private creditors – a very positive point for the banks and other institutional holders of sovereign debt.  Negatively, foreign economic indicators (Europe and China) all declined last week.  Confidence remains meek, however I remain optimistic, cautious and oh…did I mention I’m ridiculously ecstatic that my beloved San Francisco 49ers went into Green Bay and put a hurting on the Packers.  Ahem, there are a few individuals, who will remain unnamed, that I expect to see parading around for the next full MONTH in 49er jerseys.  HA HA HA – choke on that, chumps!!!!

As flat as Nebraska

Well…the major U.S. indexes moved just about half a percentage point last week except for on Friday in response to the Fed Chairman’s comments.   On the other side of the world, 11 of 12 major foreign indexes were down for the week with the German DAX composite matching the Nebraska like flatness we saw here during the majority of the week.  It is difficult to imagine that there will not be some form of substantial easing by the European Central Bank after Draghi’s stated commitment to “do whatever it takes.”  This week brings meetings of the ECB and Bank of England. While the BOE is unlikely to move the markets, the ECB meeting could be a significant turn for European situation.  With all the chatter coming from Europe, I’m led to think that some significant program is in the works.  We shall see.

Treasury yields fell sharply on Friday, particularly the five-year note, which closed at .59 basis points.   The 10-year note closed to yield at 1.56%, while the 30 year bond ended the week at 2.68. TIPS, and corporate bonds participated in the rally, but municipals kept quiet for the most part.  One thing from last week I have to mention, the moronic stance the Republican Party’s presidential platform took in regards to Gold.  You would think they would do the simple math to discover that there isn’t enough gold in the world to return the U.S. to a gold standard.  Good grief, ridiculous nonsense.  But hey, when you live in imaginary fantasy land you had best expect ignorance on an epic scale.  Pathetic pandering at its worst makes me wonder what the Democrats have tucked into their bag this week.  Where are the adults in the American political process hiding?

I remain optimistic.  Positive numbers regarding a recovery in the housing markets, factory orders showing a year over year increase of nearly 3%, corporate earnings continue to be reasonably good and the Fed seems to be positioning itself to be on their side of the market bulls.  That little bit of growth, however lackluster, is keeping the economy out of recession.  We’ll see how the unemployment numbers register this week beginning on Thursday.  The consensus view after the Jackson Hole symposium seems to be that some form of monetary accommodation is all but certain.  On the negative side, expect the morons in Congress to expel more hot air and accomplish absolutely nothing to solve our problems.  A pox of both chambers of Congress, they are utterly pathetic.  I am not expecting a strong employment report unfortunately, but I remain optimistic for the week ahead.

 

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.

Illness of Indecision….

Last week Mario Draghi, the European Central Bank President, announced that he would do everything possible to save the Euro.  Such words sent the market’s into an upward tizzy of remarkable proportions.  One thing that really took me by the ears was that nowhere in his comments or any other European leader, was that there was no discussion of European solvency, everything being discussed is revolving around Europe’s liquidity problem.  The real problem for Europe is the solvency of the southern countries, not liquidity.  The difference you ask?  Solvency is about going bankrupt because of losses that cannot be covered.  Liquidity is a problem where countries have a lack of cash to meet obligations.  Most of the Southern European countries are going broke because they have accumulated massive losses without adequate capital to cover the loss.  Their banks are broke as well as their national governments.  And no, they cannot just print money, like we do here in the U.S., inflation be damned.  The southern nations (Greece, Italy, Spain, and Portugal) have zero control over the Euro printing presses and the northern nations won’t allow any of that anyway, as that would simply bankrupt themselves if they keep advancing more money to the bankrupt southern countries without any opportunity to recoup those monies.  This is a solvency issue where each nation is positioning to protect its own financial survival.  Mr. Draghi never mentioned how he would make sure that the Euro wouldn’t fail.  One has to speculate that behind closed doors, there is a considerable amount of conversation about the ‘unthinkable’, several southern countries would need to be handed their walking papers and kicked out of the Euro Zone in order for its own solvency to remain intact.  The Illness of Indecision…doubtful there will be a comprehensive resolution before the end of this year and it can’t wait until 2013.  Rest assured this ‘Illness’ will continue to affect the U.S. markets.

U.S. equity indexes posted significant gains last week, ending with positive numbers across the board.  Global markets followed suit and there was nary a negative number to be seen by Friday. This week presents a rather interesting and difficult scenario.  The Fed and the ECB have announcements to make this week and the markets have repeatedly shown zero patience for anything other than instant gratification.

The 5 year Treasury note closed at 66 basis points, the 10 year at 1.55%, and the 30 year under 2.63%.   With the momentum being switched to equities and away from Treasuries, debt holders took note of the change in temperament and licked their wounds from the heightened expectation of further stimulus from both the Fed and the ECB.

Commodities ended the week heavily mixed with Wheat, Coffee, Oil and Natural Gas, all recoiling from their gains of previous sessions. Gold and Silver made upwards moves and I expect that to continue this week when the reality sets in that no solutions were provided last week and volatility didn’t take the hint and go on summer holiday .

The positives to take from last week included initial jobless claims declined 35, 000 to 353K, durable goods orders were up 1.6% and corporate earnings have continues to beat the lowered expectations, and revenue began to show that weakness really isn’t across the boards as initially speculated.  Home values are higher than this time last year as well.  GDP growth came in at 1.5% as expected, weak and sluggish yes, but considering the worldwide circumstances, it’s a net positive.  There remains a bullish attitude in most sectors, albeit a tepid one.  The Doom and Gloom noisemaker crowd are cheering for a recession even though the statistical evidence is refuting them.   I see little chance of a recession in the next six to nine months.   With more earning news coming out this week, employment numbers, personal income and more home info,  I certainly expect a good dose of volatility as the week progresses.  I’m continuing to remain optimistic.

Sideways…I didn’t see the movie

We are in earnings season and I expected that a decent amount of companies would be beating forecast, momentum would be building from that and the markets would be moving positive.  That’s what I said last Monday, by week’s end the EU zombies sent financial markets running away from risk, panic-stricken, towards the U.S., only to find our own zombies with corporate revenues being missed across a number of sectors,  negative retail sales, and increases in monthly unemployment claims.   Yikes!!  The US, Asia and Europe are mired in the view that growth is slowing everywhere.  Data doesn’t suggest any sort of global recession, but growth across the board just isn’t picking up any momentum.  We’re moving sideways with violent and jarring dips and rises.   The illness of indecision is spreading weakness in the global economy and therefore into volatility in parts of the markets.

Except for the Russell 2000, U.S. equity indexes posted slight gains last week, Middle East unrest sent oil prices surging; bolting energy stocks skyward, while the financials kicked you in the shins as you digested the earnings reports from the big banks.  Global markets were mixed; The 12 major indexes split evenly between winners and losers.

The 5 year Treasury note closed under 60 basis points, the 10 year at 1.46%, and the 30 year under 2.55%.   European debt yields have gone negative on German, Dutch and Finnish paper. Emerging market bonds also continue to see demand.  Fixed income is the place to be as bond prices continue to soar and yields move lower.  U.S. bond holders are smiling right about now.

Oil has been moving ahead with the U.S. dollar, which is unusual, and natural gas is setting year to date highs.  Fundamentally nothing has changed materially, ignoring of course the Iranian saber-rattling and the drought conditions in some states.  It’s become rather difficult to decipher commodities and if the current rally has legs.  The U.S. dollar index remains dominant as the aforementioned EU debt crisis continues to create mayhem.  The Euro closed under $1.22, the Sterling went to $1.57 and the commodity currencies, the Aussie Dollar and Canadian Loonie, rose against the greenback.

The second quarter numbers we’re seeing, earnings are generally in line but they also display significant weakness in revenues.  It would seem that economic contraction is not out of the question.  At this point, the economic data isn’t indicating an out-an-out shift towards contraction, but a series of events could lead towards an end of summer period of trouble.   There are plenty of catalysts for concern, Europe and a military confrontation with Iran being the 800-pound gorilla in the room.  Let’s not forget our effervescent but ineffectual congress and the looming fiscal cliff.   I remain optimistic, however I suggest remaining conservative in a defensive posture and light on risk.   I’m optimistic.

It’s July, summertime…wow, wasn’t it just January?

It looked kind of grim last week as each day presented a new dilemma and angst over the markets.  A massive advance on Friday erased the negative numbers allowing the S&P 500 and the Dow Jones to sneak out small gains for the week.  The NASDAQ and Russell 2000 couldn’t go the distance and ended the week with losses.  Global markets didn’t sustain very well either, as 8 of 12 foreign indexes posted losses, Germany’s DAX composite took home the lions share with an advance of nearly 2.3%.

Overall we gained a number of economic positives from the week.  Unemployment claims came in lower than expectations, and producer prices were indicative of further stabilization.  Earnings season changes the subject ever so briefly, as this week brings announcements from blue chips.   I’m expecting a positive reaction from the market to those earnings and therefore steer a positive action in the markets for the summer months.  Value is outperforming growth while the outlook for economic growth is so tentative and dividends are heavily demanded.  Keen investors will benefit by focusing on the market action and ignoring all the regular noise merchants of Blah did de Blah Blah Blah.

Treasuries played a back seat to the Muni as yields fell on the week overall, as alarm came into the market on the news of more municipal bankruptcy filings. Oh snap, you mean tax dollars that were marked for projects were shifted somewhere else?  Statements falsified, lies told?   Next you’re going to tell me that Dog’s don’t sit around and play poker with each other, aren’t you?  Oh agony!!

Commodities overall had a good week as Grains continued to advance. The (ahem, KING) U.S. Dollar Index continued to display strength but it fatigued by weeks end allowing the euro to climb back up from trading under $1.23.

I’m remain optimistic, knowing full well Europe is still hanging around, being relatively quiet, there is still plenty drama to rival the airings of teenage mother something on that music channel that used to play music videos.  Our well paid plus benefits having, elected federal officials continued to proudly do absolutely nothing.  No real surprise there, is there?   I’m optimistic because I suggest that; Earnings will be decent, momentum will be built, markets will move positive and summer will be enjoyably summer.  I’m optimistic.