The Economy: Contrary to the gloom and doom that has dominated the mainstream media recently, most economic indicators continue to show a U.S. economy that is expanding. Industrial Production rose more than expected. Capacity rose more than expected. Producer prices rose more than expected. But weakness was seen in housing starts. With the stock market in the tank and many portfolios bleeding, the Devil-May-Care exuberance of the past few years has left the zeitgeist. Mark Twain’s concern about the return of his capital instead of the return on his capital, is in full bloom. Yes Mabel, the stock market can go down despite the arcane mutterings of central bankers. While trillions in QE failed to validate the wealth effect, the global stock market selloff has gotten the full attention of the hoi polloi. The danger will always be that the media drumbeat of stock market doom will scare the U.S. consumer into hibernation, thereby creating an actual recession where one didn’t exit.
Food for Thought: The stock market rally of the past few days has been a welcome break from the kamikaze dive we’ve experienced since mid-December. This is the time for caution. We’ve urged you to have an exit strategy. Now is the time to implement that strategy. The recent strength in the stock market may be a bounce before we head lower. Selling into this rally and raising cash is the prudent move.
The Economy: Fed Chair Yellen appeared before Congress this week. She put on her most patient Grandma Face for the Alfred E. Neuman grandstanding of her inquisitors. Yellen acknowledged that the economic environment had become more uncertain. She mentioned falling stock and commodity prices, tightening credit conditions and uncertainty over China as causes for concern. She observed that weakness in the global economy had made life more challenging for U.S. businesses. In response to questioning she indicated that while an interest rate cut was not in the cards, 4 increases this year was still a possibility. When asked about a possible Fed move to negative interest rates, Yellen said that the Fed hadn’t determined the legality of such a move. In short, specific targets are out and Fed opacity is back in.
Food for Thought: Oil is presenting a rare opportunity. Timing is everything. There are a variety of ways to position for this. Stocks, bonds, mutual funds, exchange traded funds and notes, futures and options are examples of how to participate in the coming price rise. We believe that a pure oil play is the most effective way to capture value. Contact us if you have questions.
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.