Monthly Archives: July 2015

Chinese Games

The Economy: The Fed ended its 2-day meeting yesterday. It was a non-event and the door has been left open to liftoff in September. This morning GDP was released and again confirmed the slow but steady growth that we’ve all come to love.    As we look at the future of interest rates, The Asian crisis of 1997/98 might be instructive. During the Asian crisis, the Fed continually talked about raising rates but never did. They “talked the talk but didn’t walk the walk.” In fact, the next Fed move was to cut rates.  We don’t see a rate cut this time around, simply because there’s nowhere lower to go. However, we might see a postponement to lift-off into 2016. As we’ve mentioned before, it’s not a matter of if, only when. Plan accordingly.

Food for Thought: Financial markets are sometimes disconnected from the larger economy. We’ve recently seen this in China. Chinese stocks raced ahead while their economy slowed. When the selloff came, the unprecedented intervention by the Chinese government prevented normal market activity. 25% of existing shares are still suspended from trading. Yet, talking heads are now touting Chinese stocks. Beware Chinese markets. Transparency and free markets don’t exist there.

 

Summertime Ennui

The Economy: Housing posted good numbers this week. Otherwise, the noise remains deafening. Chalk it up to summertime ennui. The international situation remains the same with Greece being lauded for repaying loans with more borrowed money. … used to be called “robbing Peter to pay Paul.” Now it’s called sound fiscal policy. China is again touting its financial markets after 3-weeks of unprecedented intervention demonstrating that open and transparent markets simply do not exist there. Iran was hailed by John Kerry as the new prodigal nation. The Iranian Supreme Leader’s celebratory speech of U.S. friendship was punctuated with shouts of “Death to America.” With the proper spin, these would all make for a great Monty Python movie. As it is, this noise obscures the indications that deflation appears to a be mounting global issue. Multi-year lows in commodities may be confirming  this. Slow growth here and abroad seems to be the order of the day. For many businesses and public agencies this means flat revenue that continues below the 2007 peak.

Food for Thought:  Here’s perspective on the stock market: Google (GOOG) jumped in price last Friday. The jump increased its market capitalization by $62 Billion in one 6 ½ hour trading session. Apple (AAPL) reported earnings yesterday and the stock fell. It lost $50 Billion in value after hours. Facebook (FB) now has a larger market cap than General Electric (GE). Facebook has $12 Billion in revenues and 10,000 employees. GE has $145 Billion in revenues and 300,000 employees. Yep, it’s a rational market.

 

China, Greece, Iran: Lions and Tigers and Bears, Oh My!

The Economy: There has been little change in the moderate growth in the economy. The slight variations in the data point to slow but steady growth. This week retail sales unexpectedly fell. But this is the type of mixed message that the economy has been throwing off for the past several years. The Federal Reserve’s Beige Book was released and confirmed the slow but steady growth. It reported improving consumer spending, mixed activity for transportation, positive reports on real estate, increasing lending activity, and some wage pressures. Yellen appeared before a House Committee and endured some hostility and the usual grandstanding. The most engaging news in the US comes from the Presidential Race. But for real excitement you have to go overseas. There, China, Greece and Iran dominate. All three talk out of both sides of their mouths. China with claims of open markets while blatantly manipulating a market crash. Greece with claims to fiscal responsibility while having no intent to do so. Iran with claims of Kumbaya while sharpening their knives. In all cases, a matter of hope over experience.

Food for Thought: Panic, ennui and vertigo have characterized the bipolar stock markets recently. Volatility is back in a market that hasn’t seen it in years. Two weeks ago the markets were experiencing their usual unbridled euphoria. Last week was the rabbit hole of gloom and doom. This week euphoria was back … until late today. With slow growth in the U.S. and a profoundly unsettled political/economic situation abroad, we focus on special situations that hold future potential. We believe that taking profits remains prudent. Patience is particularly important at this point in the market cycle. Please contact us with questions.