Spring Thaw

April 14, 2014

04.14.14 

Last week stocks sold off as investors continued to take profits in biotech and technology shares. The DJIA was down 2.6% for the week and the tech heavy Nasdaq was down 3.2% for the week and 8.2% from its peak March 5.

This week earnings’ reports for the first quarter begin in earnest with reports from Bank of America, Citigroup, Intel, Google, and GE. Earnings overall for the quarter are expected to be 1.2% lower than last year’s quarter due, at least partly, to the bad winter weather.

This morning some good news as U.S. retail sales rose a strong 1.1% in March. This was the largest increase in sales since Sept. 2012. Gains were widespread and particularly strong were auto sales which were up 3.1%. In another bit of good news February sales were revised to a gain of 0.7% up from 0.3%. Consumers seem to like the warmer weather.

“Change your thoughts and you change your world.”
-Norman Vincent Peale

Three Yards and a Cloud of Dust …

April 8, 2014

04.08.14

The markets mostly produced a grinding ~0.5% advance last week, although the Nasdaq fell by -0.7%. Early-week advances were reversed by mixed action on Thursday, but then Friday produced steady declines throughout the day. This was in reaction to retreats by former bellwether sectors [biotech, medtech and IT tech] and uninspiring payroll data.

The Friday jobs report painted a mixed picture of the economy. Unemployment claims continue to suggest ongoing monthly payroll growth of ~200,000. The private sector is producing most of this growth [up 192,000] despite ongoing regulatory drag. Severe weather impacted New England and Mid-Atlantic USA early this year, but steady growth in construction employment [+19,000 in March v. +18,000 in Feb] doesn’t show any country-wide weather-related employment recovery. Note that hours-worked did fall to 34.3 in Feb before rebounding to 34.5 in March.

Sweet April showers

Do spring May flowers – Thomas Tusser

Grinding, Grinding, Grinding …

March 31, 2014

03.31.14

Equity markets continued to grind last week on the heels of mixed economic news and continuing geopolitical tensions. Bond prices moved slightly higher as yields pushed modestly lower. 

For the week, the Dow Jones Industrial Average finished at 16,323.06 to close the week barely higher by 0.12%. The broader-based S&P 500 closed at 1,857.62 for a loss of 0.48% for the week. The Nasdaq Composite closed the week at 4,155.76 for a hefty decline of 2.83% (due to selling in biotech and technology). International markets moved higher as the Dow Jones Global (ex US) Index gained 2.16% for the week (international markets have been pushing higher lately … perhaps playing catch-up to U.S. markets). After last week’s grind, several market averages remain slightly negative for the year-to-date period with the Dow Jones Industrial Average down 1.5% and the NASDAQ lower by 0.5% (the S&P 500 is up 0.5% for the same period). The 10-year Treasury rallied slightly to close the week at a yield of 2.71% … down a bit from last week’s 2.75% yield. 

Economic news released last week was fairly mixed, but there was enough data to support a slightly positive bias in the economy. Among the better-than-expected releases were durable goods orders, initial jobless claims, purchasing manager’s index and consumer confidence. Gross domestic product and pending home sales lagged expectations. Some rays of light within the modestly disappointing GDP numbers were robust consumer spending and business investment during the fourth quarter. News out of China was less-than-satisfactory as their purchasing manager’s index dropped to an eight-month low. Perhaps this soft news out of China prompts the People’s Bank of China to initiate another round of stimulus … time will tell. 

We suspect that the next few months could see more of the same – increased volatility and markets grinding higher and lower on mixed news. First quarter earnings will likely be challenged due to lousy weather over the quarter … analysts have already cut their first quarter earnings estimates by 4.5%, according to FactSet. The next month or so will bring a mixed-bag of quarterly earnings reports … buckle-up. 

Spring is here (even if it doesn’t feel like it) … we suggest investors head outside and take-in some fresh air.

“No winter lasts forever; no spring skips its turn.”
-Hal Borland

 

Laissez Les Bon Temps Rouler

March 24, 2014

03.24.14

 

While there are plenty of issues to keep us up at night-Putin’s Ukraine forays and the sad story of the Malaysian Airliner- there is a happier event to report.  The Fed has completed its recent stress test for the major banks in the United States and 29 of 30 have passed the test.  As a result, we expect many banks and financial institutions to be allowed to raise their dividends and/or buy back their shares.  There will certainly be jockeying between the Fed and the banks, and we should know what will be allowed this week.

 

One of the banks we follow closely is Citicorp which is only paying $.04 per year while earning $4.35 last year.  They seem ready for a substantial increase in dividend. Some of the best capitalized banks were American Express, RBS Citizens, PNC, Wells Fargo and U.S. Bancorp. 

 

We feel confident this will be the year that major banks will be permitted to show shareholders some affection. We’ll find out very soon….ayez de la patience

“Being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderful, that’s what matters to me.”
-Steve Jobs

 

Looking Forward to Spring

March 17, 2014

03.17.14

Last week the S&P 500 suffered its largest weekly loss since late January due to disappointing economic data and uncertainty over the situation in the Ukraine. Most economists are attributing the weaker reports to severe winter weather. The DJIA was down 2.4% for the week and is now down 3.1% YTD. 

This week look for several reports on the housing industry as well as the results of a 2 day Fed meeting. Most people expect the Fed to continue its tapering program by reducing bond purchases by another $10 billion per month. Economic numbers should improve as the weather improves. 

One note of caution is a report in the WSJ that insider selling, when adjusted to only include officers and directors, shows a record level of selling particularly in capital goods, technology, consumer durables and consumer non- durables.

S & P 500 Chart

     An Irish Blessing      

May your troubles be less
And your blessings be more
And nothing but happiness
Come through your door.

 

The Glass is Half-Full!

March 12, 2014

03.12.14

Despite many headwinds and distractions, the market advanced again last week.  The much anticipated payroll data was better than expected: 175,000 jobs were added to nonfarm payrolls in February, and the January revised up by 14%.  The Russian invasion of the Crimean region of the Ukraine (and the US’ impotence) is temporarily on the back burner, although Gazprom’s implied supply disruptions have a lid on European equity performance.

We have referenced the slower-than-typical economic recovery for some time now, and have referenced regulatory drag as the primary problem.  Overall this problem continues, but there are occasional glimmers of hope.  The recent Medicare Part D denouement is a case in point.

HHS proposed a plan to gut this very popular (39M beneficiaries) and very efficient (45% less costly than originally budgeted!!) drug subsidy program first enacted in 2003 (a NIH resentment?). Fortunately, this produced an overwhelming protest [277 groups signed a protest letter and a bipartisan group of 24 Senators rebelled]. Consequently, HHS decided to shelve the plan, at least for now.

Thankfully, Washington DC does occasionally act in the voters’ best interest (at least when sufficient pressure is exerted!). Note that the January market swoon has been more than offset by subsequent strength, such that the S&P 500 is now up 1.6% year-to-date. 

“Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one.”
Thomas Paine

Graham and Buffett

March 3, 2014

03.03.14

It’s around this time of the year when investors start looking for Warren Buffett’s annual letter to the stockholders of Berkshire Hathaway.  As usual there is much to sink your dentures into; we found Buffett’s open dependence on Benjamin Graham’s 1949 book, The Intelligent Investor, noteworthy.  Buffett describes Graham’s ideas as logical, elegant, and easy to understand.  The revised edition of chapters 8 and 20 are the keys to Buffett. In a strange twist, Geico and Burlington Northern or their predecessors were two companies that Graham himself purchased that Mr. Buffett later purchased for Berkshire Hathaway.

Both men place little emphasis on market timing or macro-economic analysis, focusing instead on knowing their companies inside and out.  Buffett is actually pleased by the “capricious” nature of investors, causing them to listen to pundits, and worse yet, acting on their comments.  He is more than happy to buy when all sounds gloomy. Conversely, he remembers Barton Biggs’ famous quote: “A bull market is like sex.  It feels best just before it ends.” Tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values.  A climate of fear is your friend when investing; a euphoric world is your enemy….words of wisdom from Benjamin Graham and Warren Buffet. 

“When one door of happiness closes another opens; but often we look so long at the closed door that we do not see the one which has been opened for us.”
-Helen Keller

Slower Growth

February 24, 2014

02.24.14

Last week U. S. equities edged lower ending a two week winning streak.  The DJIA dropped 0.3% for the week and the S&P 500 was down 0.1% for the week.  This week look for several more reports on the housing markets.  Last week existing home sales fell 5% and housing starts were down 16%. 

This Tuesday the Case-Shiller S&P index should show home prices rose 12% last year.  On Wednesday new home sales for January should show a third monthly decline and on Friday pending home sales could also be down for the eighth consecutive month.  Most analysts are blaming poor housing numbers on the weather but a decline in pending home sales would be troubling as they are considered to be a leading indicator and could portend a slowing in the economy. 

Keep an eye on the economic numbers as the weather gets warmer to see if the economy is still improving.

“When everything seems to be  going against you….remember that the airplane takes off against the wind not with it.”
-Henry Ford

Stormy Weather…..

February 18, 2014

02.18.14

Equity markets were decently higher last week on the heels of mixed economic news. Bond prices moved slightly lower as yields pushed higher. 

For the week, the Dow Jones Industrial Average finished at 16,154.39 to close the week higher by 2.28%. The broader-based S&P 500 closed at 1,838.63 for a gain of 2.32% for the week. The Nasdaq Composite closed the week at 4,244.03 for an advance of 2.86%. International markets also moved higher as the Dow Jones Global (ex US) Index gained 2.05% for the week. Despite last week’s snap-back, market averages remain negative for the year-to-date period with the Dow Jones Industrial Average down 2.5%. The 10-year Treasury sold-off slightly to close the week at a yield of 2.75% … up a bit from last week’s 2.71% yield. 

Most economic news released last week was fairly disappointing, including misses in industrial production, initial jobless claims, retail sales and consumer confidence. Of course, the stormy weather over the past month has taken most of the blame for the swath of weak economic news. Fortunately, investors looked-through the weather-impacted data and pushed markets higher … perhaps taking their cue from Dallas Fed President Richard Fisher who opined that the Fed would continue their tapering of its asset purchase program despite the recent weak economic news. International news provided a breath of fresh air as China’s trade data surprised to the upside. Eurozone GDP was also better-than-expected. 

Fourth quarter earnings season is almost over as 77% of S&P 500 companies have reported. Here’s the breakdown of earnings: 68% reported positive surprises, 21% reported negative surprises and 11% reported in-line numbers. 

Spring is just over a month away … hang-on!

“Don’t knock the weather; nine-tenths of the people couldn’t start a conversation if it didn’t change once in a while.”
-Kim Hubbard

 

The Correction Takes a Breather

February 11, 2014

02.11.14

Last week’s markets were whipsawed by economic uncertainty, which was eventually offset by longer-term optimism. Monday’s higher opening was quickly reversed by a very disappointing ISM Manufacturing Index update.  The result was a closing 2.3% swoon by the S&P 500. However, the rest of the week moved erratically higher, and the weekly tally was a 50 to 80 basis-point advance by the major indices [the Russell 2000 did fall by 1.3%, which is a subject for subsequent market note].

An important factor for equity traders is currently the value of the yen. The yen-based carry trade is most rewarding when the yen falls versus the dollar and stocks simultaneously advance. That is exactly what happened in the second half of last week: the dollar advanced in yen terms and the equity markets were able to move higher. [but is it causation, or just correlation?]

Note that the overall dollar index {the DXY} was slightly negative, that gold advanced, and the stronger 10-year treasury’s yield is back down to 2.68%. The new Fed chair will be testifying Tuesday [recall that new Fed appointees are inevitably tested by markets].These markets continue to be treacherous for traders.

“If you don’t know who your are, the stock market is an expensive place to find out”
– Adam Smith [aka George JW Goodman]