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Yellen’s Jackson Hole Speech
by Scott Brown of Raymond James,
In Jackson Hole, Fed Chair Janet Yellen was not expected to speak much about the current economic outlook or monetary policy. In line with the general theme of the Kansas City Fed’s symposium, she did talk about the Fed’s monetary policy toolkit. However...
A Fictitious Letter to Benjamin Graham, ERPs, Dudley Do-Right, Obamacare, & GaveKal
by Jeffrey Saut of Raymond James,
Dear Ben, I recently read an article that suggested a lower earnings yield may explain why the stock market can continue to go up even though the economy and the S&P 500’s earnings remain sluggish. Moreover, how would you explain the Equity Risk Premium to an investor without a finance degree?
I’m Mad as Hell
by Jeffrey Saut of Raymond James,
So I traveled to Orlando last week to see Orlando, in this case it wasn’t Orlando the city, but Phil Orlando the esteemed portfolio manager for Federated Funds. I have known Phil for years and have always found his insights to be net-worth changing. In fact, a few weeks ago I spent an hour with Phil and his boss Stephen Auth, arguably the smartest guy on Wall Street, but I digress.
GDP, the Labor Market, and the Fed
by Scott Brown of Raymond James,
As if this year hasn’t been odd enough, the advance GDP report for the second quarter presented a strange picture. The headline figure (a 1.2% annual rate) was weaker than expected, due to a sharp slowing in inventories (in fact, inventories actually declined for the first time since 3Q11).
Real GDP: 2Q16 Outlook and Revisions
by Scott Brown of Raymond James,
The economic data arriving this week and next will help to solidify the near-term outlook for growth and monetary policy. There are almost certainly going to be surprises along the way and the financial markets have a tendency to over-react. However, it’s likely that the figures will remain consistent with moderate economic growth.
What now?
by Jeffrey Saut of Raymond James,
I got an email last week that read, “What do I do now?” I replied, “I don’t know what you mean.” She wrote back, “I didn’t buy the February lows that your model told us to buy and I didn’t buy any of the stocks on your ‘buy list’ the Monday following the Brexit Bashing. So what do I do now?” I told her I continue to think we remain in the same secular bull market that began in March of 2009 and I think it has a lot farther to go.
Fed on Hold, but for How Long?
by Scott Brown of Raymond James,
In mid-June, all the Federal Reserve’s 17 senior officials expected at least one increase in short-term interest rates by the end of the year and most were looking for two. Bear in mind, that outlook followed a weak initial payroll figure for May. In contrast, the financial markets have mostly priced out a Fed move for this year. Is the Fed trapped?
I love . . . NYC!
by Jeffrey Saut of Raymond James,
For me, last week began on Sunday night at Michael Jordon’s restaurant in Grand Central Station with some portfolio managers (PMs). The conversation was informative as were the investment ideas exchanged (more on those ideas after I have had time to study them). It was more of the same at breakfast the next day with another PM. Around 11:00 a.m., my colleague (Andrew Adams) arrived to accompany me to Jersey City for a three-hour stint with PMs at the venerable firm of Lord Abbett.
Genius Clusters?
by Jeffrey Saut of Raymond James,
I have been very lucky in my career in terms of the people I have met. Working in New York City in the early 1970s I was fortunate to meet icons like Larry Tisch, Barton Biggs, Marty Zweig, Ace Greenberg, etc. Regrettably, I have lost, and am losing, many of those icons. While working in Washington DC I used to have high tea at the Hay Adams with Jean Kirkpatrick; and at a black tie affair I talked with a gentleman I would have never thought I would like. He was from Massachusetts and was pretty left of center. I talked to him for over an hour and was struck by his witty brilliance. I told him he should run for President and a few years later he did. His name was Paul Tsongas.
The June Employment Report
by Scott Brown of Raymond James,
The monthly job market report is valued for its timeliness and its ability to drive the outlook for a number of sectors, including manufacturing, construction, and retail sales. Still, the figures are statistical estimates and seasonal adjustment is often difficult. The upside surprise in June followed a downside surprise in May. Such large month-to-month swings are unusual, but they do happen from time to time. Yet, if the weak May number was an anomaly, then so too was the figure for June. Job growth appears to have slowed, but not terribly.
Meanwhile, Back at the Ranch…
by Scott Brown of Raymond James,
While the Brexit vote and initial reaction (over-reaction?) is behind us, there will be a lengthy and uncertain process of disentanglement from the European Union. Brexit has dominated the market action, but we should be seeing greater interest in the U.S. data.
Random Gleanings over a Holiday Weekend After an Unusual Week
by Jeffrey Saut of Raymond James,
Now let’s reflect on a few quips we’ve heard this year. Somewhere near the February “lows” a couple of bulge-bracket investment banks told investors to dramatically reduce their exposure to stocks; and one foreign-based investment bank actually said to “sell everything.” Certainly such advice is at odds with Shad’s wisdom. While there are many other examples of such disingenuous market advice, fast forward to the Friday morning following the Brexit vote. Hereto, in their “rush to instantly inform,” many pundits gave disingenuous and even wrong advice. Our advice was to take a deep breath and do nothing that Friday.
Take a Breath
by Jeffrey Saut of Raymond James,
Rudyard Kipling was one of the most popular writers in the United Kingdom in the late 19th and early 20th centuries. Accordingly, today’s quote from him seems appropriate given the U.K.’s vote to secede from the European Union (EU) accompanied by the trouncing of the world’s equity markets Friday morning. That market action brought about instant comments from Wall Street’s gurus about the winners and losers from said vote, as well as instant opinions as to what it all means. I find such a “rush to inform” to be disingenuous and advised folks to sit back and take a breath (a deep breath).
Anarchy in the U.K. / I'm So Bored with the U.S.A.
by Scott Brown of Raymond James,
Caught leaning the wrong way, the financial markets were hit hard by the outcome of the U.K.’s referendum on EU membership. However, the decision to leave the European Union is not a Lehman-type event. A full-blown panic is unlikely and we should see the U.S. market settle down early this week. The outlook for the U.K. economy is not good. Meanwhile, back at home, investors will look to the calendar and collectively yawn.
Tired of Waiting
by Jeffrey Saut of Raymond James,
I did a number of media “hits” last week, yet the question was always the same, “What’s going to happen with the Brexit vote?” As often stated in these missives, “When everyone is asking the same question it is usually the wrong question.” Moreover, I am indeed tired of hearing about the damn Brexit.
Breaking Bad
by Scott Brown of Raymond James,
On June 23, the United Kingdom will vote on whether to remain in the European Union. The vast majority of economists are projecting dire consequences for the U.K. economy if voters decide to leave, with some likely spillover to the rest of the world. Until a few weeks ago, polls had pointed to an easy victory for the “remain” campaign. However, many polls now show the “leave” side ahead. Polls are widely regarded as unreliable, following the inaccuracies ahead of last year’s general election. Betting odds (to date) still favor “remain,” but it may be a photo finish.
Baby Don't Go
by Jeffrey Saut of Raymond James,
The year was 1964 when Reprise Records released the song “Baby Don’t Go.” Written by Sonny Bono, and recorded by Sonny & Cher (Cherilyn “Cher” Sarkisian), the song became a smash hit and set the duo’s career in motion. The repeating lyric in said song is “Baby don’t go, pretty baby please don’t go.” And that’s the song playing in the various streets of the European Union (EU) as the Brits contemplate leaving the coalition on June 23 (Brexit).
A Slowdown in Job Growth
by Scott Brown of Raymond James,
The economy added nearly 697,000 private-sector jobs in May. That’s before seasonal adjustment (in comparison, we added 996,000 in May 2015). One month does not necessarily make a trend, but figures from March and April were revised lower, reinforcing the view that (seasonally adjusted) job growth has slowed. The question, for the Fed and for investors, is why.
Ideas?!
by Jeffrey Saut of Raymond James,
Many of you know the way that I construct portfolios. I typically begin with a base of mutual funds, but not just any mutual fund. I tend to invest in mutual funds where I know the portfolio manager (PM) and like his or her investment style. Then, because I talk to these PMs, I hear lots of good ideas.
Nothing
by Jeffrey Saut of Raymond James,
“Nothin’ from nothin’ leaves nothin’ (Billy Preston)” . . . is the first line from Billy Preston’s hit song “Nothing From Nothing” recorded in 1974 on the album “The Kids & Me.” It was a song one of my bands used to play in an era long gone by. I recalled the tune while reading one market maven’s letter last Tuesday where the author commented that, “Monday was perhaps the nothingest of nothing days.”
On the Other Hand…
by Scott Brown of Raymond James,
The minutes of the April 26-27 Federal Open Market Committee meeting has returned monetary policy to the list of financial market worries. However, while most Fed officials believe that a June rate hike could be in the cards, that doesn’t mean that rates will be raised next month. On the one hand, there are reasons to resume policy normalization. On the other hand, there are reasons to delay. The end results will depend on how the Fed balances the data and the risks.
Retail Sales Figures
by Scott Brown of Raymond James,
Economic data reports are subject to measurement error, statistical noise, and seasonal adjustment difficulties. They should always be taken with a grain of salt. However, that’s not to say that the figures are useless. Rather, they are subject to interpretation. What then do we make of the situation when the hard data conflicts with the anecdotal information?
Penultimate Preparedness
by Jeffrey Saut of Raymond James,
The day after the market crashed on October 19, people began to worry that the market was GOING to crash. It has already crashed and we’d survived it (in spite of our not having predicted it), and now we were petrified there’d be a replay. Those who got out of the market to ensure that they wouldn’t be fooled the next time as they had been the last time were fooled again as the market went up.
John H. Cochrane for President
by Jeffrey Saut of Raymond James,
The erudite professor goes on to note that while the differences between 3.5% growth and 2% may seem small, the resultant consequences are large. For example, by 2008 Americans were three times better off than they were in 1952. He writes, “Real GDP per person rose from $16,000 [per year] to $49,000.” However, if growth in the 1950 to 2000 timeframe was only 2%, instead of 3.5%, the per capita income metrics for that same timeframe would have been just $23,000, not $49,000.
A Closer Look at the April Employment Report
by Scott Brown of Raymond James,
The Employment Report is by far the most important data release for the financial markets. However, investors aren’t always aware that the figures are statistics, reported with a fairly large degree of uncertainty. That raises the possibility of overreactions to what may just be noise. That said, the broad range of job market data is consistent with further improvement in labor conditions. At the same time, we can expect the pace of job growth to slow over time, simply because it has to.
Who Wants Pie?
by Scott Brown of Raymond James,
Productivity growth is perhaps the single most important factor in the economy. Increased output per worker facilitates improvements in the standard of living over time. It’s how our children have a better future. It also helps support corporate profits. What to make then of the current situation, where productivity growth has slowed to a crawl in the U.S. and around the world? Will there be enough pie to go around?
I Think Icahn
by Jeffrey Saut of Raymond James,
Last Thursday was session 53 in the “buying stampede” and it was going along swimmingly. Well, I guess the surprise “no stimulus” announcement out of Japan caused an early morning stutter-step, but the equity markets seemed to stabilize after a somewhat weak opening. In fact it caused one market wizard to comment, “I love this market. Bad earnings can't take it down. Remember, the move most people least expect is the DJIA going right through all of that overhead supply and making all-time new highs. I'm in the minority camp, expecting major new highs. Buy in May and don't go away!”
Wait Until You Get a Pitch Right Where You Want It!
by Jeffrey Saut of Raymond James,
One of the most successful investors in history received the only A+ from Professor Benjamin Graham (of Graham and Dodd “Security Analysis” fame) at Columbia: the chairman and chief executive officer at Berkshire Hathaway, Inc., which traded as low as $38 per share in the early 1970s and now trades around $219,000 per share. If you haven’t guessed who by now, it’s Warren Buffett. How does he do it?
The Fed, the Dollar, and Trade Activity
by Scott Brown of Raymond James,
Financial markets have some tendency to over-react to news and the increased globalization of financial markets means that things can now get out of hand a lot more quickly on a global scale. Minor shifts in the Fed policy outlook have had a large impact on exchange rates. The strengthening of the dollar has had an outsized impact on commodity prices. However, shifts in the financial markets can themselves have important effects on economic conditions. It’s enough to make your head spin.
Shad Rowe
by Jeffrey Saut of Raymond James,
For years, when I was living in Virginia, I attended the annual Shad Planking. This morning, however, I am not referring to Virginia’s “Shad Planking,” but rather my friend Frederick “Shad” Rowe, captain of the Dallas-based money management firm Greenbrier Partners. Back in the 1970s/1980s I used to read Shad’s sage comments in Forbes Magazine, but regrettably he is no longer a contributor. He now writes an insightful letter to investors in his partnership every month, which I very much look forward to. This month’s letter was no exception.
Expecting Mixed Economic Data
by Scott Brown of Raymond James,
The broad range of data suggests that the U.S. economy slowed in the first quarter. It’s more likely that this is merely “a slow patch” than the start of a more substantial downturn (not gonna use the r-word). The mixed nature of the economic data allows one to make any particular argument one wants and the noise is likely to add to market volatility in the near term.
Never on a Friday
by Jeffrey Saut of Raymond James,
“Never on a Friday” is one of the mantras that has served me well over the years. Long time readers of these letters know its meaning. To wit, when the equity markets are involved in a pullback attempt they rarely bottom on a Friday. Nope, they tend to give participants time over the weekend to brood about their losses, tell their wives they can no longer buy the new Mercedes Benz (which makes for a pretty tense weekend), and consequently return to The Street of Dreams on Monday/Tuesday in “sell mode.” That sequence typically leads to the phrase “Turning Tuesday” implying the market bottoms either late in Monday’s trading session, or early the next day.
The Economic Outlook and the Fed
by Scott Brown of Raymond James,
The first quarter’s market action was driving by the escalation of fear and the ebbing of that fear, ending with expectations of “more of the same” – that is, mixed but moderate economic growth and a very gradual pace of Fed tightening.
The Philosophy of Tops
by Jeffrey Saut of Raymond James,
Most of the time when I drudge up “The Philosophy of Tops” it is to warn of a pending market “top.” The operative line from Justin’s quip is, “One rule about tops is not that they provide this or that signal, but that they come before anyone is ready.” Manifestly, “[tops] come before anyone is ready!” But, currently EVERYONE is ready, either calling for a market “top,” or a continuation of the trading range market. I see very few of us who are suggesting that we remain in a secular bull market, and in bull markets most of the surprises come on the upside.
Can Manufacturing Jobs Come Back?
by Scott Brown of Raymond James,
The leading presidential candidates of both parties have pledged to bring manufacturing jobs back to America. It’s unclear exactly how this will be done or even whether it can be done. However, the sentiment has hit a nerve with many voters. The more important problem will be to figure out where the economy is headed over the long term and how to prepare the workforce for the future.
Panic?
by Jeffrey Saut of Raymond James,
The markets (any market) are seldom surprised by shocking events. But during those rare instances when the market is caught by a surprise a panic may result. My own definition of a panic is this:
A panic is a collapse (triggered by fear and unforeseen circumstances) which causes the price of the item to fall precipitously within a short span of time. That’s a loose definition but it will do.
The Conference
by Jeffrey Saut of Raymond James,
Last week, we watched a 2012 interview with Jeff Bezos, Amazon’s chief executive. Bezos noted that he was frequently asked what he thought was going to change in the next ten years. His response was that the more important question would be “What is not going to change in the next ten years?”
Turn, Turn, Turn
by Scott Brown of Raymond James,
The story goes that tighter Fed policy has strengthened the dollar, the stronger dollar has led to lower prices of oil and other commodities, and the drop in oil prices contributed to stock market weakness in January and February. However, stock market movements cannot be attributed wholly to the price of oil, the price of oil cannot by tied completely to the dollar, and the dollar’s strength has not been due entirely to monetary policy. Examining these links more closely may provide some insight into where we are heading in the months ahead.
A Banana?!
by Jeffrey Saut of Raymond James,
When Herb Stein, chairman of the Council of Economic Advisers in the Gerald Ford administration, was admonished by his boss not to use the word "recession" to describe a recession, he complied, reluctantly. "From now on," he told a group of economic reporters, "I won't use the word recession. I'll say 'banana.' When I say banana, think 'recession'. I think we must be wary of the risks of a banana."
U.S. vs. The World
by Scott Brown of Raymond James,
The recent economic data reports have continued to reflect the mix of global softness and domestic strength. The economy has continued to add jobs at a relatively strong pace in early 2016, although the real test for the job market will come over the next few months. The job market is getting tighter and, despite a dip in hourly earnings, wage trends are higher. January trade data, overshadowed by the employment report, suggest a larger drag on GDP growth in 1Q16, but the consumer should carry us through into the second half of the year.
Nothing Recedes Like Recession
by Scott Brown of Raymond James,
Recent economic data reports have been mixed, but generally consistent with moderate economic growth in the near term. That won’t stop investors from worrying. The overall theme of domestic strength vs. global softness is going to continue. However, there are likely to be some important issues in the job market and dilemma for Fed policy in the months ahead.
By the Side of the Road
by Jeffrey Saut of Raymond James,
A man lived by the side of the road and sold hot dogs. He was hard of hearing, so he had no radio. He had trouble with his eyes, so he had no newspapers, but he sold hot dogs. He put up a sign on the highway, telling how good they were. He stood by the side of the road and cried, ‘Buy a hot dog, mister’ and people bought.
Results 951–1,000
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