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Oil Production Caps

The Economy: The Fed Beige Book was released today. It confirmed the “New Normal” of our slow growth economy. The Fed found the consumer healthy and spending. Ironically, the Commerce Department released the Retail Sales numbers today. Their numbers showed a decline in consumer spending with a sharp drop in automobile sales. Right Hand; Left Hand. Oil ministers meet this weekend in an attempt to prop-up the price of oil with a production cap. Iran is considered to be the linchpin in this effort but their oil minister will not be attending. Like a wedding with a runaway bride, the meeting is DOA without Iran. The Fed minutes and Yellen’s recent comments have been parsed for read-the-tea-leaves guidance to monetary policy. “Global” and “uncertain” were repeatedly used by Yellen to describe issues facing the Fed. One pundit noted that the Fed has never publically used the term “uncertain.” So again, the end of the world is nigh. We continue to temper our concerns for slow-growth megatrends. Demographics and student loans may be problematic but we don’t think entitlement laden Americans are anywhere near rioting in the streets as some talking heads have opined. After all, this Sunday is Opening Day at the San Diego Yacht Club.

Food for Thought: The Department of Labor (DOL) has released its proposed “fiduciary” rules. The proposed rules have significant impact on 401ks. Many 401ks and deferred compensation plans haven’t been reviewed since they were implemented. Now is a good time to get that review process going. Contact us if you would like help with this issue.

Helicopter Money

The Economy:  Economic data released this week confirmed a growing U.S. economy: Pending home sales up; Personal income up; Consumer spending up; Home prices up; Consumer confidence up; ADP Employment report in line. But the headlines belonged to Fed Chair Yellen and her speech on Tuesday. Yellen assured markets that the Fed would go slowly on any future rate hikes … if in fact they occur in 2016 at all. The expanding U.S. economy is no longer reason to hike rates. Yellen cited global uncertainty and potential fallout from recent events as justifying a slower path of rate increases. She made it clear that the Fed still has room for additional stimulus but that it can hike if the economy grows faster than expected. Global financial markets were ecstatic over the prospect of continued easy money.

Food for Thought: In the 1970s we had “stagflation.” The economy was stagnating with little growth but inflation was a problem. Eventually inflation rocketed and it was the Volcker Fed that whipped inflation with 21% money markets and a 15% 30-year U.S. Treasury. Now we have a Fed beholden to zero interest rates (ZIRP), considering negative interest rates (NIRP) and thinking about helicopter money. Our concern is that the Fed induced financial engineering, which has driven stocks higher, will end with the gravy train going off a cliff. The first 10% correction in 4-years was met with panic by global central bankers intent on continuing to inflate asset bubbles. In this investing environment, know what you own and why you own it.

Super Mario Draghi Rules

The Economy: Super Mario Draghi continues his legacy of Shock and Aw Shucks. We haven’t seen this kind of Italian Brass since Caesar crossed the Rubicon. Today Mario announced an aggressive expansion of ECB stimulus. Interest rates were cut further into deeper negative territory. Quantitative Easing was expanded by 30% from 60 Billion/month to 80 Billion/month. But the biggest change was adding corporate bonds to assets that the ECB can purchase. Global financial markets were not impressed. Moving into private sector debt is a Rubicon. What next? … Central Bank ownership of stocks, then real estate? Perhaps the ECB’s solution to slow growth is for the Central Bank to own all member assets and means of production. Nice way to come back to Marxism. Stalin and Mao must be gloating. Break out the Hammer and Sickle and fire up The Internationale.

Food for Thought: This week marks the 7th anniversary of the Bull Market. Stocks celebrated by trading down and breaking a 5-week rally. We continue to recommend that investors take profits and raise cash. The selloff that marked the first 6-weeks of the year has been arrested. But as we look out over the environment, we find it difficult find the drivers of growth that would power financial markets to meaningful new highs. Selling positions and moving into a money market fund is particularly prudent with retirement plan assets or annuities. In many cases investors can cherry-pick positions to sell within the same mutual fund. This is called a “Versus Purchase” transaction (VSP). We’re into tax season, now is a good time to review and protect your retirement assets. Buy and hold has worked for the past 7-years. Nothing lasts forever.

Uber Buyer Beware Uber

Uber is the most famous of the Unicorns. A Unicorn being a private company, in the pre-IPO pipeline, valued at more than $1 billion. Uber is the Big Dog in this space. It is seen by some as more valuable than AT&T, Kraft Foods, Delta Air Lines, General Mills, General Motors, CBS, Northrop Grumman,  Kroger, Hershey, Harley Davidson, Campbell Soup, Clorox, Hertz, MGM or Mattel.

Some say this high valuation is a fantasy number. They point to the fact that Uber is not a technology company but is a service company. After all, they don’t make anything but rather provide the service of connecting riders and drivers. Both rider and driver use their own cell phones to access the Uber service.

I used Uber for the first time this past week. It was not the experience that I expected. Uber has marketed itself as the “Anti-Cab Company” … as the alternative to the money-grubbing monopolistic cabbies with their fixed rates and arrogance.

I discovered that, contrary to their marketing image, Uber is just another cab company. Their technology may be different but the often adversarial relationship between driver and rider is very much alive.

A significant negative for Uber is that they stack the deck against riders with “Surge Pricing.” My experience with Surge Pricing was that it changed by the second and raised my fare by 350%. My 2-mile trip from Union Station to the Los Angeles Ritz Carlton cost $40. Yep, you read that right. $40 for a two mile ride. If that isn’t money grubbing highway robbery, please tell me what is. This occurred after the Uber driver who initially responded to my call, cancelled on me after I had stood in the 90 degree afternoon heat for 15-minutes waiting.

In all my years of taking conventional cabs, I have never had a cab that was dispatched, cancel on me by the driver. … and I’ve never had a fare jacked by 350% … anywhere in the world.

Having been burned by Uber, I took a conventional cab on the return trip from my hotel back to Union Station. The conventional cab cost $15 dollars including tip. There was no question of the cabbie cancelling on me. There was no question of the fare jumping to $55.

Uber may have its place as a recreational provider, but if you want true professionalism and reliability take a conventional cab.

Oil Opportunities

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.

Super Bowl Time

It flies and it drags. It’s precious and it’s wasted. It’s on my side and it’s passing me by. We have too much of it on our hands and not enough of it in the day. It’s endless and it runs out. It’s a gift and it’s a thief. It heals all wounds and we have to kill it. Time is a shape-shifter. Time Can’t keep its story straight. The Kentucky Derby is the fastest two minutes in sports, and a two-minute penalty killin the Stanley Cup playoffs lasts a century, but time claims they’re both 120 seconds. “Time” by Steve Rushin Sports Illustrated.

Stock Market Correction by the Numbers

The Economy:  It was a week of ugly numbers. The ISM Manufacturing Index came in at 48.2 indicating contraction. Likewise the ISM Non-manufacturing Index reported lower than in December. Construction spending posted its first decline in 1 ½ years. U.S. Durable Goods orders were down. Oil continued its fall, closing down $2.60/barrel from last Friday. January employment down. Foreign markets are also ugly. Chinese manufacturing contracted at the fastest pace since 2012. The Bank of England cut global growth forecasts. Super Mario scrambled to reassure markets with a review of QE in March. In many countries there are negative yields out to 5-years. We see talk of further interest rate hikes by the Fed as fanciful. The carnage in stocks continues with some of the most popular names getting hammered down from their highs: Amazon (AMZN) down 28%; Apple (AAPL) down 29%; Netflix (NFLX) down 37%; GoPro (GPRO) down 89%. But the “1929 Look Alike” award goes to LinkedIn (LNKD) down 44% overnight. Self-medicate with Super Bowl 50 on Sunday.

Food for Thought:  The stock market correction was long overdue. Though painful it’s been an orderly move down without signs of panic. We follow a number of indices which show how different sectors are performing compared to the major averages. From their 2015 highs, the following indices are down as follows (rounded): S&P 500 down 12%; NASDAQ down 16%; DOW down 11%; Russell 2000 (Small Caps) down 24%; Biotech Index down 36%; Semiconductor Index down 21%. Year to Date for 2016 the same indices are down as follows: S&P 500 down 9%; NASDAQ down 15%; DOW down 8%; Russell 2000 down 15%; Biotech Index down 32%; Semiconductor Index down 13%. Using August 19, 2015 as the date this correction began, we may have another month to go. Hang onto your hat and contact us if we can help you, your family or friends.

San Diego Labor Day Advice

Investing as Entertainment

A headline shouts, “Roger Federer talks … market volatility” and I think, “Here we go again!” CNBC, Bloomberg TV, Fox, CNN and thousands of blogs and websites cater to the investing public. Daddy gave you a quarter for an allowance when you were 5 years old. You’ve been writing and cashing checks for a lifetime. You know money. The internet and the media tell you that you should be investing your own money. You can do it for free. Even a Neanderthal can do it.

Seriously? Can you be a part time astronaut, a part time neurosurgeon, a part time NFL quarterback, a part time Supreme Court Justice? Every successful endeavor requires dedication, discipline, hard work and luck. But the zeitgeist is that investing is for part time fun. The meaningless noise from the Talking Heads is deafening. Not to mention the theatrics of shouted insults, horns, bells, sirens, cream pies and fashion.

The snake oil salesman has been recast as the investing guru screaming at you to gamble with your estate. Why are you listening? As a prudent investor you should avoid the Las Vegas casino mindset. Seek professional advice. At Higgins Capital We Quarterback Money®.

China, ECB Super Mario Draghi and the Fed

The Economy: Heading into the holiday weekend, the mixed bag of economic reports continues unabated. Looking ahead, we’re on the home stretch for the Fed meeting in 2-weeks. The last word from the Fed is that there is insufficient data to determine whether liftoff will occur at this meeting. That comment is about as transparent as it’s going to get. Read, “No comment.” We wouldn’t expect anything less. As we’ve said before. If the Fed doesn’t act at this meeting, we would expect liftoff to happen in March 2016. The hitch at this point seems to be the volatility in the stock market.

Food for Thought: Summer wraps us this holiday weekend. Have a great time out there! We Quarterback Money®.

Stock Market Bears Done Hibernating

US stock markets fell of the cliff today. The Dow at one point was down over 1000 points; a record. The NASDAQ was down over 400 points shortly after the open. The indices recovered about half of their losses by the close. The Dow is down a record 1500 points in the past 3-days. The Dow and the S&P are down 9% in that time. The NASDAQ is down 10% in the past 3-days. Many well-known names were down as much as 21% before recovering slightly. The major indices closed down about 4% on the day. After 4-years, we are finally in a stock market correction. Corrections typically see a 10-15% selloff and last 2-3 months. However, this selloff has occurred so quickly, that the usual 2-3 month timeframe may be compressed. We’ve had two back-to-back 500 point down days on the Dow. With this kind of plunge, the momentum is still to the downside. So we expect opportunity to become more attractive. One of the consequences of this volatility is that the Fed probably won’t raise interest rates until March of 2016. The odds of a September Liftoff have dramatically decreased as global stock markets have cratered and left overseas in disarray. As we’ve said before, “There’s opportunity in chaos.” You have my email. If you have any questions or concerns please contact me anytime. My cellphone is (858) 204-4268. If your friends or family have questions, please pass my phone number along or have them email me. At Higgins Capital we have the unique ability to help you manage your 401k. If you, your friends or family would like to know how we can help you in these trying times, please contact me. We Quarterback Money®.