Investing

Overlooked

Good Morning,

In all the hype and drama of day-to-day financial media events, most of the audience tends to be driven to overlook many of important items.  One of those elements in the latest data is the Manufacturing Index.  The long held belief is that somehow the US does that poorly these days.  The chatter has been beaten into the minds of the audience for so long that we just assume we really did ship it all overseas.

 

Uh – no – we didn’t.

 

Let’s take a look:

The ISM Manufacturing chart above shows that reports for the month of September came in significantly ahead of expectations, topping 60 for the first time in over 13 years!

 

Economists/analysts were forecasting the headline index to come in at a level of 58.1 – a bit short wouldn’t you say?  Relative to expectations, September’s report was the strongest since October 2014, and on an absolute level, this month’s print was the highest since May 2014.

 

But there is more:  it is important to check what the internal data tell us.  Respondents make remarks when they file reports.  There are also running tallies of certain aspects of the index so one can get a sense of “trend”.

 

Let’s first look at the comments snapshot.  The obvious disruptions from the hurricanes are clear and understandable – but what other word do you see being used repeatedly?

On this next snapshot below, I like to track internal data to see if there are any values to be picked up from same.  I bring your attention to the inventory segments in the data below:

Long-time readers will recall our multiple mentions of the “Fedex Economy.”  In a nutshell, thanks to all those planes and overnight delivery, Fred Smith changed the way our […]

The Final Stretch

Good Morning,

 

Funny how the calendar forms one’s focus when covering markets.

 

We are in that odd spot of the year.  Those few weeks between the haze wearing off from summer, the fears over September, the fears of October crashes, the fears over Q3 earnings and then, awaiting the whistle that kicks off the Q4 run to the finish line.

 

Then we celebrate for about 24 hours for the New Year and get right back to over-analysis.  We then get lost in YOY (year over year) and MOM (month over month) comparisons, CAGR (compound annual growth rate) assumptions and the same tapes playing again each month, almost robotic in nature.

 

Wasted Energy

 

There was heightened chatter about rate fears this weekend as even a meeting with some prospect for the Fed Chair role is now over-analyzed and used to frighten the crowd.

 

Sorry.  Rates are fine.  The Fed is fine.

 

The economy is strolling along at a very steady pace – with more than enough jobs available for those who want to work.  Inflation is tamed, oil is broken, tech is now slowly turning its attack on medical costs and education and the deflationary effect of Gen Y continues to seep into the system.

 

It is a very slow process but one that we cannot escape.

 

And by the way – that is a good thing.

 

On top of that, earnings continue to remain impressive, in record territory and the fears about storm impact may indeed have been overblown as we witness a very light warnings season.  Q3 reports will begin in earnest in another 10-12 days so let’s just stay focused on the steady drivers of the Barbell Economy.

 

Speaking of Storms

 

Harvey and Irma were set to demolish the great run we had on jobless claims as […]

What Isn’t Happening

Good Morning,

 

I just cannot believe that today marks the end of the third quarter for 2017.  It seems like just nine months ago we were celebrating the New Year!

 

Uh – ok.  Crickets.

 

So, listen – we spend far too much time focused on that is happening.  As anyone can recite, the problems seem to be endless.  Indeed, speaking in terms of pipeline and demand – if we did not have a bunch of garbage to worry about in the headlines, I am perfectly convinced we would create something.

 

But here is the better question:

 

“What isn’t happening?”

 

Think about it for a moment.  With all the focus on any number of risks – the Fed, rates, the market, a crash, N Korea, Brexit, hurricane destruction, DC problems, acrimony across the board on many fronts – the list continues to grow.

 

In the midst of all of that – this is the key:  the market is not selling off.

 

Choppy, internal churn, lots of noise and the usual (very expensive) knee-jerk reactions over earnings seasons – yes.

 

But no real sell-off.

 

No correction – even mild.

 

If one is watching the breadcrumbs – the trail is crystal clear.

 

The market is staying steady – choppy at worst.

 

The economy continues to expand.

 

The storms did not decimate the GDP – or even a region yet.

 

We are not being inundated with warnings of earnings misses due to storms

 

…and even the Chicago PMI just came out with huge numbers, well beyond estimates.

As we covered in recent notes, inflation continues to not raise its ugly head either – even as it flusters many, for all the wrong reasons:

Vanished Again

 

We noted the loss of bullish sentiment again even as the backdrop remains positive.  This chart helps some better than just a number.  Saying that only […]

By |September 29th, 2017|Investing|0 Comments

Ghost Rider

Good Morning,

 

We are over a month away from Halloween still but we have plenty of ghosts out already.  A wide swathe of the investor audience these days is a ghost rider.  We hop on the next ghost only after the former ghost never actually harmed us.  And yet, the market does not care.

 

Fear has become a security blanket.

 

So much so – we changed what we call it.

 

I must tell you, this is usually the time of year when we just get sloppy, downward sloping activity in the market.  I fully expected a bit more red ink – but – nada.

 

Sure, internal chop and some sector pushback but nothing serious given the seemingly endless reasons we could have seen worse.  Darn.  Anyway, pretty soon, the calendar headwind we covered before in your notes will turn into a calendar tailwind.  It is pleasing to see that while terrible as they unfolded, the Harvey and Irma impact in the warnings window still appears very light.

 

That could change but very few rumblings so far.

 

Interestingly, in the last week, we have seen data released showing trains, ports and truckers all doing a bang-up business.  GDP moved higher on the latest read this morning – beating expectations.  Along with that, profits for Q2 were also revised higher.  Cap that off with a new all-time high in the Transports and even the Dow Theory has erased the 483rd fear about the two averages not confirming each other.

 

Let’s review:

Note that last entry.  Intriguing to see multiple regional readings (post hurricanes) each add a note that they have not seen pressures from the storms.  By the way – this is all good.

 

As such, one would expect those AAII bullish sentiments to finally – after nearly 16,000 points of rally since […]

By |September 28th, 2017|Investing|0 Comments

Black Swan 6

Good Morning,

 

For years, the world has wondered aloud about inflation.  After all, in the old world, economic cycles were “known” by all the experts.

 

Recession would be cured by easy money (read: low rates), confidence slowly returns, money begins to flow, fears fall in stages, business gets back on track, investment begins anew, expansion takes hold, confidence rises at an ever-increasing rate, old fears are lost, old lessons forgotten, over-investment begins, too much stuff is being built, everyone who was afraid before is now pedal to the metal – and bang – inflation  arises, then it rises some more as too much activity floods the system, the Fed begins to get nervous, bubble talk seeps into the commentary, then it abounds, rates rise, rates rise further, rates finally choke off growth and….the cycle begins again.

 

I am simplifying of course so forgive me.

 

That was the old world.

 

For years – we have been covering the new world.

 

The world where corners are cut – for the good.  The world where layers disappear.  The world where tech changes everything.  The anywhere, anytime, any place world.

 

The Barbell Economy world.  The Generation Y tectonic shift.

 

While too many worry about the perils of October crashes, the Fed still cannot figure out why inflation is not evident.  Yes, that was the old world.

 

The new world is changing all we “know” about how economies will work in the future.  Expect many “rules” to be broken.  Expect many experts to be confused.  No one has ever experienced the pace of change which is just beginning.  Nowhere in our past have we a “conceptual diagram” of where Gen Y and technology will take us.

 

The waves are set to be huge.

 

We can fear them – or, we can ride them.

 

In a […]

By |September 26th, 2017|Investing|0 Comments

Misunderstood

Good Morning,

 

Hey, watch out – October is almost here.  And, believe it or not, Christmas is 90 days away.  Ouch.  Stunning how fast 2017 has flown by – even as the airwaves are full of things we are supposed to worry about.

 

With Q3 around the corner as well, let’s check in with data for a quick summary of the latest stats.  By the way, they are good.  FactSet tells us this:

 

Earnings Growth: For Q3 2017, the estimated earnings growth rate for the S&P 500 is 4.2%. Eight sectors are expected to report earnings growth for the quarter, led by the Energy sector.

 

Earnings Revisions: On June 30, the estimated earnings growth rate for Q3 2017 was 7.5%. Ten sectors have lower growth rates today (compared to June 30) due to downward revisions to earnings estimates, led by the Energy sector. (normal M.O. as covered before)

 

Earnings Guidance: For Q3 2017, 75 S&P 500 companies have issued negative EPS guidance and 43 S&P 500 companies have issued positive EPS guidance.

 

Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.7.

 

Earnings Scorecard: For Q3 2017 (with 6 companies in the S&P 500 reporting actual results for the quarter), 4 companies have reported positive EPS surprises and 4 companies have reported positive sales surprises.

 

As to surprises and guidance, here is the most interest part of the latest data from FactSet:

 

“A record Number of S&P 500 Companies Have issued Positive Revenue Guidance for Q3”, but it is still early.

 

Recall, we should expect negative EPS guidance as well given the storms so when a big deal is made of same, try hard to look beyond the near-term.

 

Note that so far, by sector, companies in the Information Technology, Health Care, and Consumer […]

By |September 25th, 2017|Investing|0 Comments

That Nagging Feeling

Good Morning,

 

Chatter is increasing as expected over Fed action – or inaction.  I read 5 different articles this morning stating that “we have entered no man’s land for the markets” – with a 70% likelihood prices will fall into the end of the month.

 

Oh great.

 

There is some merit to that if one just studies stats – just as we have hinted in recent morning notes.  However, the deeply-seeded fears remain strong indeed.  That nagging feeling that something must go wrong with stocks tip-toeing around all-time highs is filtering into the entire audience.

 

Even advisors are joining the game now as the latest Investor’s Intelligence data show below.

 

So we know the audience remains fearful.  How?  Check the chart below from Calafia:

Ask yourself this:  How can the prices of two pretty unique assets – gold and the 5-year TIPS (chart above) – track each other so closely for the last decade?

 

Answer:  f.e.a.r.

 

Both are taught to the masses to be safe havens in a storm. As you are aware, TIPS protect you from inflation and default.  Likewise, we are told gold protects you from inflation and systemic collapse.

 

At present, the data tell us that although conditions are better than they were 5 years ago, investors are even now, thousands of points later, still paying a heavy premium for “safety.” Both of these assets have remained in the premium price category, clearly hinting that “risk aversion” is alive and well in the stock market today.

 

More?

 

Sure…let’s check the bond yields.  Even as chatter is high that Fed actions will pressure bonds, the global race for “safety” remains clear.  We still have the highest yield of major economies – by a wide margin.  That is a good thing:

I know – Got any more Mike?

 

Ok, […]

By |September 19th, 2017|Investing|0 Comments

It Doesn’t Matter

Good Morning,

 

As we get closer to the next Fed meeting, expect lots of chatter about how the Fed will or won’t shrink it’s balance sheet or whether or not it will raise rates by 25 basis points.

 

If we happen to be in the middle of any red ink in the market averages at the time, one can fully expect these issues to be in the top 5 reasons for “blame” as the media creates explanations.

 

Let’s put this to rest once and for all:

 

~  The great QE processes from 2009 did not cause the market to go up

 

~ The “taper tantrum” everyone feared when QE “ended” never caused the problems experts said it would

 

~  Tapering of the Fed Balance sheet is not set to be significant enough to cause harsh reactions (based on real-time stats below)

 

Let’s provide a little background to build confidence for the long-term effect of the bullet points above.  Explanations will follow:

This chart above show just how big the daily game of treasury security trade is – expected to only get larger as the wealth of the world expands – which it does routinely.  Now, let’s break that down a little bit.

 

Note the real facts on the Fed’s balance sheet which will be spoken of heavily as we approach the feared “October Crash” market montage:

In other words – if the Fed started reducing their balance sheet right this second – it would be a tiny ripple each day in the overall treasury market’s volume.

 

Background Re-Think

 

First, let’s make sure we recall that many market experts and media participants have spent years attributing the increase in market values to the massive liquidity generated by the QE programs.  As such, one can expect those same experts to suggest that […]

By |September 18th, 2017|Investing|0 Comments

It’s All Good

Good Morning,

 

Funny how things work sometimes.  This weekend as Irma mowed over Florida and thankfully, jogged right around our region – leaving mostly just lost power – I was reminded of a verse from the Sunscreen song:

 

Don’t worry about the future or worry but know that worrying
Is as affective as trying to solve an algebra equation
By chewing bubble gum
The real troubles in your life are apt to be things
That never crossed your worried mind
The kind that blindsides you at 4 p.m. on some idle Tuesday
Be assured, as Max was getting checked in for his new school, the very last thing we were thinking about was a Cat 5 hurricane.

 

I will say this though, and I mean nothing negative here – the Weather Channel guys have almost overtaken the financial channel talking-head guys for the ability to “get attention” as they say. Heck, I’d argue that a few of those guys “on scene” deserve an Academy Award nomination.

 

All jest aside, we wish the very best for all who were in the way of that ugly storm – even as many can be very thankful that it weakened quickly once it hit the state.

 

And Now for The Better Stuff…

 

Hey, not much changed in the last 72 hours.  The investor audience remains very nervous as your sentiment data vividly shows – even as we tip-toe around new records. Just remember, when you are already at a record, one more point is another “record” but not really right?  You get the drift.

 

Also recall, the best selling headline on Wall Street is always going to be about the “thing” that will end the bull market.  It will always be the most hyped, it will always be the toughest to work against […]

By |September 12th, 2017|Investing|0 Comments

Hangover Haze

Good Morning,

 

When is the next break?

 

Ouch, talk about a cold shower.  The symptoms are obvious – it’s back to work.  No rest for the weary and all that stuff.

 

So let us start the thankfully shortened holiday week with a snapshot of all that happened for the last 12 weeks during summer.

 

The world was almost going to end and then,

It was going to possibly be ok – and then,

It was really in a lot of trouble – and then

The trouble subsided.

But then it got worse

And then it got a lot worse

And then it reached levels we had never seen before

And then it set records on many terrible fronts

And then earnings went up to another record high

And the market rose about 1.2%.

 

I summarized of course.

 

In the meantime, the chart below reminds us that a whole lot of bears showed up to snuff out the bulls:

N. Korea ended our summer with a bang and now the entire world is sitting on pins and needles again.  Can one plan for a global catastrophe?  I am not 100% sure one can ever do that.  So we move forward, just like always.

 

The more immediate issue for some will be Hurricane Irma and where it lands.  One hopes Irma weakens as she hits the islands but if not, then the tip of FL is the current target.

 

I would not be surprised to see this week in the markets remain as choppy as the weather appears.

 

Besides, it only took about an hour this morning before I saw the first headline about “how bad the month of September is for stocks…”

 

Just Remember The Good Stuff…

 

The growth rate in real GDP was revised higher last week, from 2.6% to 3.0% for Q2.

 

On a y/y basis, real GDP was up […]

By |September 5th, 2017|Investing|0 Comments
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